UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Exact name of registrants as specified
in their charters, state of incorporation, IRS Employer
Commission address of principal executive offices Identification
File Number and registrants' telephone number Number
33-87902 ESI TRACTEBEL FUNDING CORP. 04-3255377
(a Delaware corporation)
33-87902-02 NORTHEAST ENERGY ASSOCIATES, 04-2955642
A LIMITED PARTNERSHIP
(a Massachusetts limited partnership)
33-87902-01 NORTH JERSEY ENERGY ASSOCIATES, 04-2955646
A LIMITED PARTNERSHIP
(a New Jersey limited partnership)
333-52397 ESI TRACTEBEL ACQUISITION CORP. 65-0827005
(a Delaware corporation)
333-52397-01 NORTHEAST ENERGY, LP 65-0811248
(a Delaware limited partnership)
c/o FPL Energy, LLC
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 691-7171
Indicate by check mark whether the registrants (1) have 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 and (2) have been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 31, 2001, there were issued and outstanding 10,000 shares of ESI
Tractebel Funding Corp.'s common stock.
As of July 31, 2001, there were issued and outstanding 20 shares of ESI
Tractebel Acquisition Corp.'s common stock.
_________________________
This combined Form 10-Q represents separate filings by ESI Tractebel
Funding Corp., Northeast Energy Associates, A Limited Partnership, North
Jersey Energy Associates, A Limited Partnership, ESI Tractebel Acquisition
Corp. and Northeast Energy, LP. Information contained herein relating to an
individual registrant is filed by that registrant on its own behalf. Each
registrant makes representations only as to itself and makes no
representations whatsoever as to any other registrant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), ESI Tractebel Funding Corp.
(Funding Corp.), Northeast Energy Associates, A Limited Partnership (NEA)
and North Jersey Energy Associates, A Limited Partnership (NJEA)
(collectively, the Partnerships), ESI Tractebel Acquisition Corp.
(Acquisition Corp.) and Northeast Energy, LP (NE LP) (all five entities
collectively, the Registrants) are hereby filing cautionary statements
identifying important factors that could cause the Registrants' actual
results to differ materially from those projected in forward-looking
statements (as such term is defined in the Reform Act) made by or on behalf
of the Registrants in this combined Form 10-Q, in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of
words or phrases such as will likely result, are expected to, will
continue, is anticipated, estimated, projection, outlook) are not
statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties. Accordingly,
any such statements are qualified in their entirety by reference to, and
are accompanied by, the following important factors that could cause the
Registrants' actual results to differ materially from those contained in
forward-looking statements made by or on behalf of the Registrants.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Registrants undertake no obligation to update
any forward-looking statement to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess
the impact of each such factor on the business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statement.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include changes in laws or regulations, changing governmental policies and
regulatory actions, including those of the Federal Energy Regulatory
Commission and the Public Utility Regulatory Policies Act of 1978, as
amended, acquisition, disposal, depreciation and amortization of assets and
facilities, operation and construction of plant facilities, recovery of
fuel and purchased power costs, and present or prospective competition.
The business and profitability of the Registrants are also influenced by
economic and geographic factors including political and economic risks,
changes in and compliance with environmental and safety laws and policies,
weather conditions, population growth rates and demographic patterns,
competition for retail and wholesale customers, availability, pricing and
transportation of fuel and other energy commodities, market demand for
energy from plants or facilities, changes in tax rates or policies or in
rates of inflation or in accounting standards, unanticipated delays or
changes in costs for capital projects, unanticipated changes in operating
expenses and capital expenditures, capital market conditions, competition
for new energy development opportunities and legal and administrative
proceedings (whether civil, such as environmental, or criminal) and
settlements.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of the
Registrants.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
NORTHEAST ENERGY, LP (A PARTNERSHIP) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
June 30, December 31,
2001 2000
ASSETS
Current assets:
Cash and cash equivalents .............................................................. $ 68,200 $ 35,360
Accounts receivable .................................................................... 38,222 32,857
Due from related party ................................................................. 3,513 2,762
Spare parts inventories ................................................................ 10,264 11,251
Fuel inventories ....................................................................... 5,999 3,793
Prepaid expenses and other current assets .............................................. 641 452
Total current assets ................................................................. 126,839 86,475
Non-current assets:
Deferred debt issuance costs (net of accumulated amortization of $2,127 and
$1,811, respectively) ................................................................ 4,833 5,149
Cogeneration facilities and carbon dioxide facility (net of accumulated
depreciation of $75,961 and $64,866, respectively) ................................... 444,178 454,068
Power purchase agreements (net of accumulated amortization of $178,892 and
$152,246, respectively) .............................................................. 709,864 736,510
Other assets ........................................................................... 91 107
Total non-current assets ............................................................. 1,158,966 1,195,834
TOTAL ASSETS ............................................................................. $1,285,805 $1,282,309
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of notes payable - the Funding Corp. ................................... $ 31,500 $ 20,160
Accounts payable ....................................................................... 30,900 17,457
Accrued interest payable ............................................................... 19,880 -
Due to related parties ................................................................. 2,965 954
Other accrued expenses ................................................................. 17,393 12,811
Total current liabilities ............................................................ 102,638 51,382
Non-current liabilities:
Deferred credit - fuel contracts ........................................................ 261,312 271,735
Notes payable - the Funding Corp. ....................................................... 387,380 398,720
Note payable - the Acquisition Corp. .................................................... 220,000 220,000
Amounts due utilities for energy bank balances .......................................... 160,363 162,756
Lease payable ........................................................................... 951 969
Total non-current liabilities ......................................................... 1,030,006 1,054,180
COMMITMENTS AND CONTINGENCIES
Partners' equity:
General partners ........................................................................ 3,084 3,534
Limited partners ........................................................................ 151,094 173,213
Accumulated other comprehensive loss .................................................... (1,017) -
Total partners' equity ................................................................ 153,161 176,747
TOTAL LIABILITIES AND PARTNERS' EQUITY .................................................... $1,285,805 $1,282,309
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements herein and the Notes to Consolidated and
Combined Financial Statements appearing in the combined Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 (2000 Form 10-K) for
NE LP.
NORTHEAST ENERGY, LP (A PARTNERSHIP) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
REVENUES ............................................................ $ 77,449 $ 74,949 $169,998 $165,051
COSTS AND EXPENSES:
Fuel .............................................................. 39,838 34,570 86,180 71,690
Operations and maintenance ........................................ 3,345 3,912 6,975 7,428
Depreciation and amortization ..................................... 18,873 18,568 37,746 37,141
General and administrative ........................................ 2,624 1,994 4,988 4,280
Total costs and expenses ........................................ 64,680 59,044 135,889 120,539
OPERATING INCOME .................................................... 12,769 15,905 34,109 44,512
OTHER EXPENSE (INCOME):
Amortization of debt issuance costs ............................... 161 159 318 316
Interest expense .................................................. 18,634 19,294 37,240 38,533
Interest income ................................................... (962) (1,022) (1,383) (1,352)
Change in fair value of derivatives ............................... 2,017 - 20,098 -
Total other expense - net ....................................... 19,850 18,431 56,273 37,497
Income (loss) before cumulative effect of a change in
accounting principle .............................................. (7,081) (2,526) (22,164) 7,015
Cumulative effect of adopting FAS 133 - Accounting for
Derivative Instruments and Hedging Activities ..................... - - 18,268 -
NET INCOME (LOSS).................................................... $ (7,081) $ (2,526) $ (3,896) $ 7,015
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements herein and the Notes to Consolidated and
Combined Financial Statements appearing in the 2000 Form 10-K for NE LP.
NORTHEAST ENERGY, LP (A PARTNERSHIP) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
2001 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................................... $ 52,709 $ 32,948
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................................... (1,197) (129)
Net cash used in investing activities .................................................... (1,197) (129)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on the Funding Corp. notes ............................................... - (13,166)
Distributions to partners .................................................................. (18,672) (37,043)
Net cash used in financing activities .................................................... (18,672) (50,209)
Net increase (decrease) in cash and cash equivalents ......................................... 32,840 (17,390)
Cash and cash equivalents at beginning of period ............................................. 35,360 33,085
Cash and cash equivalents at end of period ................................................... $ 68,200 $ 15,695
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements herein and the Notes to Consolidated and
Combined Financial Statements appearing in the 2000 Form 10-K for NE LP.
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
CONDENSED COMBINED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
June 30, December 31,
2001 2000
ASSETS
Current assets:
Cash and cash equivalents ............................................................. $ 67,266 $ 34,471
Accounts receivable ................................................................... 38,222 32,857
Due from related party ................................................................ 3,513 2,762
Spare parts inventories ............................................................... 10,264 11,251
Fuel inventories ...................................................................... 5,999 3,793
Prepaid expenses and other current assets ............................................. 641 452
Total current assets ................................................................ 125,905 85,586
Non-current assets:
Cogeneration facilities and carbon dioxide facility (net of accumulated
depreciation of $75,961 and $64,866, respectively) .................................. 444,178 454,068
Power purchase agreements (net of accumulated amortization of $178,892 and
$152,246, respectively) ............................................................. 709,864 736,510
Other assets .......................................................................... 91 107
Total non-current assets ............................................................ 1,154,133 1,190,685
TOTAL ASSETS ............................................................................ $1,280,038 $1,276,271
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of notes payable - the Funding Corp. .................................. $ 31,500 $ 20,160
Accounts payable ...................................................................... 30,900 17,457
Accrued interest payable .............................................................. 19,880 -
Due to related parties ................................................................ 2,965 842
Other accrued expenses ................................................................ 17,296 12,784
Total current liabilities ........................................................... 102,541 51,243
Non-current liabilities:
Deferred credit - fuel contracts ...................................................... 261,312 271,735
Notes payable - the Funding Corp. ..................................................... 387,380 398,720
Amounts due utilities for energy bank balances ........................................ 160,363 162,756
Lease payable ......................................................................... 951 969
Total non-current liabilities ....................................................... 810,006 834,180
COMMITMENTS AND CONTINGENCIES
Partners' equity:
General partner ....................................................................... 3,685 3,909
Limited partners ...................................................................... 364,823 386,939
Accumulated other comprehensive loss .................................................. (1,017) -
Total partners' equity .............................................................. 367,491 390,848
TOTAL LIABILITIES AND PARTNERS' EQUITY .................................................. $1,280,038 $1,276,271
This report should be read in conjunction with the Notes to Condensed
Combined Financial Statements herein and the Notes to Consolidated and
Combined Financial Statements appearing in the 2000 Form 10-K for NEA and
NJEA.
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
REVENUES ............................................................ $ 77,449 $ 74,949 $169,998 $165,051
COSTS AND EXPENSES:
Fuel .............................................................. 39,838 34,570 86,180 71,690
Operations and maintenance ........................................ 3,345 3,912 6,975 7,428
Depreciation and amortization ..................................... 18,873 18,568 37,746 37,141
General and administrative ........................................ 2,624 1,994 4,988 4,280
Total costs and expenses ........................................ 64,680 59,044 135,889 120,539
OPERATING INCOME .................................................... 12,769 15,905 34,109 44,512
OTHER EXPENSE (INCOME):
Interest expense .................................................. 14,239 14,901 28,460 29,744
Interest income ................................................... (839) (1,012) (1,266) (1,335)
Change in fair value of derivatives ............................... 2,017 - 20,098 -
Total other expense - net ....................................... 15,417 13,889 47,292 28,409
Income (loss) before cumulative effect of a change in
accounting principle .............................................. (2,648) 2,016 (13,183) 16,103
Cumulative effect of adopting FAS 133 - Accounting for
Derivative Instruments and Hedging Activities ..................... - - 18,268 -
NET INCOME (LOSS).................................................... $ (2,648) $ 2,016 $ 5,085 $ 16,103
This report should be read in conjunction with the Notes to Condensed
Combined Financial Statements herein and the Notes to Consolidated and
Combined Financial Statements appearing in the 2000 Form 10-K for NEA and
NJEA.
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
2001 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................................... $ 61,417 $ 41,686
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................................... (1,197) (129)
Net cash used in investing activities .................................................... (1,197) (129)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on the Funding Corp. notes ............................................... - (13,166)
Distributions to partners .................................................................. (27,425) (45,832)
Net cash used in financing activities .................................................... (27,425) (58,998)
Net increase (decrease) in cash and cash equivalents ......................................... 32,795 (17,441)
Cash and cash equivalents at beginning of period ............................................. 34,471 32,144
Cash and cash equivalents at end of period ................................................... $ 67,266 $ 14,703
This report should be read in conjunction with the Notes to Condensed
Combined Financial Statements herein and the Notes to Consolidated and
Combined Financial Statements appearing in the 2000 Form 10-K for NEA and
NJEA.
ESI TRACTEBEL FUNDING CORP.
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
June 30, December 31,
2001 2000
ASSETS
Current assets:
Cash .................................................................................. $ 1 $ 1
Interest receivable from the Partnerships ............................................. 19,880 -
Current portion of notes receivable from the Partnerships ............................. 31,500 20,160
Total current assets ................................................................ 51,381 20,161
Notes receivable from the Partnerships .................................................. 387,380 398,720
TOTAL ASSETS ............................................................................ $ 438,761 $ 418,881
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt securities payable ............................................ $ 31,500 $ 20,160
Accrued interest ...................................................................... 19,880 -
Total current liabilities ........................................................... 51,380 20,160
Debt securities payable ................................................................. 387,380 398,720
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, no par value, 10,000 shares authorized, issued and outstanding .......... 1 1
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................................. $ 438,761 $ 418,881
CONDENSED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Interest income ..................................................... $ 9,940 $ 10,495 $ 19,880 $ 20,991
Interest expense .................................................... (9,940) (10,495) (19,880) (20,991)
NET INCOME........................................................... $ - $ - $ - $ -
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Six Months Ended
June 30,
2001 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................................... $ - $ -
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment received from the Partnerships ........................................... - 13,166
Principal payment on debt .................................................................. - (13,166)
Net cash used in financing activities .................................................... - -
Net increase in cash ......................................................................... - -
Cash at beginning of period .................................................................. 1 1
Cash at end of period ........................................................................ $ 1 $ 1
These reports should be read in conjunction with the Notes to Condensed
Financial Statements herein and the Notes to Financial Statements appearing
in the 2000 Form 10-K for the Funding Corp.
ESI TRACTEBEL ACQUISITION CORP.
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
June 30, December 31,
2001 2000
ASSETS
Due from NE LP .......................................................................... 152 152
Note receivable from NE LP .............................................................. 220,000 220,000
TOTAL ASSETS ............................................................................ $ 220,152 $ 220,152
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Income taxes payable .................................................................. $ 15 $ 14
Deferred credit - interest rate hedge ................................................... 106 112
Debt securities payable ................................................................. 220,000 220,000
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, $.10 par value, 100 shares authorized, 20 shares issued
and outstanding ..................................................................... - -
Retained earnings ..................................................................... 31 26
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $ 220,152 $ 220,152
CONDENSED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Interest income ..................................................... $ 4,394 $ 4,393 $ 8,789 $ 8,789
Interest expense .................................................... (4,391) (4,390) (8,782) (8,783)
Income before income taxes .......................................... 3 3 7 6
Income tax expense .................................................. (1) (1) (2) (2)
NET INCOME........................................................... $ 2 $ 2 $ 5 $ 4
These reports should be read in conjunction with the Notes to Condensed
Financial Statements herein and the Notes to Financial Statements appearing
in the 2000 Form 10-K for the Acquisition Corp.
NORTHEAST ENERGY, LP (A PARTNERSHIP) AND SUBSIDIARIES
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
ESI TRACTEBEL FUNDING CORP.
ESI TRACTEBEL ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying condensed consolidated financial statements, condensed
combined financial statements and condensed financial statements should be
read in conjunction with the 2000 Form 10-K for the Registrants. In the
opinion of the Registrants' management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair financial
statement presentation have been made. The Acquisition Corp. had no cash
transactions for the six months ended June 30, 2001 and 2000 and therefore
has not presented a statement of cash flows. The results of operations for
an interim period may not give a true indication of results for the year.
1. Combined Statement of Partners' Equity
The Combined Statement of Partners' Equity of NEA's and NJEA's general
partner (GP) and limited partner (LP) equity balances are comprised of the
following:
NEA NJEA Combined
GP LP Total GP LP Total GP(a) LP(b) Total
(Thousands of Dollars)
Balances, December 31, 2000 .. $ 1,447 $ 143,336 $ 144,783 $ 2,462 $ 243,603 $ 246,065 $ 3,909 $ 386,939 $ 390,848
Balances, June 30, 2001 ...... $ 1,338 $ 132,552 $ 133,890 $ 2,337 $ 231,264 $ 233,601 $ 3,675 $ 363,816 $ 367,491
____________________
(a) Includes GP's pro rata share of accumulated other comprehensive loss.
(b) Includes LP's pro rata share of accumulated other comprehensive loss.
2. Accounting for Derivative Instruments and Hedging Activities
Effective January 1, 2001, NE LP and the Partnerships adopted Statement of
Financial Accounting Standards No. (FAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by FAS 137 and 138
(collectively, FAS 133). As a result, beginning in January 2001, derivative
instruments are recorded on NE LP's and the Partnerships' balance sheets as
an asset (in prepaid expenses and other current assets) or liability (in
other accrued expenses), measured at fair value. NE LP and the Partnerships
use derivative instruments (primarily swaps and options) to manage the
commodity price risk inherent in fuel purchases.
For NE LP and the Partnerships, changes in the derivatives' fair values are
recognized currently in earnings (in change in fair value of derivatives)
unless hedge accounting is applied. While substantially all of NE LP's and
the Partnerships' derivative transactions are entered into for the purposes
described above, hedge accounting is only applied where specific criteria
are met and it is practicable to do so. In order to apply hedge accounting,
the transaction must be designated as a hedge and it must be highly
effective. The hedging instrument's effectiveness is assessed utilizing
regression analysis at the inception of the hedge and on at least a
quarterly basis throughout its life. Hedges are considered highly effective
when a correlation coefficient of .8 or higher is achieved. Substantially
all of the transactions that NE LP and the Partnerships have designated as
hedges are cash flow hedges. The effective portion of the gain or loss on a
derivative instrument designated as a cash flow hedge is reported as a
component of other comprehensive income and is reclassified into earnings
in the period(s) during which the transaction being hedged affects
earnings. The ineffective portion of these hedges flows through earnings in
the current period. Settlement gains and losses are passed through fuel
expense.
In January 2001, NE LP and the Partnerships recorded an $18.3 million gain
as the cumulative effect of adopting FAS 133, representing the effect of
those derivative instruments for which hedge accounting was not applied.
For the three and six months ended June 30, 2001, NE LP and the
Partnerships recorded a net mark-to-market loss of $2.0 million and $20.1
million, respectively representing the change in fair value of derivative
instruments. For those contracts where hedge accounting was applied, the
adoption of the new rules resulted in a credit of approximately $4.3
million to other comprehensive income for NE LP and the Partnerships.
Comprehensive income (loss) of NE LP and the Partnerships, totaling ($11.6)
million and ($7.1) million, respectively, for the three months ended June 30,
2001 and totaling ($2.5) million and $2.0 million, respectively, for the
three months ended June 30, 2000, includes net income (loss) for those
periods. Comprehensive income (loss) of NE LP and the Partnerships, totaling
($4.9) million and $4.1 million, respectively, for the six months ended June
30, 2001 and totaling $7.0 million and $16.1 million, respectively, for the
six months ended June 30, 2000, respectively, includes net income (loss) for
those periods. Comprehensive income (loss) of NE LP and the Partnerships
include approximately ($3.5) million and ($4.4) million of net unrealized
losses, for the three months and six months ended June 30, 2001,
respectively, on qualifying cash flow hedges of forecasted fuel purchases
through October 2001. Approximately $1.0 million of accumulated other
comprehensive income of NE LP and the Partnerships were reclassified into
earnings during the six months ended June 30, 2001.
Accumulated other comprehensive income (loss) is separately displayed in NE
LP's and the Partnerships' balance sheets. Approximately $1.0 million of
accumulated other comprehensive income of NE LP and the Partnerships were
reclassified into earnings during the six months ended June 30, 2001. All of
the accumulated other comprehensive income (loss) at June 30, 2001 will be
reclassified into earnings within the next twelve months as the hedged fuel
is consumed. Within other comprehensive income (loss), approximately ($3.5)
million and ($4.4) million represent the effective portion of the net
loss on cash flow hedge during the three and six months ended June 30,
2001, respectively.
In June 2001, the Financial Accounting Standards Board (FASB) reached
conclusions on several derivative accounting issues related to the power
generation industry, which became effective July 1, 2001. Management is in
the process of evaluating the conclusions reached by the FASB and is unable
to estimate the effects, if any, on NE LP's and the Partnerships' financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements, Notes to Condensed Combined Financial
Statements and Notes to Condensed Financial Statements contained herein and
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing in the 2000 Form 10-K for the Registrants. The results
of operations for an interim period may not give a true indication of
results for the year. In the following discussion, all comparisons are with
the corresponding items in the prior year.
Results of Operations
NE LP and the Partnerships - Net income declined for the three and six
months ended June 30, 2001 primarily due to increased fuel costs and the
adoption of FAS 133, partly offset by slightly higher revenues. The
adoption of FAS 133, which became effective January 1, 2001, negatively
affected NE LP and the Partnerships' earnings by $2.0 million and $1.8
million for the three and six months ended June 30, 2001, respectively. For
additional information regarding FAS 133, see Note 2.
Revenues for the three months ended June 30, 2001 improved primarily as a
result of increased electricity sales prices. Revenues for the three months
ended June 30, 2001 and 2000 were comprised of $76.6 million and $73.8
million of power sales to utilities and $.8 million and $1.1 million of
steam sales, respectively. Power sales to utilities for the three months
ended June 30, 2001 and 2000 reflect changes in utility energy bank
balances of $5.1 million and $5.3 million, respectively. The changes in the
energy bank balances, which increased reported revenues, are determined in
accordance with scheduled or specified rates under certain power purchase
agreements. Fuel expense for the three months ended June 30, 2001 and 2000
increased primarily as a result of the increased price of natural gas
required to fuel the facilities. These fuel costs for the three months
ended June 30, 2001 and 2000, were partly offset by $5.2 million of
deferred credit amortization for fuel contracts. Operations and maintenance
expenses for the three months ended June 30, 2001 increased primarily due
to higher annual maintenance costs incurred during the Bellingham plant
scheduled outage in May. General and administrative expenses for the three
months ended June 30, 2001 increased primarily due to increased property
taxes and professional fees.
Revenues for the six months ended June 30, 2001 improved primarily as a
result of increased electricity sales prices. Revenues for the six months
ended June 30, 2001 and 2000 were comprised of $168.0 million and $162.7
million of power sales to utilities and $2.0 million and $2.4 million of
steam sales, respectively. Power sales to utilities for the six months
ended June 30, 2001 and 2000 reflect changes in utility energy bank
balances of $11.0 million and $11.6 million, respectively. The changes in
the energy bank balances, which increased reported revenues, are determined
in accordance with scheduled or specified rates under certain power
purchase agreements. Fuel expense for the six months ended June 30, 2001
and 2000 increased primarily as a result of the increased price of natural
gas required to fuel the facilities. These fuel costs for the six months
ended June 30, 2001 and 2000 were partly offset by $10.4 million of
deferred credit amortization for fuel contracts. General and administrative
expenses for the six months ended June 30, 2001 increased primarily due to
increased property taxes and professional fees.
In January 2001, NE LP and the Partnerships recorded an $18.3 million gain
as the cumulative effect of adopting FAS 133, representing the effect of
those derivative instruments for which hedge accounting was not applied. In
addition, for the six months ended June 30, 2001, NE LP and the
Partnerships recorded a net mark-to-market loss of $20.1 million
representing the change in fair value of derivative instruments.
See Note 2.
Each of NE LP and the Partnerships make scheduled interest and/or principal
payments on their outstanding debt. Each are scheduled to make semi-annual
debt and/or interest payments on June 30 and December 30. Interest expense
for NE LP and the Partnerships decreased as a result of decreasing
principal balances on the securities payable. The Partnerships' principal
and interest payments due on June 30, 2001, a non-business day, were made
on July 2, 2001.
The Funding Corp. and the Acquisition Corp. - Both the Funding Corp. and
the Acquisition Corp. use interest income and/or principal payments
received from the notes receivable from the Partnerships and NE LP,
respectively, to make scheduled interest and/or principal payments on their
outstanding debt. Both are scheduled to make semi-annual debt and/or
interest payments on June 30 and December 30. Interest expense for the
Funding Corp. decreased as a result of decreasing principal balances on the
securities payable. The Funding Corp.'s principal and interest payments due
on June 30, 2001, a non-business day, were made on July 2, 2001.
Liquidity and Capital Resources
The Registrants - Cash flow generated by the Partnerships year to date has
been and is expected to remain sufficient for at least the next twelve
months to fund operating expenses of the Registrants, as well as fund the
debt service requirements of the Funding Corp. and the Acquisition Corp.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
(ESI Northeast Energy GP, Inc. as Administrative General Partner)
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
(ESI Northeast Energy GP, Inc. as Administrative General Partner)
NORTHEAST ENERGY, LP
(ESI Northeast Energy GP, Inc. as Administrative General Partner)
ESI TRACTEBEL FUNDING CORP.
ESI TRACTEBEL ACQUISITION CORP.
(Registrants)
Date: August 14, 2001
ROBERT L. MCGRATH
Robert L. McGrath
Vice President and Treasurer of ESI Northeast Energy GP, Inc.
Treasurer of ESI Tractebel Funding Corp.
Treasurer of ESI Tractebel Acquisition Corp.
(Principal Financial and Principal Accounting Officer of the Registrants)