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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 JUNE 30, 2001 Commission File Number 333-42638
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NRG NORTHEAST GENERATING LLC
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(Exact name of registrant as specified in its charter)
Delaware 41-1937472
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Marquette Avenue, Suite 2300 Minneapolis, MN 55402
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 373-5300
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Former name, former address and former fiscal year, if changed since last report
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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The Registrant meets the conditions set forth in general instruction H
(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
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INDEX
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PAGE NO.
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PART I
Item 1 Consolidated Financial Statements and Notes
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Member's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
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
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CONSOLIDATED STATEMENTS OF INCOME
NRG NORTHEAST GENERATING LLC
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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(In thousands) 2001 2000 2001 2000
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OPERATING REVENUES
Revenues $ 270,819 $ 284,054 $ 546,551 $ 527,554
OPERATING COSTS AND EXPENSES
Operating costs 221,531 190,004 416,920 350,714
Depreciation and amortization 12,332 11,994 24,315 24,046
General and administrative expenses 4,927 4,351 9,108 8,702
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OPERATING INCOME 32,029 77,705 96,208 144,092
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OTHER INCOME (EXPENSE)
Other income, net 701 839 1,291 1,166
Interest expense (15,045) (16,211) (30,336) (33,980)
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NET INCOME $ 17,685 $ 62,333 $ 67,163 $ 111,278
============================================
See accompanying notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
NRG NORTHEAST GENERATING LLC
(UNAUDITED)
JUNE 30, DECEMBER 31,
(In thousands) 2001 2000
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ASSETS
Current assets
Cash and cash equivalents $ 24,725 $ 2,444
Accounts receivable, net of allowance for doubtful
accounts of $8,165 and $8,165 67,928 157,660
Inventory 161,233 107,859
Prepaid expenses and other current assets 32,687 20,697
--------------------------
Total current assets 286,573 288,660
--------------------------
Property, plant and equipment, net 1,414,230 1,427,078
Deferred finance costs, net of accumulated amortization of $549 and
$341 9,606 9,616
Other Assets, net of accumulated amortization of $1,303 and $870 113,619 25,130
--------------------------
TOTAL ASSETS $ 1,824,028 $ 1,750,484
==========================
See accompanying notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
NRG NORTHEAST GENERATING LLC
(UNAUDITED)
JUNE 30, DECEMBER 31,
(In thousands) 2001 2000
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LIABILITIES AND MEMBER'S EQUITY
Current liabilities
Current portion of long-term debt $ 98,500 $ 90,000
Accounts payable - trade 1,914 3,914
Accounts payable - affiliates 201,483 146,894
Accrued interest 14,375 2,551
Accrued fuel and purchased power expenses 45,575 38,386
Other current accrued liabilities 43,971 49,607
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Total current liabilities 405,818 331,352
Long-term debt 556,500 610,000
Other long-term liabilities 20,495 20,817
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Total liabilities 982,813 962,169
Commitments and contingencies
Member's equity 841,215 788,315
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TOTAL LIABILITIES AND MEMBER'S EQUITY $ 1,824,028 $ 1,750,484
===========================
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF MEMBER'S EQUITY
NRG NORTHEAST GENERATING LLC
(UNAUDITED) ACCUMULATED
MEMBER OTHER TOTAL
CONTRIBUTIONS/ ACCUMULATED COMPREHENSIVE MEMBER'S
(In thousands) DISTRIBUTIONS NET INCOME INCOME EQUITY
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BALANCES AT DECEMBER 31, 1999 $ 927,148 -- -- $ 927,148
=======================================================
Net income -- 111,278 -- 111,278
Distributions to member, net (117,668) -- -- (117,668)
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BALANCES AT JUNE 30, 2000 $ 809,480 $ 111,278 -- $ 920,758
=======================================================
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BALANCES AT DECEMBER 31, 2000 $ 450,659 $ 337,656 -- $ 788,315
=======================================================
Cumulative effect upon adoption of SFAS No. 133 -- -- 14,100 14,100
Impact of SFAS No. 133 for the period ending
June 30, 2001 -- -- 107,637 107,637
Net income -- 67,163 -- 67,163
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Comprehensive income -- 67,163 121,737 188,900
Distributions to member, net (136,000) -- -- (136,000)
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BALANCES AT JUNE 30, 2001 $ 314,659 $ 404,819 $ 121,737 $ 841,215
=======================================================
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
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(In thousands) 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 67,163 $ 111,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 24,315 24,046
Amortization of deferred financing costs 208 3,295
Unrealized gains on energy contracts 37,739 --
Changes in assets and liabilities:
Accounts receivable, net 89,732 (59,770)
Inventory (53,374) (20,194)
Prepayments and other current assets (11,990) (1,743)
Accounts payable - trade (2,000) (668)
Accounts payable-affiliates 54,589 (46,233)
Accrued interest 11,824 1,587
Accrued fuel and purchased power expense 7,189 25,678
Other current liabilities (10,560) 18,464
Other assets and liabilities 111 21,033
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NET CASH PROVIDED BY OPERATING ACTIVITIES 214,946 76,773
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (11,467) (15,602)
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NET CASH USED IN INVESTING ACTIVITIES (11,467) (15,602)
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to members (136,000) (117,668)
Deferred finance costs (198) (8,865)
Proceeds from issuance of long-term debt -- 750,000
Principal payments on long-term debt (45,000) (682,330)
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NET CASH USED IN FINANCING ACTIVITIES (181,198) (58,863)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 22,281 2,308
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,444 10,551
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,725 $ 12,859
==============================
See accompanying notes to consolidated financial statements.
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NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NRG Northeast Generating LLC (the Company) owns electric power
generating plants in the northeastern region of the United States. The
Company was formed for the purpose of financing, acquiring, owning,
operating and maintaining, through its subsidiaries, the facilities owned by
Arthur Kill Power LLC, Astoria Gas Turbine Power LLC, Connecticut Jet Power
LLC, Devon Power LLC, Dunkirk Power LLC, Huntley Power LLC, Middletown Power
LLC, Montville Power LLC, Norwalk Harbor Power LLC, Oswego Harbor Power LLC
and Somerset Power LLC. The Company is an indirect wholly owned subsidiary
of NRG Energy, Inc. (NRG Energy), a Delaware corporation. Additional
information regarding the Company can be found in NRG Energy's Form 10-Q for
the six months ended June 30, 2001.
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 June 30,
2001 and December 31, 2000, the results of its operations for the three and
six months ended June 30, 2001 and 2000, and its cash flows and members'
equity for the six months ended June 30, 2001 and 2000.
1 - SHORT TERM BORROWINGS
On February 21, 2001, the Company renewed, for 90-days, its $50 million
floating rate working capital revolving facility. As of May 22, 2001, the
facility expired with no outstanding balance and was not renewed by the
Company.
2 - COMMITMENTS AND CONTINGENCIES
As of June 30, 2001, the Company had approximately $10.5 million of
disputed revenues. The Company is actively pursuing resolution and/or
collection of these amounts. The contingent revenues relate to the
interpretation of certain transmission power sales agreements and certain
sales to the New York Power Pool and New England Power Pool, conflicting
meter readings, pricing of firm sales and other power pool reporting issues.
These amounts have not been recorded in the financial statements and will
not be recognized as income until disputes are resolved and collection is
assured. At December 31, 2000, $13.1 million of disputed revenues were
recorded. During the six months ended June 30, 2001, $3.1 million of
disputed revenues were collected and recognized, and $0.5 million of new
disputed revenues were added.
3 - INVENTORY
Inventory, which is stated at the lower of weighted average cost or
market, consisted of:
(IN THOUSANDS) JUNE 30, 2001 DECEMBER 31, 2000
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Fuel oil $ 80,254 $ 47,616
Spare parts 55,687 55,277
Coal 22,967 3,435
Kerosene 1,273 1,523
Natural Gas 1,045 --
Other 7 8
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TOTAL $ 161,233 $ 107,859
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4 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, Plant and Equipment consisted of:
(IN THOUSANDS) JUNE 30, 2001 DECEMBER 31, 2000
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Facilities, machinery and
equipment $ 1,436,490 $ 1,425,274
Land 51,920 51,917
Construction in progress 14,293 13,234
Office furnishings and equipment 630 1,441
Accumulated depreciation (89,103) (64,788)
------------------------------------
Property, Plant and Equipment,
net $ 1,414,230 $ 1,427,078
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5 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY
During the three and six month periods ended June 30, 2001, the Company
recorded a gain in OCI of approximately $28.5 million and $101.5 million,
respectively. These gains related to favorable changes in fair values of the
derivatives accounted for as hedges recorded on January 1, 2001. Also during
the three and six month periods ended June 30, 2001, the Company
reclassified from OCI into earnings $(0.9) million and $(6.1) million,
respectively, of accumulated net derivative losses. The net balance in OCI
relating to SFAS No. 133 as of June 30, 2001 was a gain of approximately
$121.7 million. Unrealized gains and losses on derivatives are recorded in
other current and long-term assets and liabilities.
The Company's earnings for the three and six month periods ended June
30, 2001 were decreased by an unrealized loss of $38.9 million and $37.7
million, respectively, 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 and one long-term power sales contract
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, fuel is consumed etc. No
ineffectiveness was recognized on commodity cash flow hedges during the
three and six month periods ended June 30, 2001. No gains or losses were
recognized related to derivative instruments excluded from the assessment of
effectiveness. At June 30, 2001, the Company had various commodity related
contracts extending through December 2003 and one long-term fixed-price
electricity sales contract extending through 2003. The Company expects to
reclassify into earnings during the next twelve months net gains from OCI of
approximately $37.9 million.
6 - REGULATORY ISSUES
On May 31, 2000, FERC approved a request of the NYISO, to impose price
limitations on one ancillary service, Ten Minute Non-synchronized Reserves,
on a prospective basis only, effective March 28, 2000, the date the NY ISO
began capping bids for that service. FERC rejected the NY ISO's request for
authority to adjust the market-clearing prices for that service on a
retroactive basis. The NYISO has sought reconsideration of the FERC Order.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition is omitted
per conditions as set forth in General Instructions H (1) (a) and (b) of Form
10-Q for wholly owned subsidiaries. It is replaced with management's narrative
analysis of the results of operations as permitted by General Instructions H (2)
(a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format). This
analysis will primarily compare the Company's revenue and expense items for the
quarter and six months ended June 30, 2001 with the quarter and six months ended
June 30, 2000.
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 2000
OPERATING REVENUES
For the six months ended June 30, 2001, the Company had total revenues
of $546.6 million, compared to $527.6 million for the six months ended June 30,
2000. This represents an increase of $19.0 million or 3.6%. The increase is due
to higher per megawatt prices realized in the first six months of 2001 as
compared with the same period in 2000, offset to a lesser extent, by slightly
lower generation levels in the six months of 2001 as compared to the same period
in 2000.
OPERATING COSTS AND EXPENSES
Operating costs were $416.9 million for the six months ended June 30,
2001, which is an increase of $66.2 million, or 18.9% over the same period in
2000. Operating costs consisted of expenses for fuel, and plant operations and
maintenance. The increase in operating costs is due primarily to $37.7 million
of unrealized losses on energy contracts during the six months ended June 30,
2001. The remainder of the increase is due to a general market increase in fuel
procurement costs and increased maintenance expense for scheduled plant outages
during the first half of 2001 as compared to the same period in 2000.
Fuel expense for the six months ended June 30, 2001 was $256.9 million,
compared to $238.2 million for the six months ended June 30, 2000. Fuel expense
for the six months ended June 30, 2001 represents 47.0% of revenues. This
includes $64.9 million of coal, $73.9 million of natural gas and $118.1 million
of fuel oil, diesel and other related costs for the six months ended June 30,
2001.
Plant operations and maintenance expense for the six months ended June
30, 2001 was $122.3 million, compared to $112.5 million for the six months ended
June 30, 2000. Plant operations and maintenance expense for the six months ended
June 30, 2001 represents 22.2% of revenues and includes labor and benefits under
operating service agreements of $35.7 million, maintenance parts, supplies and
services of $51.5 million and property taxes and other expenses of $35.1
million, for the six months ended June 30, 2001.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs were $24.3 million for the six
months ended June 30, 2001, which is a increase of 1.1% from the same period in
2000. The depreciation expense was primarily related to the acquisition costs of
the facilities, which are being depreciated over twenty-five to thirty years.
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $9.1 million for the six months
ended June 30, 2001, which is an increase of 4.7% over the six months ending
June 30, 2000. General and administrative expenses include costs for outside
legal and other contract services, payments to NRG Energy for corporate
services, expenses related to office administration, as well as costs for
certain employee benefits incurred under operating service agreements. General
and administrative expenses represent 1.7% of revenues for the six months ended
June 30, 2001.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 2001 was $30.3
million, which is a decrease of $3.6 million, or 10.7% from the same period in
2000. The interest expense relates to amortization of deferred finance costs and
interest on the $750 million of senior secured bonds issued on February 22,
2000. The decrease in interest expense is due primarily to the write-off, in
February 2000, of the remaining unamortized deferred finance costs on short-term
project borrowings coupled with a decline in average outstanding debt in the six
months ended June 30, 2001 versus the six months ended June 30, 2000.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2001 COMPARED TO THE QUARTER ENDED
JUNE 30, 2000
OPERATING REVENUES
For the quarter ended June 30, 2001, the Company had total revenues of
$270.8 million, compared to $284.1 million for the quarter ended June 30, 2000.
This represents a decrease of $13.3 million or 4.7%. The decrease is due to
15.6% reduction in generation levels in the second quarter of 2001 due to cooler
temperatures and thus lower electricity demand partially offset by higher per
megawatt prices realized, as compared to the second quarter of 2000.
OPERATING COSTS AND EXPENSES
Operating costs were $221.5 million for the quarter ended June 30, 2001,
which is an increase of $31.5 million, or 16.6% over the same period in 2000.
Operating costs consisted of expenses for fuel, and plant operations and
maintenance. The increase in operating costs is due primarily to $38.9 million
of unrealized losses on energy contracts during the six months ended June 30,
2001.
Fuel expense for the quarter ended June 30, 2001 was $117.3 million,
compared to $131.1 million for the quarter ended June 30, 2000. Fuel expense for
the quarter ended June 30, 2001 represents 43.3% of revenues. This includes
$28.4 million of coal, $51.9 million of natural gas and $37.0 million of fuel
oil, diesel and other related costs for the quarter ended June 30, 2001. The
decrease in fuel costs is due to lower generating levels during the three months
ended June 30, 2001.
Plant operations and maintenance expense for the quarter ended June 30,
2001 was $65.3 million, compared to $59.1 million for the quarter ended June 30,
2000. Plant operations and maintenance expense for the quarter ended June 30,
2001 represents 24.1% of revenues and includes labor and benefits under
operating service agreements of $17.7 million, maintenance parts, supplies and
services of $29.9 million and property taxes and other expenses of $17.7
million, for the quarter ended June 30, 2001.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs were $12.3 million for the quarter
ended June 30, 2001, which is an increase of $0.3 million, or 2.8% from the same
period in 2000. The depreciation expense was primarily related to the
acquisition costs of the facilities, which are being depreciated over
twenty-five to thirty years.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $4.9 million for the quarter
ended June 30, 2001, which is an increase of $0.6 million from the six months
ending June 30, 2000. General and administrative expenses include costs
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for outside legal and other contract services, payments to NRG Energy for
corporate services, expenses related to office administration, as well as costs
for certain employee benefits incurred under operating service agreements.
General and administrative expenses represent 1.8% of revenues for the quarter
ended June 30, 2001.
INTEREST EXPENSE
Interest expense for the quarter ended June 30, 2001 was $15.0 million,
which is a decrease of $1.2 million, or 7.2% from the same period in 2000. The
interest expense relates to amortization of deferred finance costs and interest
on the $750 million of senior secured bonds issued on February 22, 2000. The
decrease in interest expense is due to scheduled debt repayments which result in
a decline in average outstanding debt in the quarter ended June 30, 2001 versus
the quarter ended June 30, 2000.
ENVIRONMENTAL ISSUES
The Massachusetts Department of Environmental Protection has recently
finalized regulations requiring emissions reductions from certain coal fired
power plants in the state, including NRG Energy's Somerset facility. The new
rules impose phased deadlines for achieving annual and monthly emission rate
reductions of SO2 and nitrogen oxides (NOx). NRG Energy believes that the new
regulations require it by October 1, 2006 to reduce annual SO2 emission rates by
about 50% of its current emission rate; by October 1, 2008, NRG Energy would be
required to reduced its annual emission rates by about 75% of its current
emission rate. The new regulations allow flexibility in determining how to best
meet such requirements. The new rules require that NRG Energy reduce by October
1, 2006 its annual NOx emission rate by about 60% of its current emission rate.
In the case of NOx, NRG Energy does not anticipate to have problems meeting
monthly emission rate limits; however, to meet the monthly SO2 emission rate
limits, NRG Energy will likely need to purchase more expensive fuel that has a
lower sulfur content and be required to make modifications to its facilities in
order to burn such fuel. The new Massachusetts regulations starting in 2006 also
cap annual emissions of carbon dioxide (CO2) at historical levels and the rate
at which CO2 is emitted; the new regulations allow flexibility in achieving
compliance with the reductions required. The annual CO2 emission rate reduction
required represents approximately a 20% decrease from current levels. NRG Energy
is evaluating its compliance options under the new regulations. Such compliance
could have a material adverse impact on its Massachusetts facilities.
NEW ACCOUNTING PRONOUNCEMENTS
Derivative Instruments and Hedging Activity
During the three and six month periods ended June 30, 2001, the Company
recorded a gain in OCI of approximately $28.5 million and $101.5 million,
respectively. These gains related to favorable changes in fair values of the
derivatives accounted for as hedges recorded on January 1, 2001. Also during the
three and six month periods ended June 30, 2001, the Company reclassified from
OCI into earnings $(0.9) million and $(6.1) million, respectively, of
accumulated net derivative losses. The net balance in OCI relating to SFAS No.
133 as of June 30, 2001 was a gain of approximately $121.7 million. Unrealized
gains and losses on derivatives are recorded in other current and long-term
assets and liabilities.
The Company's earnings for the three and six month periods ended June
30, 2001 were decreased by an unrealized loss of $38.9 million and $37.7
million, respectively, relating to derivative instruments not accounted for as
hedges in accordance with SFAS No. 133.
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SFAS No. 133 applies to the Company's energy and energy related
commodities financial instruments and one long-term power sales contract 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, fuel is consumed etc. No ineffectiveness was recognized on commodity
cash flow hedges during the three and six month periods ended June 30, 2001. No
gains or losses were recognized related to derivative instruments excluded from
the assessment of effectiveness. At June 30, 2001, the Company had various
commodity related contracts extending through December 2003 and one long-term
fixed-price electricity sales contract extending through 2003. The Company
expects to reclassify into earnings during the next twelve months net gains from
OCI of approximately $37.9 million.
Business Combinations, Goodwill and Other Intangible Assets
In July 2001, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142, "Goodwill
and Other Intangible Assets". SFAS 141 requires that the purchase method of
accounting be used for all business combinations subsequent to June 30, 2001 and
specifies criteria for recognizing intangible assets acquired in a business
combination. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. Intangible assets with definite useful lives will
continue to be amortized over their respective estimated useful lives. The
Company plans to adopt the provisions of SFAS No. 141 and 142 effective July 1,
2001 and January 1, 2002, respectively. The Company does not expect that the
implementation of these guidelines will have a material impact on its
consolidated financial position or results of operations.
CONTINGENT REVENUES
As of June 30, 2001, the Company had approximately $10.5 million of
disputed revenues. The Company is actively pursuing resolution and/or collection
of these amounts. The contingent revenues relate to the interpretation of
certain transmission power sales agreements and certain sales to the New York
Power Pool and New England Power Pool, conflicting meter readings, pricing of
firm sales and other power pool reporting issues. These amounts have not been
recorded in the financial statements and will not be recognized as income until
disputes are resolved and collection is assured. At December 31, 2000, $13.1
million of disputed revenues were recorded. During the six months ended June 30,
2001, $3.1 million of disputed revenues were collected and recognized, and $0.5
million of new disputed revenues were added.
FORWARD-LOOKING STATEMENTS
The information presented in this Form 10-Q includes forward-looking
statements in addition to historical information. These Statements involve known
and unknown risks and relate to future events, or projected business results. In
some cases forward-looking statements may be identified by their use of such
words as "may," "expects," "plans," "anticipates," "believes," and similar
terms. Forward-looking statements are only predictions, and actual results may
differ materially from the expectations expressed in any forward-looking
statement. While the Company 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 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 or currency
exchange rate fluctuations;
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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, NRG Northeast 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 Increased competition in the power generation industry;
o Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
o Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
o Factors associated with various investments including competition,
operating risks, dependence on certain suppliers and customers, and
environmental and energy regulations;
o Other business or investment considerations that may be disclosed from time
to time in our Securities and Exchange Commission filings or in other
publically disseminated written documents including NRG Northeast's
Registration Statement No. 333-42638, as amended.
NRG Northeast 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
Northeast's actual results to differ materially from those contemplated in any
forward-looking statements included in this Form 10Q should not be construed as
exhaustive.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
FORTISTAR CAPITAL V. NRG ENERGY
In July, 1999, Fortistar Capital Inc., a Delaware corporation, filed a
complaint in District Court (Fourth Judicial District, Hennepin County) in
Minnesota against NRG Energy, asserting claims for injunctive relief and for
damages as a result of NRG Energy's alleged breach of a confidentiality letter
agreement with Fortistar relating to the Oswego facility from Niagra Mohawk
Power Corporation (NiMo) and Rochester Gas and Electric Company.
NRG Energy disputed Fortistar's allegations and has asserted numerous
counterclaims. NRG Energy has counterclaimed against Fortistar for breach of
contract, fraud and negligent misrepresentations and omissions, tortious
interference with contract, prospective business opportunities and prospective
contractual relationships, unfair competition and breach of the covenant of good
faith and fair dealing. NRG Energy seeks, among other things, dismissal of
Fortistar's complaint with prejudice and rescission of the letter agreement.
A temporary injunction hearing was held on September 27, 1999. The
acquisition of the Oswego facility was closed on October 22, 1999, following
notification to the court of Oswego Power's and NiMo's intention to close on
that date. On January 14, 2000, the court denied Fortistar's request for a
temporary injunction. In April and December, 2000, NRG Energy filed a summary
judgment motion to dispose of the litigation. A hearing on these motions was
held in April 2001 and certain of Fortistar's claims were dismissed. A trial
date in February 2002 has been set in respect of the remaining claims. NRG
Energy intends to continue to vigorously defend the suit and believes
Fortistar's complaint to be without merit.
NEW YORK DEPARTMENT OF ENVIRONMENTAL CONSERVATION NOTICE OF VIOLATION
On May 25, 2000, the New York Department of Environmental Conservation
issued a Notice of Violation to NRG Energy and NiMo, the prior owner of the
Huntley and Dunkirk facilities relating to physical changes made at those
facilities prior to NRG Energy's assumption of ownership. The Notice of
Violation alleges that these changes represent major modifications undertaken
without obtaining the required permits. Although NRG Energy has a right to
indemnification by the previous owner for fines, penalties, assessments, and
related losses resulting from the previous owner's failure to comply with
environmental laws and regulations, if these facilities did not comply with the
applicable permit requirements, NRG Energy could be required, among other
things, to install specified pollution control technology to further reduce air
emissions from the Dunkirk and Huntley facilities and NRG Energy could become
subject to fines and penalties associated with the current and prior operation
of the facilities. On May 14, 2001, NRG Energy received a notice of intent to
sue from the New York Attorney General pursuant to section 304 of the Clean Air
Act ("the Act") of the State's intent to file suit against NRG Energy and NiMo
in federal district court for violations of the Act unless a settlement is
reached within 60 days. NRG Energy is currently in settlement discussions with
the Department of Environmental Conservation and the States Attorney General's
office and the State has not filed suit.
On July 13, 2001, NiMo filed a declaratory judgment action in the
Supreme Court for the State of New York, County of Onondaga, against NRG Energy,
Dunkirk Power LLC and Huntley Power LLC (collectively the "defendants"), to
request a declaration by the court that, pursuant to the terms of the asset
sales agreement under which NRG Energy purchased the Huntley and Dunkirk
facilities from NiMo (the "ASA"), defendants have assumed liability for any
costs for the installation of emissions controls or other modifications to or
related to the Huntley and Dunkirk plants imposed as a result of violations or
alleged violations of environmental law.
STATION USE POWER
On September 21, 2000, Dunkirk Power LLC (Dunkirk), Huntley Power LLC
(Huntley) and Oswego Harbor Power LLC (Oswego) filed an action before FERC
seeking its declaration that they are entitled to pay NiMo wholesale prices for
the power consumed at their respective generating facilities, rather than paying
for such station power at retail rates, as NiMo alleges is required. On
September 28, 2000, NiMo filed separate actions against Dunkirk, Huntley and
Oswego in the State Supreme Court of New York, seeking in total, payment of
approximately $7.0 million, which NiMo asserts is due under such retail tariff.
The FERC rendered a decision on March 14, 2001, determining that certain types
of station use power are not subject to retail tariffs and granting some relief
sought by Dunkirk, Huntley and Oswego. Legal counsel is evaluating the impact of
the ruling on the merits of the NiMo litigation.
There are no other material legal proceedings pending, to which the
Company is a party. There are no legal proceedings to which an officer or
director is a party or has a material interest adverse to the Company. There are
no other material administrative or judicial proceedings arising under
environmental quality or civil rights statutes pending or known to be
contemplated by governmental agencies to which the Company is or would be a
party.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NRG Northeast Generating LLC
(Registrant)
/s/ Craig A. Mataczynski
-----------------------------------------
Craig A. Mataczynski, President
/s/ Brian B. Bird
-----------------------------------------
Brian B. Bird, Treasurer
(Principal Financial Officer)
Date: August 14, 2001
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