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 September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Exact name of registrants as spefified
in their charters, state of incorporation IRS Employer
Commission address of principal executive offices Identification
File Number and registrants' telephone 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 October 31, 2001, there were issued and outstanding 10,000 shares of
ESI Tractebel Funding Corp.'s common stock.
As of October 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)
September 30, December 31,
2001 2000
ASSETS
Current assets:
Cash and cash equivalents .............................................................. $ 48,046 $ 35,360
Accounts receivable .................................................................... 51,030 32,857
Due from related party ................................................................. 753 2,762
Spare parts inventories ................................................................ 10,681 11,251
Fuel inventories ....................................................................... 10,789 3,793
Prepaid expenses and other current assets .............................................. 543 452
Total current assets ................................................................. 121,842 86,475
Non-current assets:
Deferred debt issuance costs (net of accumulated amortization of $2,285 and
$1,811, respectively) ................................................................ 4,675 5,149
Cogeneration facilities and carbon dioxide facility (net of accumulated
depreciation of $81,509 and $64,866, respectively) ................................... 438,981 454,068
Power purchase agreements (net of accumulated amortization of $192,215 and
$152,246, respectively) .............................................................. 696,541 736,510
Other assets ........................................................................... 99 107
Total non-current assets ............................................................. 1,140,296 1,195,834
TOTAL ASSETS ............................................................................. $1,262,138 $1,282,309
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of notes payable - the Funding Corp. ................................... $ 21,420 $ 20,160
Current portion of notes payable - the Acquisition Corp. ............................... 4,400 -
Accounts payable ....................................................................... 16,401 17,457
Accrued interest payable ............................................................... 14,105 -
Due to related parties ................................................................. 1,303 954
Other accrued expenses ................................................................. 23,230 12,811
Total current liabilities ............................................................ 80,859 51,382
Non-current liabilities:
Deferred credit - fuel contracts ........................................................ 256,100 271,735
Notes payable - the Funding Corp. ....................................................... 387,380 398,720
Note payable - the Acquisition Corp. .................................................... 215,600 220,000
Amounts due utilities for energy bank balances .......................................... 159,097 162,756
Lease payable ........................................................................... 951 969
Total non-current liabilities ......................................................... 1,019,128 1,054,180
COMMITMENTS AND CONTINGENCIES
Partners' equity:
General partners ........................................................................ 3,258 3,534
Limited partners ........................................................................ 159,674 173,213
Accumulated other comprehensive loss .................................................... (781) -
Total partners' equity ................................................................ 162,151 176,747
TOTAL LIABILITIES AND PARTNERS' EQUITY .................................................... $1,262,138 $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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
REVENUES ............................................................ $ 96,159 $ 90,937 $266,157 $255,988
COSTS AND EXPENSES:
Fuel .............................................................. 41,515 39,603 127,695 111,293
Operations and maintenance ........................................ 3,510 2,507 10,485 9,935
Depreciation and amortization ..................................... 18,870 18,564 56,616 55,705
General and administrative ........................................ 1,799 2,080 6,787 6,360
Total costs and expenses ........................................ 65,694 62,754 201,583 183,293
OPERATING INCOME .................................................... 30,465 28,183 64,574 72,695
OTHER EXPENSE (INCOME):
Amortization of debt issuance costs ............................... 159 161 477 477
Interest expense .................................................. 18,354 19,035 55,594 57,568
Interest income ................................................... (481) (472) (1,864) (1,824)
Change in fair value of derivatives ............................... 3,699 - 23,797 -
Total other expense - net ....................................... 21,731 18,724 78,004 56,221
Income (loss) before cumulative effect of a change in
accounting principle .............................................. 8,734 9,459 (13,430) 16,474
Cumulative effect of adopting FAS 133 - Accounting for
Derivative Instruments and Hedging Activities ..................... - - 18,268 -
NET INCOME .......................................................... $ 8,734 $ 9,459 $ 4,838 $ 16,474
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)
Nine Months Ended
September 30,
2001 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................................... $ 42,989 $ 59,427
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................................... (1,551) (266)
Net cash used in investing activities .................................................... (1,551) (266)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on the Funding Corp. notes ............................................... (10,080) (13,166)
Distributions to partners .................................................................. (18,672) (37,043)
Net cash used in financing activities .................................................... (28,752) (50,209)
Net increase in cash and cash equivalents .................................................... 12,686 8,952
Cash and cash equivalents at beginning of period ............................................. 35,360 33,085
Cash and cash equivalents at end of period ................................................... $ 48,046 $ 42,037
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)
September 30, December 31,
2001 2000
ASSETS
Current assets:
Cash and cash equivalents ............................................................. $ 46,946 $ 34,471
Accounts receivable ................................................................... 51,030 32,857
Due from related party ................................................................ 753 2,762
Spare parts inventories ............................................................... 10,681 11,251
Fuel inventories ...................................................................... 10,789 3,793
Prepaid expenses and other current assets ............................................. 543 452
Total current assets ................................................................ 120,742 85,586
Non-current assets:
Cogeneration facilities and carbon dioxide facility (net of accumulated
depreciation of $81,509 and $64,866, respectively) .................................. 438,981 454,068
Power purchase agreements (net of accumulated amortization of $192,215 and
$152,246, respectively) ............................................................. 696,541 736,510
Other assets .......................................................................... 99 107
Total non-current assets ............................................................ 1,135,621 1,190,685
TOTAL ASSETS ............................................................................ $1,256,363 $1,276,271
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of notes payable - the Funding Corp. .................................. $ 21,420 $ 20,160
Accounts payable ...................................................................... 16,401 17,457
Accrued interest payable .............................................................. 9,710 -
Due to related parties ................................................................ 1,303 842
Other accrued expenses ................................................................ 23,106 12,784
Total current liabilities ........................................................... 71,940 51,243
Non-current liabilities:
Deferred credit - fuel contracts ...................................................... 256,100 271,735
Notes payable - the Funding Corp. ..................................................... 387,380 398,720
Amounts due utilities for energy bank balances ........................................ 159,097 162,756
Lease payable ......................................................................... 951 969
Total non-current liabilities ....................................................... 803,528 834,180
COMMITMENTS AND CONTINGENCIES
Partners' equity:
General partner ....................................................................... 3,818 3,909
Limited partners ...................................................................... 377,858 386,939
Accumulated other comprehensive loss .................................................. (781) -
Total partners' equity .............................................................. 380,895 390,848
TOTAL LIABILITIES AND PARTNERS' EQUITY .................................................. $1,256,363 $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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
REVENUES ............................................................ $ 96,159 $ 90,937 $266,157 $255,988
COSTS AND EXPENSES:
Fuel .............................................................. 41,515 39,603 127,695 111,293
Operations and maintenance ........................................ 3,510 2,507 10,485 9,935
Depreciation and amortization ..................................... 18,870 18,564 56,616 55,705
General and administrative ........................................ 1,799 2,080 6,787 6,360
Total costs and expenses ........................................ 65,694 62,754 201,583 183,293
OPERATING INCOME .................................................... 30,465 28,183 64,574 72,695
OTHER EXPENSE (INCOME):
Interest expense .................................................. 13,960 14,640 42,420 44,384
Interest income ................................................... (486) (373) (1,752) (1,708)
Change in fair value of derivatives ............................... 3,699 - 23,797 -
Total other expense - net ....................................... 17,173 14,267 64,465 42,676
Income before cumulative effect of a change in
accounting principle .............................................. 13,292 13,916 109 30,019
Cumulative effect of adopting FAS 133 - Accounting for
Derivative Instruments and Hedging Activities ..................... - - 18,268 -
NET INCOME .......................................................... $ 13,292 $ 13,916 $ 18,377 $ 30,019
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)
Nine Months Ended
September 30,
2001 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................................... $ 51,656 $ 68,070
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................................... (1,551) (266)
Net cash used in investing activities .................................................... (1,551) (266)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on the Funding Corp. notes ............................................... (10,080) (13,166)
Distributions to partners .................................................................. (27,550) (45,832)
Net cash used in financing activities .................................................... (37,630) (58,998)
Net increase in cash and cash equivalents .................................................... 12,475 8,806
Cash and cash equivalents at beginning of period ............................................. 34,471 32,144
Cash and cash equivalents at end of period ................................................... $ 46,946 $ 40,950
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)
September 30, December 31,
2001 2000
ASSETS
Current assets:
Cash .................................................................................. $ 1 $ 1
Interest receivable from the Partnerships ............................................. 9,710 -
Current portion of notes receivable from the Partnerships ............................. 21,420 20,160
Total current assets ................................................................ 31,131 20,161
Notes receivable from the Partnerships .................................................. 387,380 398,720
TOTAL ASSETS ............................................................................ $ 418,511 $ 418,881
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt securities payable ............................................ $ 21,420 $ 20,160
Accrued interest ...................................................................... 9,710 -
Total current liabilities ........................................................... 31,130 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 .............................................. $ 418,511 $ 418,881
CONDENSED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Interest income ..................................................... $ 9,710 $ 10,218 $ 29,590 $ 31,209
Interest expense .................................................... (9,710) (10,218) (29,590) (31,209)
NET INCOME........................................................... $ - $ - $ - $ -
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30,
2001 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................................... $ - $ -
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment received from the Partnerships ........................................... 10,080 13,166
Principal payment on debt .................................................................. (10,080) (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)
September 30, December 31,
2001 2000
ASSETS
Current assets:
Interest receivable from NE LP ........................................................ $ 4,395 $ -
Current portion of notes receivable from NE LP ........................................ 4,400 -
Total current assets ................................................................ 8,795 -
Non-current assets:
Due from NE LP ........................................................................ 152 152
Note receivable from NE LP ............................................................ 215,600 220,000
Total non-current assets ............................................................ 215,752 220,152
TOTAL ASSETS ............................................................................ $ 224,547 $ 220,152
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Income taxes payable .................................................................. $ 16 $ 14
Current portion of debt securities payable ............................................ 4,400 -
Accrued interest ...................................................................... 4,395 -
Total current liabilities ........................................................... 8,811 14
Non-current liabilities:
Deferred credit - interest rate hedge ................................................. 103 112
Debt securities payable ............................................................... 215,600 220,000
Total non-current liabilities ....................................................... 215,703 220,112
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, $.10 par value, 100 shares authorized, 20 shares issued and outstanding . - -
Retained earnings ..................................................................... 33 26
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $ 224,547 $ 220,152
CONDENSED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Interest income ..................................................... $ 4,395 $ 4,395 $ 13,184 $ 13,184
Interest expense .................................................... (4,391) (4,391) (13,173) (13,173)
Income before income taxes .......................................... 4 4 11 11
Income tax expense .................................................. (1) (1) (4) (4)
NET INCOME........................................................... $ 3 $ 3 $ 7 $ 7
CONDENSED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30,
2001 2000
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................................... $ - $ -
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment received from NE LP ...................................................... - -
Principal payment on debt .................................................................. - -
Net cash used in financing activities .................................................... - -
Net increase in cash ......................................................................... - -
Cash at beginning of period .................................................................. - -
Cash at end of period ........................................................................ $ - $ -
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 results of operations for an interim period
may not give a true indication of results for the year.
1. Combined Statement of Partners' Equity
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, September 30, 2001 . $ 1,371 $ 135,707 $ 137,078 $ 2,440 $ 241,377 $ 243,817 $ 3,811 $ 377,084 $ 380,895
____________________
(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
either 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. 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 unrealized $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 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.
Accumulated other comprehensive loss is separately displayed in NE LP's and
the Partnerships' balance sheets. Included in NE LP's and the Partnerships'
accumulated other comprehensive loss at September 30, 2001 is approximately
$.8 million of net unrealized losses associated with cash flow hedges of
forecasted fuel purchases through March 2002, all of which is expected to be
reclassified into earnings within the next twelve months. Accumulated other
comprehensive income of NE LP and the Partnerships of approximately $.9
million gain and $.03 million loss, during the three months and nine months
ended September 30, 2001, respectively, were reclassified into earnings.
Within other comprehensive income, approximately $.7 million and $5.1
million represent the effective portion of the net loss on cash flow hedges
(excluding the cumulative effect adjustment) during the three and nine
months ended September 30, 2001, respectively.
Comprehensive income below includes net income and net unrealized
(gains)/losses on cash flow hedges of forecasted fuel purchases for both NE
LP and the Partnerships of approximately ($.2) million and $.8 million for
the three and nine months ended September 30, 2001, respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
(millions)
NE LP ............................................................... $ 9.0 $ 9.5 $ 4.1 $ 16.5
The Partnerships .................................................... $ 13.5 $ 13.9 $ 17.6 $ 30.0
In June 2001, the Financial Accounting Standards Board (FASB) reached
conclusions, which became effective July 1, 2001, on several derivative
accounting issues related to the power generation industry. There was no
significant impact on NE LP's and the Partnership's financial statements
from these conclusions.
In October 2001, the FASB cleared interpretive guidance related to certain
commodity supply contracts containing flexibility in the quantity of the
commodity to be purchased. The new guidance will require the contracts to be
classified as derivatives and marked to market and is effective April 1,
2002. Management is in the process of evaluating the impact of implementing
the new guidance and is unable to estimate the effect, 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 nine
months ended September 30, 2001 primarily due to increased fuel costs and
the adoption of FAS 133, partly offset by higher revenues. As a result of
FAS 133, earnings of NE LP and the Partnerships' were negatively affected by
$3.7 million and $5.5 million for the three and nine months ended September
30, 2001, respectively. For additional information regarding FAS 133, see
Note 2.
Revenues for the three months ended September 30, 2001 improved primarily as
a result of increased electricity sales prices. Revenues for the three
months ended September 30, 2001 and 2000 were comprised of $95.3 million and
$89.9 million of power sales to utilities and $.9 million and $1.0 million
of steam sales, respectively. Power sales to utilities for the three months
ended September 30, 2001 and 2000 reflect changes in utility energy bank
balances of $5.5 million and $6.2 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 September 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
September 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 September 30, 2001 increased primarily due to
higher payroll related costs.
Revenues for the nine months ended September 30, 2001 improved primarily as
a result of increased electricity sales prices. Revenues for the nine months
ended September 30, 2001 and 2000 were comprised of $263.4 million and
$252.6 million of power sales to utilities and $2.8 million and $3.4 million
of steam sales, respectively. Power sales to utilities for the nine months
ended September 30, 2001 and 2000 reflect changes in utility energy bank
balances of $16.5 million and $17.8 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 nine months ended September 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 nine months ended
September 30, 2001 and 2000 were partly offset by $15.6 million of deferred
credit amortization for fuel contracts.
In January 2001, NE LP and the Partnerships recorded an unrealized $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 nine months ended September 30, 2001, NE LP
and the Partnerships recorded a net mark-to-market loss of $23.8 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 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.
Liquidity and Capital Resources
The Registrants - Cash flow generated by NE LP and 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: November 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)