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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950124-01-001739.txt : 20010504
<SEC-HEADER>0000950124-01-001739.hdr.sgml : 20010504
ACCESSION NUMBER: 0000950124-01-001739
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NRG ENERGY INC
CENTRAL INDEX KEY: 0001013871
STANDARD INDUSTRIAL CLASSIFICATION: 4911
IRS NUMBER: 411724239
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-15891
FILM NUMBER: 1583241
BUSINESS ADDRESS:
STREET 1: 901 MARQUETTE AVE
STREET 2: SUITE 2300
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55402
BUSINESS PHONE: 6123735300
MAIL ADDRESS:
STREET 1: 1221 NICOLLET MALL
STREET 2: SUITE 700
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55403
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>c60217e10-k405.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<S> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 000-25569
</TABLE>
NRG ENERGY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 41-1724239
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 MARQUETTE AVENUE 55402
MINNEAPOLIS, MINNESOTA (Zip Code)
(Address of principal executive offices)
</TABLE>
(612) 373-5300
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common stock -- $.01 par value (Listed on the New York Stock Exchange)
Corporate Units -- (Listed on the New York Stock Exchange)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT WAS $1,523,732,734 AT MARCH 15, 2001.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MARCH 15, 2001
- - -------------------------------------- --------------------------------------
<S> <C>
Class A - Common Stock, $0.01 par
value 147,604,500 shares
Common Stock, $0.01 par value 50,858,903 shares
</TABLE>
Documents Incorporated by Reference: With respect to Part III (Items 10, 11, 12
and 13), Notice and Proxy Statement for the 2001 Annual Meeting of Shareholders
will be filed not later than 120 days after December 31, 2000.
- - --------------------------------------------------------------------------------
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<PAGE> 2
NRG ENERGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 23
Item 3 Legal Proceedings........................................... 26
Item 4 Submission of Matters to a Vote of Security Holders......... 27
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 27
Item 6 Selected Financial Data..................................... 28
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Item 7A Quantitative and Qualitative Disclosures About Market
Risk...................................................... 36
Item 8 Financial Statements and Supplementary Data................. 38
Item 9 Changes in & Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 74
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 74
Item 11 Executive Compensation...................................... 74
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 74
Item 13 Certain Relationships and Related Transactions.............. 74
PART IV
Item 14 Exhibits, Financial Statements Schedules and Reports On Form
8-K....................................................... 75
SIGNATURES............................................................. 80
</TABLE>
<PAGE> 3
PART I
ITEM 1 -- BUSINESS
GENERAL
NRG Energy, Inc. (NRG Energy or the Company) is a leading global energy
company, primarily engaged in the acquisition, development, ownership, and
operation of power generation facilities and the sale of energy, capacity and
related products. NRG Energy was incorporated as a Delaware corporation on May
29, 1992. As of December 31, 2000, NRG Energy had interests in power generation
facilities (including those under construction) having a total design capacity
of 25,059 megawatts (MW), of which NRG Energy has or will have total or shared
operational responsibility for 13,784 MW, and net ownership of, or leasehold
interests in, 15,007 MW.
On June 5, 2000, NRG Energy completed its initial public offering. Prior to
its initial public offering, NRG Energy was a wholly-owned subsidiary of
Northern States Power (NSP). In August 2000, NSP merged with New Century
Energies, Inc. (NCE), a Colorado-based public utility holding company. The
surviving corporation in the merger was renamed Xcel Energy Inc. (Xcel), and the
shares of NRG Energy's class A common stock previously owned by NSP are now
owned by a wholly-owned subsidiary of Xcel. As of December 31, 2000, Xcel owned
an 82% interest in NRG Energy's outstanding common and class A common stock,
representing 98% of the total voting power of NRG Energy's common stock and
class A common stock. Xcel is one of the ten largest electricity and natural gas
companies in the United States. Xcel has six public utility subsidiaries that
collectively serve approximately 3.1 million electricity customers and 1.5
million gas customers in twelve states and has numerous non-utility
subsidiaries, including NRG Energy, which are engaged in energy related
businesses.
In March 2001, NRG Energy completed a public offering of 18.4 million
shares of its common stock. Following this offering, Xcel owns approximately 74%
interest in NRG Energy's common stock and Class A common stock, representing
96.7% of the total voting power of NRG Energy's common stock and Class A common
stock.
NRG Energy has experienced significant growth in the last year, expanding
from 10,990 MW of net ownership interests in power generation facilities
(including those under construction) as of December 31, 1999, to 15,007 MW of
net ownership interests as of December 31, 2000. This growth resulted primarily
from a number of domestic and international acquisitions, notably the
acquisition of Big Cajun I and II from Cajun Electric Power Cooperative, Inc.
(Cajun Electric), the Killingholme A generating facility from National Power plc
and the acquisition of Flinders Power in South Australia.
In addition to NRG Energy's power generation projects, NRG Energy also has
interests in district heating and cooling systems and steam transmission
operations. As of December 31, 2000, NRG Energy's thermal and chilled water
businesses had a steam and chilled water capacity equivalent to approximately
1,506 MW, of which its net ownership interest was 1,379 MW. NRG Energy believes
that through its subsidiary NEO Corporation (NEO), it is one of the largest
landfill gas generation companies in the United States, extracting methane from
landfills to generate electricity. NEO owns 33 landfill gas collection systems
and has 46 MW of net ownership interests in related electric generation
facilities. NEO also has 58 MW of net ownership interests in 19 small
hydroelectric facilities and 6 MW of net ownership interest in three small
distributed generation facilities.
NRG Energy intends to continue its growth through a combination of targeted
acquisitions in selected core markets, the expansion or repowering of existing
facilities and the development of new greenfield projects. NRG Energy has signed
agreements to acquire an additional 5,704 MW of net ownership interest in
existing generation projects and has acquired or has expansion plans for 5,515
MW of net ownership interest in expansion, repowering and greenfield generation
projects. To prepare for these expansion, repowering and greenfield development
opportunities, NRG Energy has agreed to purchase 22 turbine generators from
General Electric Company and two turbine generators from Seimens Westinghouse
over a five-year period commencing in 2002. These new turbines, which NRG Energy
expects to install at domestic facilities, will
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have a combined nominal generating capacity of approximately 4,640 MW. In
addition, NRG Energy has on order three General Electric turbines with a
combined nominal capacity of approximately 740 MW scheduled for delivery in
January 2002, which are expected to be installed in facilities outside the
United States. NRG Energy has also acquired the right to purchase an additional
24 General Electric turbines and an additional three Siemens Westinghouse
turbines through its acquisition of assets from LS Power, LLC. These turbines
have a combined generating capacity of approximately 4,306 MW. All but 1,993 MW
of the turbines NRG Energy has on order have been allocated to NRG Energy's
current, identified expansion, repowering or greenfield development projects.
NRG Energy has also expanded its power marketing activities, which allow
NRG Energy to optimize the value of its power generation assets and enable it to
better meet its customers' energy requirements and improve its power marketing
and risk management expertise. NRG Energy believes that it has secured and will
continue to secure favorable pricing for its fuel purchases and power sales.
NRG Energy's headquarters and principal executive offices are located at
901 Marquette Avenue, Suite 2300, Minneapolis, Minnesota 55402. NRG Energy's
telephone number is (612) 373-5300.
MARKET OPPORTUNITY
The power industry is one of the largest industries in the world,
accounting for approximately $220 billion in annual revenues and approximately
810,000 MW of installed generating capacity in the United States alone. The
generation segment of the industry historically has been characterized by
regulated electric utilities producing and selling electricity to a captive
customer base. However, the power generation market has been evolving from a
regulated market based on cost of service pricing to a competitive market. In
response to increasing customer demand for access to low-cost electricity and
enhanced services, new regulatory initiatives have been and are continuing to be
adopted to increase competition in the power industry. NRG Energy believes that
the power generation industry in the United States will experience MW growth of
approximately 2% per year through 2008.
NRG Energy believes that increasing demand and the need to replace old and
inefficient generation facilities will create a significant need for additional
power generating capacity throughout the United States and the world. In NRG
Energy's view, these factors combined with recent restructuring legislation
provide an attractive domestic environment for a competitive power producer like
NRG Energy with a history of successfully developing, acquiring and operating
power generation facilities.
Outside of the United States, many governments in developed economies are
privatizing their utilities and developing regulatory structures that are
expected to encourage competition in the electricity sector, having realized
that their energy assets can be sold to raise capital without hindering system
reliability. In developing countries, the demand for electricity is expected to
grow rapidly. In order to satisfy this anticipated increase in demand, many
countries have adopted active government programs designed to encourage private
investment in power generation facilities. NRG Energy believes that these market
trends will continue to create opportunities to acquire and develop power
generation facilities globally.
STRATEGY
NRG Energy's vision is to be a well-positioned, top three generator of
power in selected core markets. Central to this vision is the pursuit of a
well-balanced generation business that is diversified in terms of geographic
location, fuel type and dispatch level. Currently, approximately 79% of NRG
Energy's net MW of generation in operation and under construction is located in
the United States in four core markets: our Northeast, South Central and West
Coast regions and the recently added North Central region. The North Central
Region was added to manage a newly acquired portfolio of operating projects and
projects in construction and advanced development. Upon completion of NRG
Energy's pending project acquisitions from Conectiv, NRG Energy intends to add a
Mid-Atlantic region as a fifth core market. With NRG Energy's diversified asset
base, NRG Energy seeks to have generating capacity available to back up any
given facility during its outages, whether planned or unplanned, while having
ample resources to take advantage of peak power market price opportunities.
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NRG Energy's strategy is to capitalize on its acquisition, development,
construction and operating skills to build a balanced, global portfolio of power
generation assets. NRG Energy intends to implement this strategy by continuing
an aggressive acquisition program and accelerating its development of existing
site expansion projects and greenfield projects. NRG Energy believes that its
operational skills and experience give it a strong competitive position in the
unregulated generation marketplace.
NORTH AMERICAN POWER GENERATION
The North American power generation market is evolving from a regulated,
utility dominated market based upon cost-of-service pricing to an independent
power generation market based on competitive market pricing. While most domestic
generation capacity is still utility owned and subject to cost-of-service
regulation, NRG Energy expects the evolution to continue as regulated utility
power generation assets are divested to non-regulated generators. In addition,
NRG Energy expects that a significant share of the new generation capacity that
is built to serve increasing demand and to replace less efficient facilities
will be developed and owned by competitive power producers.
Most of NRG Energy's North American projects are grouped under regional
holding companies corresponding to their domestic core markets. In order to
better manage NRG Energy's North American projects and to develop new projects
in these regions more effectively, NRG Energy has established regional offices
in Pittsburgh, Pennsylvania (Northeast region), Baton Rouge, Louisiana (South
Central region) and San Diego, California (West Coast region). NRG Energy's
recently added North Central region is managed from its Minneapolis
headquarters. Upon completion of NRG Energy's pending project acquisitions from
Conectiv, NRG Energy intends to add a Mid-Atlantic region, which will be managed
from its Wilmington, Delaware office.
NRG Energy operates its generation facilities within each region as a
separate operating unit within its power generation business. This regional
portfolio structure allows NRG Energy to coordinate the operations of its assets
to take advantage of regional opportunities, reduce risks related to outages,
whether planned or unplanned, and pursue expansion plans on regional basis.
NORTHEAST REGION
As of December 31, 2000, NRG Energy owned approximately 7,104 MW of net
generating capacity (including projects under construction) in the Northeast
United States, primarily in New York, New Jersey, Connecticut and Massachusetts.
These generation facilities are well diversified in terms of dispatch level
(base-load, intermediate and peaking), fuel type (coal, natural gas and oil) and
customers. In addition, NRG Energy believes certain of its facilities and
facility sites in the Northeast provide opportunities for repowering or
expanding existing generating capacity.
NRG Energy's Northeast facilities are generally competitively positioned
within their respective market dispatch levels with favorable market dynamics
and locations close to the major load centers in the New York Power Pool (NYPP)
and NEPOOL.
SOUTH CENTRAL REGION
As of December 31, 2000, NRG Energy owned approximately 2,413 MW of net
generating capacity (including projects under construction) in the South Central
United States, primarily in Louisiana. NRG Energy's South Central generating
assets consist primarily of its net ownership of 1,708 MW of power generation
facilities in New Roads, Louisiana (which are referred to as the Cajun
facilities) that were acquired in March 2000. NRG Energy believes that the Cajun
facilities and related infrastructure provide significant opportunities for
expanding its generating capacity in the region.
WEST COAST REGION
As of December 31, 2000, NRG Energy owned approximately 1,570 MW of net
generating capacity (including projects under construction) on the West Coast of
the United States. NRG Energy's West Coast generation assets consist primarily
of a 50% interest in West Coast Power LLC (West Coast Power) and a 58% interest
in the Crockett Cogeneration facility. In May 1999, Dynegy Power Corporation
(Dynegy) and
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NRG Energy formed West Coast Power to serve as the holding company for a
portfolio of operating companies that own generation assets in Southern
California. This portfolio currently comprises the El Segundo Generating
Station, the Long Beach Generating Station, the Encina Generating Station and 17
combustion turbines in the San Diego area. Dynegy provides power marketing and
fuel procurement services to West Coast Power, and NRG Energy provides
operations and management services. NRG Energy believes certain of its
facilities and facility sites on the West Coast provide opportunities for
repowering or expanding generating capacity, and NRG Energy has submitted permit
applications to expand its El Segundo facility.
NORTH CENTRAL REGION
As of December 31, 2000, NRG Energy owned approximately 175 MW of net
generating capacity in the north central United States, primarily Illinois. In
January 2001, NRG Energy completed its project acquisition from LS Power, LLC of
approximately 5,633 MW of operating projects and projects in construction and
advanced development, 1,697 MW of which are currently in operation, or under
construction.
MID-ATLANTIC REGION
NRG Energy plans to add a Mid-Atlantic region upon the completion of its
acquisition of approximately 1,875 MW of net ownership interests in generation
facilities from subsidiaries of Conectiv. The Mid-Atlantic region will contain
facilities located primarily in Pennsylvania, Maryland, Delaware and New Jersey.
COMPETITIVE POWER GENERATION -- INTERNATIONAL
Historically, the majority of power generating capacity outside of the
United States has been owned and controlled by governments. During the past
decade, however, many foreign governments have moved to privatize power
generation plant ownership through sales to third parties and by encouraging new
capacity development and refurbishment of existing assets by independent power
developers. Governments have taken a variety of approaches to encourage the
development of competitive power markets, from awarding long-term contracts for
energy and capacity to purchasers of power generation to creating competitive
wholesale markets for selling and trading energy, capacity and related products.
NRG Energy believes that there will be significant opportunities to invest
in attractive projects in international markets. Based upon NRG Energy's
assessment of market opportunities and its portfolio risk management criteria,
NRG Energy intends to leverage its reputation, experience and expertise in order
to acquire foreign assets in selected countries. As market opportunities
develop, NRG Energy expects that its international strategy will be consistent
with its domestic core market strategy in terms of geographic, fuel and dispatch
diversification. NRG Energy believes operating and asset diversity will allow it
to reduce business and market risks, while positioning it to take advantage of
market opportunities, including peak power market price opportunities and
periods of constrained availability of generating capacity, fuels and
transmission.
To manage NRG Energy's international asset portfolio risks, NRG Energy
utilizes a portfolio risk management discipline based upon country risk, as
identified by an independent, internationally recognized organization. This
portfolio tool, which has been endorsed by NRG Energy's board of directors,
requires that it manage its entire portfolio of generation capacity to maintain
a high quality, weighted average, equivalent country risk. Using this tool, NRG
Energy is able to monitor the exposure it is taking in emerging markets to
maintain an appropriate balance in its asset portfolio. NRG Energy's
international power generation projects are managed as three distinct markets,
Asia Pacific, Europe and Other Americas.
NRG Energy is presently focusing its international development in Europe,
Australia and Latin America. In the future, NRG Energy will consider
international projects outside of these markets if it believes that an
opportunity exists to create a new core market or that the expected returns from
a particular project warrant an investment.
ASIA PACIFIC
NRG Energy is one of the largest competitive power producers in Australia
with a net ownership interest of 2,083 MW. As of December 31, 2000, in power
generation facilities (including projects under construction). NRG Energy
intends to maintain its position in this market through additional acquisitions
and
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development of new projects. NRG Energy will also look for opportunities in
selected countries in the Asia Pacific region to become established within the
region.
EUROPE
NRG Energy has been a significant participant in the competitive power
generation markets in Germany and the Czech Republic since its entry into those
markets. NRG Energy's growth in Europe was augmented in early 2000 with the
acquisition of the Killingholme facility and will expand further with the
expected mid-2001 commencement of commercial operations at the Enfield facility,
both of which are located in the United Kingdom. NRG Energy intends to continue
its growth efforts in these countries and to develop projects in selected
countries. As of December 31, 2000, NRG Energy has a net ownership interest of
1,223 MW in power generation facilities (including projects under construction)
in Europe.
OTHER AMERICAS
NRG Energy has pursued acquisition and development opportunities in Latin
America since the mid-1990s. Initially, NRG Energy participated as one of four
original sponsors of the Latin Power fund, a private equity investment fund
managed by Scudder. More recently, NRG Energy acquired a 49% interest in the
second largest generator of electricity in Bolivia, Compania Boliviana de
Energia Electrica S.A. -- Bolivian Power Company Limited (COBEE). NRG Energy
plans to target new opportunities in selected countries, primarily Brazil and
Argentina, where NRG Energy believes more attractive acquisition and greenfield
opportunities exist. As of December 31, 2000, NRG Energy has a net ownership
interest of 225 MW in power generation facilities (including projects under
construction) in Latin America.
ALTERNATIVE ENERGY
NRG Energy provides alternative energy through NEO, one of the largest
landfill gas generation companies in the United States, and resource recovery,
which processes municipal solid waste as fuel used to generate power.
NEO CORPORATION
NEO is a wholly-owned subsidiary of NRG Energy's that was formed to develop
small power generation facilities, ranging in size from 1 to 50 MW, in the
United States. NEO is currently focusing on the development and acquisition of
landfill gas projects and the acquisition of small hydroelectric projects. NEO
owns 33 landfill gas collection systems and has 46 MW of net ownership interests
in related electric generation facilities. NEO also has 58 MW of net ownership
interests in 19 small hydroelectric facilities and 6 MW of net ownership
interests in three small distributed generation facilities. NEO derives a
substantial portion of its income as a result of the generation of Section 29
tax credits, which, for 2000, totaled $33.8 million. The existing tax law
authorizing these credits is scheduled to expire in 2007.
RESOURCE RECOVERY FACILITIES
NRG Energy's Newport, Minnesota, resource recovery facility can process
over 1,500 tons of municipal solid waste per day, 90% of which is used as fuel
in power generation facilities in Red Wing and Mankato, Minnesota. Pursuant to
service agreements with Ramsey and Washington Counties, Minnesota, which expire
in 2007, NRG Energy processes a minimum of 280,800 tons of municipal solid waste
per year at the Newport facility and receives service fees based on the amount
of waste processed, pass-through costs and certain other factors. NRG Energy is
also entitled to an operation and maintenance fee, which is designed to recover
fixed costs and to provide NRG Energy with a guaranteed amount for operating and
maintaining the Newport facility for the processing of 750 tons per day of
municipal solid waste, whether or not such waste is delivered for processing.
Since 1989, NRG Energy has operated the Elk River resource recovery
facility located in Elk River, Minnesota, which can process over 1,500 tons of
municipal solid waste per day, 90% of which is recovered and used in power
generation facilities in Elk River and Mankato, Minnesota. Xcel owns 85% of the
Elk River facility and United Power Association owns the remaining 15%. NRG
Energy also manages and operates an
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ash storage and disposal facility for the Elk River facility at Xcel's Becker
ash disposal facility, an approved ash deposit site near Becker, Minnesota. NRG
Energy operates the Becker facility on behalf of Xcel.
THERMAL
NRG Energy has interests in district heating and cooling systems and steam
transmission operations. NRG Energy's thermal and chilled water businesses have
a steam and chilled water capacity equivalent to approximately of 1,506 MW, of
which its net ownership interest is 1,379 MW.
NRG Energy owns and operates, through its holding company NRG Thermal
Corporation, five district heating and cooling systems in Minneapolis, San
Francisco, Pittsburgh, Harrisburg and San Diego. These systems provide steam
heating to approximately 600 customers and chilled water to 81 customers. In
addition, NRG Energy's thermal division operates five projects that serve
industrial/government customers with high-pressure steam and hot water.
POWER MARKETING
NRG Energy's energy marketing subsidiary, NRG Power Marketing, Inc. (NRG
Power Marketing), began operations in 1998 to maximize the utilization of and
return from its domestic generation assets and to mitigate the risks associated
with those assets. This subsidiary purchases and markets energy and energy
related commodities, including electricity, natural gas, oil, coal and emission
allowances. By using internal resources to acquire fuel for and to market
electricity generated by its domestic facilities, NRG Energy believes that it
can secure the best pricing available in the markets in which it sells power and
enhance its ability to compete. NRG Power Marketing provides a full range of
energy management services for NRG Energy's generation facilities in its
Northeast, South Central and North Central regions. These services are provided
under power sales and agency agreements pursuant to which NRG Power Marketing
manages the sales and marketing of energy, capacity and ancillary services from
these facilities and also manages the purchase and sale of fuel and emission
allowances needed to operate these facilities.
NRG Power Marketing conducts its activities in accordance with risk
management guidelines approved by the NRG Power Marketing board of directors,
which has primary responsibility for oversight of NRG Power Marketing
activities. NRG Energy's risk management guidelines require that its treasury
department perform a credit review and approve all counter parties and credit
limits prior to NRG Power Marketing entering into a transaction with such
counter parties. NRG Energy does not engage in speculative trading, thus
transactions are primarily for physical delivery of the particular commodity for
the specified period. These physical delivery transactions may take the form of
fixed price, floating price or indexed sales or purchases, and options on
physical transactions, such as puts, calls, basis transactions and swaps, are
also permitted. Contracts for the transmission and transportation of these
commodities are also authorized, as necessary, in order to meet physical
delivery requirements and obligations. All forward sales and purchases of
electricity and fuel are reported to the board of directors of NRG Power
Marketing and to our Financial Risk Management Committee. In accordance with the
risk management guidelines, no more than 50% of the uncommitted energy or
capacity of any facility will be sold forward without the approval of the board
of directors of NRG Power Marketing. Violation by any employee of any of the
risk management guidelines is grounds for immediate termination of employment.
NRG Power Marketing handles fuel procurement and trading of emissions
allowances in order to support NRG Energy's overall needs. Generally, NRG Energy
seeks to hedge prices for 50% to 70% of its expected fuel requirements during
the succeeding 12 to 24 month period. This provides NRG Energy with certainty as
to a portion of its fuel costs while allowing it to maintain flexibility to
address lower than expected dispatch rates and to take advantage of the dual
fuel capabilities at many of its facilities.
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HOW NRG ENERGY SELLS ITS GENERATING CAPACITY AND ENERGY
NRG Energy's operating revenues are derived primarily from the sale of
electrical energy, capacity and other energy products from its power generation
facilities. Revenues from these facilities are received pursuant to:
- long-term contracts of more than one year including:
- power purchase agreements with utilities and other third parties
(generally 2-25 years);
- standard offer agreements to provide load serving entities with a
percentage of their requirements (generally 4-9 years); and
- "transition" power purchase agreements with the former owners of
acquired facilities (generally 3-5 years).
- short-term contracts or other commitments of one year or less and spot
sales including:
- spot market and other sales into various wholesale power markets;
and
- bilateral contracts with third parties.
NRG Energy's objective is to mitigate variability in its earnings by having
approximately 50% of its capacity contracted for under contracts greater than
one year, generally seeking to enter into contracts with lengths of 1-5 years,
selling half of its remaining capacity (25%) in the forward market for 30-365
days, and selling the other half of its remaining capacity (25%) in the spot
market to capture opportunities in the market when prices are higher. By
following this strategy, NRG Energy seeks to achieve positive, stable returns
while retaining the flexibility to capture premium returns when available.
During 2000, NRG Energy derived approximately 34.4% of its 2000 revenues
from majority owned operations from two customers: New York Independent System
Operator (22.2%) and Connecticut Light and Power Company (12.2%). During 1999,
NRG Energy derived approximately 51.2% of total revenues from wholly owned
operations from three customers: Niagara Mohawk Power Corporation (21%),
Consolidated Edison Company of New York, Inc. (19.7%) and Eastern Utilities
Associates (10.5%).
GEOGRAPHICAL INFORMATION
For financial information on NRG Energy's operations on a geographical
basis, see Item 8 -- Note 18 to the financial statements.
PLANT OPERATIONS
NRG Energy's success depends on its ability to achieve operational
efficiencies and high availability at its generation facilities. In the new
unregulated energy industry, minimizing operating costs without compromising
safety or environmental standards while maximizing plant flexibility and
maintaining high reliability is critical to maximizing profit margins. NRG
Energy's operations and maintenance practices are designed to achieve these
goals.
NRG Energy's overall corporate strategy of establishing a top three
presence in certain core markets is in part driven by its operational strategy.
While NRG Energy's approach to plant management emphasizes the operational
autonomy of its individual plant managers and staff to identify and resolve
operations and maintenance issues at their respective facilities, NRG Energy has
also implemented a regional shared practices system in order to facilitate the
exchange of information and best practices among the plants in its various
regions. NRG Energy has organized its operations geographically such that
inventories, maintenance, backup and other operational functions are pooled
within a region. This approach enables NRG Energy to realize cost savings and
enhances its ability to meet its facility availability goals. Plant supervisors
and staff within core markets and across the company typically participate in
weekly conference calls in order to discuss operational issues and share best
practices.
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SIGNIFICANT ASSET AND BUSINESS ACQUISITIONS
In March 2000, NRG Energy acquired the assets of the Killingholme A
generation facility from National Power plc for L390 million (approximately $615
million at the date of acquisition), subject to post-closing adjustments.
Killingholme is a combined cycle gas-fired baseload facility located in North
Lincolnshire, England. The facility comprises three units with a total
generating capacity of 680 MW. NRG Energy owns and operates the facility, which
sells its power into the wholesale electricity market of England and Wales.
In March 2000, NRG Energy acquired the Cajun facilities, 1,708 MW of coal
and gas-fired generation assets in Louisiana, for approximately $1,055.9 million
(the Cajun facilities). These assets were formerly owned by Cajun Electric. NRG
Energy acquired these assets as a result of a competitive bidding process
following the Chapter 11 bankruptcy of Cajun Electric.
In September 2000, NRG Energy completed the acquisition of Flinders Power
in South Australia. NRG Energy paid approximately AUD $314.4 million (U.S. $180
million at the date of acquisition) for a 100-year lease of the Flinders Power
assets. Flinders Power includes two power stations totaling 760 MW. In addition,
NRG Energy received a 20-year lease, renewable for additional 10-year terms, of
the Leigh Creek coal mine and a dedicated rail line. The 100-year lease also
includes managing the long-term fuel supply and power purchase agreement of the
180 MW Osborne Cogeneration Station.
In January 2001, NRG Energy completed the acquisition of a 5,633 MW
portfolio of operating projects and projects in construction and advanced
development that are located primarily in the north central and south central
United States, from LS Power for $708 million. Approximately 1,697 MW are
currently in operation or under construction, and NRG Energy expects that an
additional $1,850 million will be required to complete projects currently under
construction or about to commence construction. Each facility employs natural
gas-fired, combined-cycle technology. Through December 31, 2005, NRG Energy also
has the opportunity to acquire ownership interests in an additional 3,000 MW of
generation projects developed and offered for sale by LS Power and its partners.
SIGNIFICANT EQUITY INVESTMENTS
The following are significant equity investments included in NRG Energy's
Independent Power Generation Segment.
LOY YANG POWER
NRG Energy has a 25.4% interest in Loy Yang Power, which owns and operates
the 2,000 MW Loy Yang A brown coal fired thermal power station and the adjacent
Loy Yang coal mine located in Victoria, Australia. This interest was purchased
for AUD $340 million (approximately US $264.3 million at the time of the
acquisition) in 1997. The power station has four units, each with a 500 MW
boiler and turbo generator, which commenced commercial operation between July
1984 and December 1988. In addition, Loy Yang manages the common infrastructure
facilities that are located on the Loy Yang site, which service not only the Loy
Yang A facility, but also the adjacent Loy Yang B 1,000 MW power station, a
pulverized dried brown coal plant, and several other nearby power stations.
The wholesale electricity market in Australia is regulated under the
National Electricity Law, which provides for a legally enforceable National
Electricity Code, which defines the market rules. The code also makes provision
for the establishment of the National Electricity Market Management Company to
manage the power system, maintain system security and administer the spot
market. Under the rules of the National Electricity Market, the Loy Yang
facility is required to sell all of its output of electricity through the
competitive wholesale market for electricity operated and administered by the
National Electricity Market.
Loy Yang Power is subject to a number of senior debt lending covenants.
From 1997 through 1999, energy prices received by Loy Yang were lower than NRG
Energy expected when the assets were purchased. As a result, during 2000, the
company projected that during 2001 it would breach the loan covenants permitting
equity distributions to the project owners. Based upon current forecasts
incorporating improve-
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ments in the electricity market, indications are that possible future senior
debt covenant breaches forecast in earlier financial reports will not occur. In
the event that the forecast improvements are not achieved, a breach of these
covenants could occur. While Loy Yang Power would still expect to fully service
all of its senior debt payment obligations, senior lenders might exercise their
rights to enforce their securities at that time. NRG Energy could be required to
write-off all or a significant portion of its current $250 million investment in
this project as a result of such enforcement, a determination by the project
company that a write-down of its assets is required or NRG Energy's
determination that it would not be able to recover its investment in this
project.
Junior debt interest payments to the value of AUD $33.9 (approximately US
$18.9 million ) were accumulated during 2000 and, of this, a payment of $7.8
million (approximately US $4.4 million) was made. Deferred/Accrued Junior debt
interest payments as of December 31, 2000, totaled AUD $36.9 million
(approximately US $20.6 million). Based on current cash forecasts it is possible
that further interest payments on the Junior Debt Facility may also be deferred,
all deferred interest will be paid at a later time as permitted under the
workings of the project financing arrangements.
In the National Electricity Market power pool system, it is not possible
for a generator such as Loy Yang to enter into traditional power purchase
agreements. In order to provide a hedge against pool price volatility,
generators have entered into "contracts for differences" with distribution
companies, electricity retailers and industrial customers. These contracts for
differences are financial hedging instruments, which have the effect of fixing
the price for a specified quantity of electricity for a particular seller and
purchaser over a defined period.
In February 2000, CMS Energy announced its intention to divest its 49.6%
ownership in the Loy Yang project but has established no deadline for completion
of the sale. CMS Energy indicated that it intended to sell its interest because
the project was no longer of strategic value to its portfolio and had not met
its financial expectations. Under certain circumstances CMS will require the
approval of Loy Yang Power's lenders and other parties to enable the sale to
proceed. The impact (if any) of the proposed sale on NRG's existing investment
in Loy Yang Power is not known at the date of this report.
MIBRAG
NRG Energy indirectly purchased a 33 1/3% interest in the equity of
Mitteldeutsche Braunkohlengesellschaft mbH (MIBRAG) in 1994 for $10.6 million.
MIBRAG owns coal mining, power generation and associated operations, all of
which are located south of Leipzig, Germany. MIBRAG was formed by the German
government following the reunification of East and West Germany to hold two
open-cast brown coal (lignite) mining operations, a lease on an additional mine,
three lignite-fired industrial cogeneration facilities and briquette
manufacturing and coal dust plants, all located in the former East Germany.
MIBRAG's cogeneration operations consist of the 110 MW Mumsdorf facility, the 86
MW Deuben facility and the 37 MW Wahlitz facility. These facilities provide
power and thermal energy for MIBRAG's coal mining operations and its briquette
manufacturing plants. All power not consumed by MIBRAG's internal operations is
sold under an eight-year power purchase agreement with Westsachsische Energie
Aktiengesellschaft, a recently privatized German electric utility. MIBRAG's
lignite mine operations include Profen, Zwenkau and Schleenhain with total
estimated reserves of 776 million metric tons, which are expected to last for
more than 40 years. A dispute has arisen as to coal transportation compensation
payments to be made to MIBRAG pursuant to the acquisition agreement by
Bundesanstalt fur vereinigungsbedingte Sonderaufgaben (BvS), a German
governmental entity that facilitated the privatization of MIBRAG. The size of
the annual coal transportation compensation payments fluctuates based on the
volume of coal transported to the Schkopau facility. The payment due for 2000
was approximately 59 million deutsche marks (approximately U.S. $28 million) and
has been received by MIBRAG. However, BvS disputes its obligation to make any
future compensation payments. MIBRAG and BvS are engaged in active discussions
to resolve this disagreement. Although MIBRAG believes that a satisfactory
resolution can be negotiated, if that did not occur and BvS ceased to make any
further annual transportation compensation payments to MIBRAG, but MIBRAG were
nevertheless required to continue to transport coal to the Schkopau facility
without the benefit of these
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transportation compensation payments at the prices agreed in 1993 when the
compensation and acquisition agreements were negotiated, it would have a
material adverse effect on MIBRAG.
COBEE
In December 1996, NRG Energy acquired for $81.8 million a 49.1% interest in
COBEE, the second largest generator of electricity in Bolivia. COBEE has entered
into contracts, which expire in 2008, with two Bolivian distribution companies
pursuant to which COBEE supplies electricity. All payments under these contracts
are made in United States dollars.
COBEE operates its electric generation business under a 40-year concession
granted by the Bolivian government in 1990. Under this concession, COBEE is
entitled to earn a return of 9.0% on assets within its rate base. The Bolivian
Electricity Code also provides for the adjustment of rates to compensate COBEE
for any shortfall or to recapture any excess in COBEE's actual rate of return
during the previous year. COBEE periodically applies to the Superintendent of
Electricity for rate increases sufficient to provide its 9.0% rate of return
based on COBEE's current operating results and its projection of future revenues
and expenses. Under COBEE's concession, COBEE's assets are required to be
removed from the rate base in 2008.
GLADSTONE POWER STATION
The Gladstone facility is a 1,680 MW coal-fired power generation facility
located in Gladstone, Australia. NRG Energy acquired a 37.5% ownership interest
in the Gladstone facility for $64.9 million when the facility was privatized in
March 1994.
NRG Energy is responsible for the operation and maintenance of the
Gladstone facility pursuant to a 17-year operation and maintenance agreement
that commenced in 1994, which includes an annual bonus based on availability
targets. The Gladstone facility sells electricity to the Queensland Power
Trading Corporation and also to Boyne Smelters Limited. Pursuant to an
interconnection and power pooling agreement, Queensland Power is obligated to
accept all electricity generated by the facility, subject to merit order
dispatch, for an initial term of 35 years.
Queensland Power also entered into a 35-year capacity purchase agreement
with each of the project's owners for such owner's percentage of the capacity of
the Gladstone facility, excluding that sold directly to Boyne Smelters. Under
the capacity purchase agreements, Queensland Power pays the facility owners both
a capacity and an energy charge. The capacity charge is designed to cover the
projected fixed costs allocable to Queensland Power, including debt service and
an equity return, and is adjusted to reflect variations in interest rates.
The owners of Boyne Smelters have also entered into a power purchase
agreement with each of the project's owners, providing for the sale and purchase
of such owner's percentage share of capacity allocated to Boyne Smelters. The
term of each of these power purchase agreements is 35 years. The owners of Boyne
Smelters is obligated to pay to each of the project's owners a demand charge
that is intended to cover the fixed costs of supplying capacity to Boyne
Smelters, including debt service and return on equity. The owners of Boyne
Smelters are also obligated to pay an energy charge based on the fuel cost
associated with the production of energy from the Gladstone facility.
SCHKOPAU POWER STATION
In 1993, NRG Energy acquired for $18.2 million an indirect 50% interest in
a German limited liability company, Saale Energie GmbH, which then acquired a
41.9% interest in a 960 MW coal-fired power plant that was under construction in
the East German city of Schkopau. The first 425 MW unit of the Schkopau plant
began operation in January 1996, the 110 MW turbine in February 1996, and the
second 425 MW unit in July 1996. The coal is provided under a long-term contract
by MIBRAG's Profen lignite mine.
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Saale Energie sells its allocated 400 MW portion of the plant's capacity
under a 25-year contract with VEAG, a major German utility that controls the
high-voltage transmission of electricity in the former East Germany. VEAG pays a
price that is made up of three components, the first of which is designed to
recover installation and capital costs, the second to recover operating and
other variable costs, and the third to cover fuel supply and transportation
costs. NRG Energy receives 50% of the net profits from these VEAG payments
through its ownership interest in Saale Energie.
COLLINSVILLE POWER STATION
The Collinsville Power Station is a 192 MW coal-fired power generation
facility located in Collinsville, Australia. In March 1996, NRG Energy acquired
a 50% ownership interest in the idled Collinsville facility for $11.9 million
when the Queensland State government privatized it. The Collinsville facility
was recommissioned and commenced operations on August 11, 1998. Transfield
Holdings Pty Ltd, the project's other 50% owner, and NRG Energy have entered
into an 18-year power purchase agreement with Queensland Power under which
Queensland Power will pay both a capacity and an energy charge to the project's
owners. The capacity charge is designed to cover the projected fixed costs
allocable to Queensland Power, including debt service and an equity return. The
energy charge is based on the fuel costs associated with the production of
energy from the facility.
ENERGY CENTER KLADNO
The Energy Center Kladno project, located in Kladno, the Czech Republic
consists of two distinct phases. In 1994, NRG Energy acquired an interest in the
existing coal-fired electricity and thermal energy facility that can supply 28
MW of electrical energy and 150 MW equivalent of steam and heated water. This
facility historically supplied electrical energy to a nearby industrial complex.
The second phase was the expansion of the existing facility, which was completed
in January 2000, by the addition of 345 MW of new capacity, 271 MW of which is
coal-fired and 74 MW of which is gas-fired. The original project is owned by
Energy Center Kladno, a Czech limited liability company in which NRG Energy owns
a 44.26% interest. The expansion is held separately through ECK Generating, a
Czech limited liability company in which NRG Energy owns a 44.50% interest.
ENERGY DEVELOPMENTS LTD
Energy Developments Limited, a publicly traded company listed on the
Australian Stock Exchange, owns and operates approximately 274 MW of generation
primarily in Australia. Between February 1997 and April 1998, NRG Energy
acquired a total of 14,609,670 common shares and 16,800,000 convertible, non-
voting preference shares of Energy Developments. NRG Energy paid a total of
approximately AUD$69.1 million (US$44.5 million at the time of acquisition), or
AUD$2.20 (US$1.42) per share, for the shares, which represent approximately a
29.1% ownership interest in Energy Developments. NRG Energy has agreed to
restrictions on its ability to purchase more shares or to dispose of any
existing shares of Energy Developments. The preference shares do not become
convertible into common shares unless a takeover bid is made for Energy
Developments. In such event, if Energy Developments fails to comply with an
obligation to appoint directors nominated by the owner of the preference shares,
the preference shares can be converted at the option of the owner to common
shares on a share-for-share basis.
WEST COAST POWER
In May 1999, Dynegy and NRG Energy formed West Coast Power, 50% owned by
affiliates of each sponsor. West Coast Power serves as the holding company for a
portfolio of operating companies that own generating assets in Southern
California. These assets are currently comprised of the El Segundo Generating
Station, the Long Beach Generating Station, the Encina Generating Station and 17
Combustion Turbines in the San Diego area (the Encina Combustion Turbines).
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El Segundo Generating Station: The El Segundo Generating Station is a 1,020
MW plant consisting of four units: two units at 175 MW each and two units at 335
MW each. El Segundo was purchased from the Southern California Edison Company
through a competitive bid process for $88.3 million during April 1998.
Long Beach Generating Station: The Long Beach Generating Station is a 560
MW plant with seven 60 MW gas turbine generators and two 70 MW steam turbine
units. The Long Beach plant was purchased from Southern California Edison
Company during March 1998 through a competitive bid process for $29.9 million.
Encina Generating Station: The Encina Generating Station is located in
Carlsbad, California and consists of five steam-electric generating units and
one combustion turbine with net generating capacity of 965 MW. Encina was
purchased from San Diego Gas & Electric during May 1999, at a purchase price of
$283.2 million.
Encina Combustion Turbines: The Encina Combustion Turbine assets consist of
17 combustion turbine generator sets (the CT's) with an aggregate capacity of
253 MW, located on seven different sites in San Diego County. During May 1999,
Dynegy and NRG Energy purchased the CT's from San Diego Gas & Electric through a
competitive bid process. The CT's acquisition had a purchase price of $69.1
million. The CT's have the ability to provide spinning reserve, black start
capability, quick start capability, voltage support and quick load capability
for the ancillary services market.
In December 2000, NRG Energy and its partner submitted permit applications
in respect of a planned repowering of the jointly-owned El Segundo station. The
planned repowering will add approximately 621 MW of generating capacity to the
facility at a cost of approximately $368 million. Prior to the repowering,
approximately 350 MW at the El Segundo Station will be decommissioned. The
repowering project has a targeted operation date of June 2003.
For additional information regarding California's liquidity crisis see Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations -- California Liquidity Crisis.
SIGNIFICANT MAJORITY- AND WHOLLY-OWNED OPERATIONS
The following are significant majority- and wholly-owned operations
included in NRG Energy's Independent Power Generation segment.
CROCKETT COGENERATION
Pacific Crockett Energy, Inc., an indirect, wholly-owned subsidiary of NRG
Energy's, is the general partner of the Crockett Cogeneration Project
(Crockett). Crockett, a 240 MW gas fired plant, began operations in May 1996.
Pacific Generation Company, another wholly-owned subsidiary of the Company, owns
a 56.67 percent limited partnership interest in Crockett through ENI Crockett LP
(ENI Crockett). ENI Crockett is a limited partnership in which Pacific
Generation Company is the general partner and Dynegy is a limited partner. The
project sells 240 MW of capacity and energy to Pacific Gas & Electric Company
under a modified Standard Offer No. 4 Purchase Power Agreement (PPA) extending
to 2026. The PPA provides for a fixed capacity payment and a variable energy
payment based on the market price of gas. In addition, Crockett provides up to
450,000 lbs/hr of steam to the adjacent C&H Sugar refinery under a steam sales
agreement that expires in 2026. Natural gas is supplied to the project by BP
Canada Energy Marketing. ESOCO operates the project under a renewable 15 year
contract that provides for reimbursement of all costs within an approved budget,
plus a fee and provision for a performance bonus. Other limited partners include
Energy Investors Fund LP and Energy Investors Fund II, LP and a subsidiary of
Tomen Power Corp. Crockett was originally financed with a $260 million
construction and term loan facility provided by a commercial bank syndicate led
by ABN-AMRO. On December 15, 1999, Crockett was refinanced with a $255 million
term loan facility provided by a commercial bank syndicate led by ABN-AMRO,
maturing in December 31, 2014.
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NRG NORTHEAST GENERATING LLC
NRG Energy has acquired, through subsidiaries, in five separate
transactions, certain generating assets from Niagara Mohawk Power Corporation
(NIMO), Consolidated Edison Company of New York (ConEd), Montaup Electric
Company (MEC), a wholly owned subsidiary of Eastern Utilities Association (EUA),
and Connecticut Light & Power Company (CL&P) for a total cost of approximately
$1.5 billion. NRG Energy has aggregated these assets into a regional generating
company, NRG Northeast Generating LLC (NRG Northeast); (collectively, the NRG
Northeast assets).
The NRG Northeast assets represent competitive, low cost units with
favorable market dynamics and locations close to major load centers in the NYPP
and NEPOOL.
Huntley and Dunkirk: In June 1999, NRG Energy completed the acquisition of
the Huntley and Dunkirk generating stations from NIMO for $355 million. The two
coal-fired power generation facilities are located near Buffalo, New York and
have a combined capacity rating of 1,360 MW. In connection with this
acquisition, NRG Energy entered into a 4-year agreement with NIMO that requires
NRG Energy to provide to NIMO pursuant to a predetermined schedule fixed
quantities of energy and capacity at a fixed price.
Oswego: In October 1999, NRG Energy completed the acquisition of the 1,700
MW oil and gas fired Oswego generating station for approximately $85 million
from NIMO and Rochester Gas and Electric Corporation.
Astoria Gas Turbines and Arthur Kill: In June 1999, NRG Energy completed
the acquisition of the Astoria gas turbine facility and the Arthur Kill
Generating Station from ConEd for $505 million. These facilities, which are
located in the New York City area, have a combined capacity rating of 1,456 MW.
Somerset: In April 1999, NRG Energy completed the acquisition of the
Somerset power station for approximately $55 million from MEC. The Somerset
station includes two coal fired base-load generating facilities supplying a
total of 181 MW and two aeroderivative combustion turbine peaking units
supplying a total of 48 MW, includes 69 MW on deactivated reserve. It is located
on the west bank of the Taunton River in Somerset, Massachusetts and is
interconnected with the NEPOOL market.
Connecticut stations: In December 1999, NRG Energy completed the
acquisition of four fossil fuel electric generating stations and six remote gas
turbines totaling 2,235 MW from CL&P for $460 million, plus adjustments for
working capital. The assets acquired from CL&P (CL&P Assets) are comprised of
the Middletown, Montville, Devon and Norwalk Harbor gas- and oil-fired steam
generating stations totaling 2,108 MW and 127 MW of remote gas turbines at
Branford, Torrington and Cos Cob, Connecticut. NRG Energy also entered into a
4-year standard offer agreement that requires NRG Energy to provide to CL&P a
portion of its load requirements through the year 2003 at a substantially fixed
price.
Middletown station, an 856 MW gas and oil powered plant, is located in
Middletown, Connecticut. The 498 MW Montville Station in Uncasville, Connecticut
is composed of one gas- or oil-fired unit, one oil-fired unit and two diesel
generators. Norwalk Station, with 353 MW of capacity from two oil-fired units
and one gas turbine, is located on Manresa Island at the mouth of Norwalk
Harbor. Devon Station, consisting of 401 MW of generation capacity derived from
two gas- or oil-fired units and five gas turbines, is located at Milford,
Connecticut.
NRG SOUTH CENTRAL GENERATING LLC
In March 2000, the Cajun facilities were acquired in a competitive bidding
process following a Chapter 11 bankruptcy filing by their former owner, Cajun
Electric. NRG Energy paid approximately $1,055.9 million for these facilities.
The Cajun facilities consist of 100% of two gas-fired intermediate/peaking power
generation units with a total capacity of 220 MW, which NRG Energy collectively
refers to as Big Cajun I, and two coal-fired, base-load power generation units
with a total capacity of 1,150 MW, and a 58% interest in a third coal-fired,
base load unit with a total capacity of 575 MW, which NRG Energy refers to
collectively as Big Cajun II.
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NRG Energy believes the bankruptcy of Cajun Electric resulted from Cajun
Electric's inability to service approximately $2,200 million in secured debt
provided in part by the Rural Utilities Service of the United States Department
of Agriculture, most of which was incurred as a result of the purchase by Cajun
Electric of a 30% interest in the River Bend Nuclear Station Unit 1, a nuclear
power generation facility located in Saint Francisville, Louisiana. Cajun
Electric's 30% interest in the River Bend nuclear facility was transferred to
Entergy Gulf States in December 1997. NRG Energy has no ownership interest in
the River Bend nuclear facility or responsibility for any indebtedness of Cajun
Electric to the Rural Utilities Service or otherwise.
NRG Energy sells most of the energy and capacity of the Cajun facilities to
11 of Cajun Electric's former power cooperative members. Seven of these
cooperatives have entered into 25-year power purchase agreements with NRG
Energy, and four have entered into two to four year power purchase agreements.
In addition, NRG Energy sells power under contract to two municipal power
authorities and one investor-owned utility that were former customers of Cajun
Electric.
KILLINGHOLME
In March 2000, NRG Energy acquired the 680 MW gas-fired Killingholme
combined cycle, baseload facility in North Lincolnshire, England from National
Power plc. The purchase price was (pounds)390 million (approximately U.S. $615.0
million at the time of acquisition), subject to post closing adjustments. NRG
Energy financed the acquisition with a 19-year non-recourse credit facility that
provides for (pounds)235 million (approximately U.S. $374 million at the time of
acquisition) for the costs of the acquisition and (pounds)90 million
(approximately U.S. $143 million at the time of acquisition) for letters of
credit and working capital needs. NRG Energy sells power from the facility into
the wholesale electricity market of England and Wales. The facility has a ten
and one half year contract to purchase up to 70% of its natural gas requirements
from a subsidiary of Centrica plc. From January 1, 2000 through the date of the
acquisition, NRG Energy entered into a tolling agreement with National Power
pursuant to which NRG Energy received revenues based on the prevailing market
prices for electricity in exchange for payments to National Power based on the
incremental operating costs of the facility.
NRG Energy anticipates that prices for power in the wholesale electricity
market of England and Wales will decrease over the short term due to new trading
rules that are expected to come into effect and increase competition in this
market. This expected market trend was taken into account when NRG Energy bid to
acquire this facility. NRG Energy has entered into short-term agreements to sell
a portion of the output of the Killingholme facility, and, in the future, NRG
Energy intends to enter into similar short-term and long-term agreements that
will provide a degree of stability to its revenues from the facility.
FLINDERS POWER
In September 2000, NRG Energy completed the acquisition of Flinders Power,
South Australia's final generation company to be privatized. NRG Energy paid
approximately AUD $314.4 million (approximately U.S. $180 million at the date of
acquisition) for a 100-year lease of certain Flinders Power assets, including
two power stations totaling 760 MW. In addition, NRG Energy received a 20-year
lease, renewable for additional 10-year terms, for the Leigh Creek coal mine and
a dedicated rail line. The 100-year lease agreement also includes managing the
long-term fuel supply and power purchase agreement of the 180 MW Osborne
Cogeneration Station.
LS POWER PROJECTS
In January 2001, NRG Energy completed the acquisition of a 5,633 MW
portfolio of operating projects and projects in construction and advanced
development from LS Power, LLC for approximately $708 million, subject to
purchase price adjustments. Approximately 1,697 MW are currently in operation or
under construction, and NRG Energy expects that an additional $1,850 million
will be required to complete construction of the projects currently under
construction or about to commence construction. Each facility employs natural
gas-fired combined cycle technology. Through 2005, NRG has the opportunity to
acquire
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ownership interests in an additional 3,000 MW of generation projects developed
and offered for sale by LS Power and its partners.
SIGNIFICANT PENDING ACQUISITIONS AND PROJECTS UNDER DEVELOPMENT
Due to the many complexities inherent in the acquisition, development and
financing of projects, there can be no assurance that any of NRG Energy's
pending acquisitions and projects under development, including those described
below, will be consummated.
TURKEY
In 1999, NRG Energy and its partners were selected as the winning bidder
for the 600 MW Seyitomer Power Station and related lignite mine in Kuthya,
Turkey. Seyitomer is NRG Energy's second successful bid in Turkey. In 1998, also
with partners, NRG Energy won a bid to acquire the 450 MW coal-fired Kangal
plant and lignite mine in central Turkey. A law has been introduced in the
Turkish parliament that would require these projects, among others, to close by
June 30, 2001 or be cancelled. NRG Energy is working to meet this deadline.
ESTONIA
In June 2000, the Estonian cabinet approved the terms under which NRG
Energy may proceed to purchase a 49% interest in Narva Power, which owns
approximately 3,000 MW of oil shale-fired generation plants and a 51% interest
in state-owned oil shale mines. In August 2000, NRG Energy signed a Heads of
Terms Agreement with Eesti Energia, the Estonian state-owned electric utility,
providing for the purchase, for approximately $65.5 million, of a 49% stake in
Narva Power, the owner-operator of the oil shale fired Eesti and Balti power
plants located near Narva, Estonia. A government-owned entity, Eesti-Energia,
will retain 51% ownership of Narva Power. Narva Power's two stations, Balti and
Eestia, currently supply more than 90% of Estonia's electricity, and have a
combined capacity of approximately 2,700 MW. NRG Energy is working to close the
acquisition in the second quarter of 2001.
CONECTIV ASSETS
In January 2000, NRG Energy executed purchase agreements with Conectiv to
acquire 1,875 MW of coal, gas and oil fired electric generating capacity and
other assets located in New Jersey, Delaware, Maryland and Pennsylvania. NRG
Energy will pay approximately $800 million for the assets. The fossil-fueled
generating facilities consist of Conectiv's wholly owned BL England, Deepwater,
Indian River and Vienna steam stations plus Conectiv's interest in the Conemaugh
(7.55%)and Keystone (6.17%) steam stations in Pennsylvania. Other assets in the
purchase are the 241-acre Dorchester site located in Dorchester County,
Maryland, certain Merrill Creek Reservoir entitlements in Harmony Township, New
Jersey and certain excess emission allowances. NRG Energy will sell 500 MW of
capacity and associated energy to Delmarva (a subsidiary of Conectiv) under a
five-year power purchase agreement commencing upon the closing of the
acquisition. The remaining energy and capacity will be sold in PJM and
neighboring markets. Closing of the acquisition has been delayed pending receipt
of required regulatory approvals. NRG Energy expects to close the acquisition in
the second quarter of 2001.
The BL England Steam Station is a 447 MW coal and oil-fired generating
facility in Beesley's Point, New Jersey. The Deepwater steam station is a 239 MW
gas, oil and coal facility near Pensville, New Jersey. The Indian River Steam
Station is a 784 MW coal fired facility near Millboro, Delaware. The Vienna
Steam Station is a 170 MW oil-fired generating station located in the town of
Vienna, Maryland. Of the 1,711 MW coal-fired Conemaugh Steam Station, located
near Pittsburgh, Pennsylvania, NRG Energy will acquire a 7.55% ownership or 129
MW of generation. NRG Energy will also acquire a 6.17% ownership or 106 MW in
the 1,711 MW coal-fired Keystone Steam Station also located near Pittsburgh,
Pennsylvania.
15
<PAGE> 18
PARTNERSHIP WITH AVISTA-STEAG LLC
In November 2000, NRG Energy agreed to form a partnership with Avista-STEAG
LLC to build, operate and manage a 633 MW natural gas-fired power plant in Fort
Bend County, Texas. NRG Energy expects to own 50% of the project. NRG Energy's
investment in the project is expected to total approximately $163 million.
Construction is scheduled to begin in early 2001, with commercial operation
expected in February 2003.
BRIDGEPORT AND NEW HAVEN HARBOR
In December 2000, NRG Energy signed asset purchase agreements to acquire
the 585 MW coal fired Bridgeport Harbor Station and the 466 MW oil and gas fired
New Haven Harbor Station in Connecticut from Wisconsin Energy Corporation for
$325 million, subject to purchase price adjustments. The acquisition is subject
to regulatory and other conditions and is expected to close during the second
quarter of 2001.
REID GARDNER AND CLARK GENERATING STATIONS
In November 2000, Dynegy Inc. and NRG Energy executed asset purchase
agreements to acquire the 740 MW gas fired Clark Generating Station and 445 MW
of the 605 MW coal-fired Reid Gardner Generating Station, both of which are near
Las Vegas, Nevada. The purchase price is approximately $634 million, subject to
purchase price adjustments. The acquisition is subject to regulatory and other
conditions. Although NRG Energy is working to close the acquisition during the
second quarter of 2001, legislation has been recently introduced in the Nevada
legislature that, if passed as introduced, would prohibit the sale of the Reid
Gardner and Clark stations. In addition, the Public Utilities Commission of
Nevada has commenced a proceeding that could reverse its original requirement
that these plants be sold. Finally, NRG Energy and Dynegy are negotiating to
acquire an additional 145 MW of the Reid Gardner Station.
NORTH VALMY
In October 2000, NRG Energy signed an asset purchase agreement to acquire
from Sierra Pacific Resources its 50% interest in the 522 MW coal fired North
Valmy Generating Station located in Valmy, Nevada, and a 100% interest in 25 MW
of peaking units near the North Valmy Station. Idaho Power, the other 50% owner
of the North Valmy Station, has a 180-day right of first refusal on purchasing
this 50% interest. The right of first refusal expires in May 2001. In addition,
the California legislature recently enacted legislation prohibiting any public
utility subject to regulation by the California Public Utilities Commsion from
selling any generating asset until 2006. This law applies to Sierra Pacific
Resources because approximately 10% of its rate payers are located in
California. NRG Energy is working to have legislation introduced to exempt the
North Valmy Station and the peaking units from application of this law.
MERIDEN
In December 2000, NRG Energy signed a purchase agreement to acquire a 540
MW natural gas fired generation facility being developed in Meriden,
Connecticut, for a purchase price of approximately $25 million. NRG Energy
expects to close the acquisition during the second quarter of 2001. NRG Energy
estimates the costs to complete construction of the plant to be approximately
$384 million, which has a planned commercial operation date of June 2003.
AUDRAIN
In February 2001, NRG Energy signed a purchase agreement to acquire an
approximately 640 MW natural gas fired power plant currently under construction
in Audrain County, Missouri, from Duke Energy North America LLC. NRG Energy
expects the acquisition to close during the second quarter of 2001, with
commercial operation of the plant commencing in June 2001.
16
<PAGE> 19
REGULATION
NRG Energy is subject to a broad range of federal, state and local energy
and environmental laws and regulations applicable to the development, ownership
and operation of its United States and international projects. These laws and
regulations generally require that a number of permits and approvals be obtained
before construction or operation of a power plant commences and that, after
completion, the facility operate in compliance with local requirements. NRG
Energy strives to comply with the terms of all such laws, regulations, permits
and licenses and believes that all of its operating plants are in material
compliance with all such applicable requirements. No assurance can be given,
however, that in the future all necessary permits and approvals will be obtained
and all applicable statutes and regulations complied with. In addition,
regulatory compliance for the construction of new facilities is a costly and
time-consuming process, and intricate and rapidly changing environmental
regulations may require major expenditures for permitting and create the risk of
expensive delays or material impairment of project value if projects cannot
function as planned due to changing regulatory requirements or local opposition.
Furthermore, there can be no assurance that existing regulations will not be
revised or that new regulations will not be adopted or become applicable to NRG
Energy which would have an adverse impact on its operations.
In particular, the competitive power markets in the United States, United
Kingdom, Australia and other countries are dependent on the existing regulatory
structure, and while NRG Energy strives to take advantage of the opportunities
created by regulatory changes, it is impossible to predict the impact of
regulatory changes on its operations. Further, NRG Energy believes that the
level of environmental awareness and enforcement is growing in most countries,
including most of the countries in which NRG Energy intends to develop and
operate new projects. Based on current trends, NRG Energy believes that the
nature and level of environmental regulation to which it is subject will become
more stringent. NRG Energy's policy is therefore to operate its projects in
accordance with applicable local law or relevant environmental guidelines
adopted by the World Bank, whichever reflects the more stringent level of
control.
COMPETITION
The independent power industry is characterized by numerous strong and
capable competitors, some of which may have more extensive operating experience,
more extensive experience in the acquisition and development of power generation
facilities, larger staffs or greater financial resources than NRG Energy does.
Many of NRG Energy's competitors also are seeking attractive power generation
opportunities, both in the Untied States and abroad. This competition may
adversely affect NRG Energy's ability to make investments or acquisitions. In
recent years, the independent power industry has been characterized by increased
competition for asset purchases and development opportunities.
In addition, regulatory changes have also been proposed to increase access
to transmission grids by utility and non-utility purchasers and sellers of
electricity. Industry deregulation may encourage the disaggregation of
vertically integrated utilities into separate generation, transmission and
distribution businesses. As a result, significant additional competitors could
become active in the generation segment of the industry.
The United States electric utility industry is currently experiencing
increasing competitive pressures, primarily in wholesale markets, as a result of
consumer demands, technological advances, greater availability of natural
gas-fired generation that is more efficient than NRG Energy's generation
facilities and other factors. The Federal Energy Regulatory Commission (FERC)
has implemented and continues to propose regulatory changes to increase access
to the nationwide transmission grid by utility and non-utility purchasers and
sellers of electricity. In addition, a number of states are considering or
implementing methods to introduce and promote retail competition. Recently, some
utilities have brought litigation aimed at forcing the renegotiation or
termination of power purchase agreements requiring payments to owners of QF
projects based upon past estimates of avoided cost that are now substantially in
excess of market prices. In the future, utilities, with the approval of state
public utility commissions, could seek to abrogate their existing power purchase
agreements.
Proposals have been introduced in Congress to repeal PURPA and PUHCA, and
FERC has publicly indicated support for the PUHCA repeal effort. If the repeal
of PURPA or PUHCA occurs, either separately or as part of legislation designed
to encourage the broader introduction of wholesale and retail competition, the
17
<PAGE> 20
significant competitive advantages that independent power producers currently
enjoy over certain regulated utility companies would be eliminated or sharply
curtailed, and the ability of regulated utility companies to compete more
directly with independent power companies would be increased. To the extent
competitive pressures increase and the pricing and sale of electricity assumes
more characteristics of a commodity business, the economics of domestic
independent power generation projects may come under increasing pressure.
Deregulation may not only continue to fuel the current trend toward
consolidation among domestic utilities, but may also encourage the
disaggregation of vertically-integrated utilities into separate generation,
transmission and distribution businesses.
In addition, the independent system operators who oversee most of the
wholesale power markets have in the past imposed, and may in the future continue
to impose, price limitations and other mechanisms to address some of the
volatility in these markets. For example, the independent system operator for
the New York power Pool and the California independent system operator have
recently imposed price limitations. These types of price limitations and other
mechanisms in New York, California, the New England Power Pool and elsewhere may
adversely impact the profitability of NRG Energy's generation facilities that
sell energy into the wholesale power markets. Finally, the regulatory and
legislative changes that have recently been enacted in a number of states in an
effort to promote competition are novel and untested in many respects. These new
approaches to the sale of electric power have very short operating histories,
and it is not yet clear how they will operate in times of market stress or
pressure. Given the extreme volatility and lack of meaningful long-term price
history in many of these markets and the imposition of price limitations by
independent system operators.
ENVIRONMENTAL MATTERS
The construction and operation of power projects are subject to extensive
environmental protection and land use regulation in the United States. These
laws and regulations often require a lengthy and complex process of obtaining
licenses, permits and approvals from federal, state and local agencies. If such
laws and regulations are changed and NRG Energy's facilities are not
grandfathered, extensive modifications to project technologies and facilities
could be required.
Most of the foreign countries in which NRG Energy owns or may acquire or
develop independent power projects have laws or regulations relating to the
ownership or operation of electric power generation facilities. These laws and
regulations are typically significant for independent power producers because
they are still changing and evolving in many countries.
NRG Energy retains appropriate advisors in foreign countries and seeks to
design its international development and acquisition strategy to comply with and
take advantage of opportunities presented by each country's energy laws and
regulations. There can be no assurance that changes in such laws or regulations
could not adversely affect NRG Energy's international operations.
NRG Energy and its subsidiaries continue to strive to achieve compliance
with all environmental regulations currently applicable to their operations.
However, it is not possible at this time to determine when or to what extent
additional facilities or modifications of existing or planned facilities will be
required as a result of changes to environmental regulations, interpretations or
enforcement policies or, generally, what effect future laws or regulations may
have upon NRG Energy's operations. For more information on Environmental Matters
see Note 17 to the Financial Statements under Item 8.
EMPLOYEES
At December 31, 2000, NRG Energy had 2,934 employees, approximately 424 of
whom are employed directly by NRG Energy and approximately 2,510 of whom are
employed by its wholly owned subsidiaries and affiliates. Approximately 1,496
employees are covered by bargaining agreements. NRG Energy has experienced no
significant labor stoppages or labor disputes at its facilities.
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<PAGE> 21
FORWARD-LOOKING STATEMENTS
Certain statements included in this annual report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. While NRG Energy
believes that the expectations expressed in such forward-looking statements are
reasonable, NRG Energy 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 the forward-looking statements contained in
this Form 10-K, factors that could cause our actual results to differ materially
from those contemplated in any forward-looking statements include, among others,
the following:
- Economic conditions including inflation rates and monetary or currency
exchange rate fluctuations;
- Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas where
NRG Energy has a financial interest;
- Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their
products and services;
- 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;
- Availability or cost of capital such as changes in: interest rates;
market perceptions of the power generation industry, the Company or any
of its subsidiaries; or security ratings;
- 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;
- Employee workforce factors including loss or retirement of key
executives, collective bargaining agreements with union employees, or
work stoppages;
- Volatility of energy prices in a deregulated market environment;
- Increased competition in the power generation industry;
- Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
- Factors associated with various investments including conditions of final
legal closing, partnership actions, competition, operating risks,
dependence on certain suppliers and customers, domestic and foreign
environmental and energy regulations;
- Limitations on NRG Energy's ability to control the development or
operation of projects in which the Company has less than 100% interest;
- The lack of operating history at development projects, the lack of NRG
Energy's operating history at the projects not yet owned and the limited
operating history at the remaining projects provide only a limited basis
for management to project the results of future operations;
- Risks associated with timely completion of projects under construction,
including obtaining competitive contracts, obtaining regulatory and
permitting approvals, local opposition, construction delays and other
factors beyond NRG Energy's control;
- The failure to timely satisfy the closing conditions contained in the
definitive agreements for the acquisitions of projects subject to
definitive agreements but not yet closed, many of which are beyond NRG
Energy's control;
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<PAGE> 22
- Factors challenging the successful integration of projects not previously
owned or operated by NRG Energy, including the ability to obtain
operating synergies;
- Factors associated with operating in foreign countries including: delays
in permitting and licensing, construction delays and interruption of
business, political instability, risk of war, expropriation,
nationalization, renegotiation, or nullification of existing contracts,
changes in law, and the ability to convert foreign currency into United
States dollars;
- Changes in government regulation or the implementation of government
regulations, including pending changes within or outside of California as
a result of the California energy crisis, which could result in NRG
Energy's failure to obtain regulatory approvals required to close project
acquisitions, and which could adversely affect the continued deregulation
of the electric industry;
- Other business or investment considerations that may be disclosed from
time to time in NRG Energy's Securities and Exchange Commission filings
or in other publicly disseminated written documents, including NRG
Energy's Registration Statement No. 333-52508, as amended, and all
supplements therein.
NRG Energy undertakes no obligation or publicly 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 our actual
results to differ materially from those contemplated in any forward-looking
statements included in this Form 10-K should not be construed as exhaustive.
EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
The name, age and title of each of the executive officers and directors of
NRG as of March 27, 2001 are as set forth below:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
David H. Peterson 59 Chairman of the Board, President, Chief Executive Officer
and Director
James J. Bender 44 Vice President and General Counsel and Corporate Secretary
Brian B. Bird 38 Vice President and Treasurer
Leonard A. Bluhm 55 Executive Vice President and Chief Financial Officer
W. Mark Hart 50 Senior Vice President, NRG Energy, Inc. and President NRG
Europe and Latin America
Roy R. Hewitt 55 Vice President, Administrative Services
Keith G. Hilless 62 Senior Vice President, Asia Pacific
Craig A. Mataczynski 40 Senior Vice President, North America
John A. Noer 54 Senior Vice President, NRG Energy Inc. and President, NRG
Worldwide Operations
William T. Pieper 35 Controller
Ronald J. Will 60 Senior Vice President, Europe
Wayne H. Brunetti 58 Director, President and CEO Xcel Energy Inc.
Luella G. Goldberg 64 Director, Former Acting President and Chair of the Board of
Trustees Wellesley College
Pierson M. Grieve 73 Director, Retired Chairman and CEO Ecolab, Inc.
William A. Hodder 69 Director, Retired Chairman and CEO Donaldson Company Inc.
James J. Howard 65 Director, Chairman of the Board Xcel Energy, Inc.
Gary R. Johnson 54 Director, Vice President and General Counsel Xcel Energy
Inc.
Richard C. Kelly 54 Director, President-Enterprises Xcel Energy Inc.
Edward J. McIntyre 50 Director, Vice President and CFO Xcel Energy Inc.
</TABLE>
David H. Peterson has been Chairman of the Board of NRG Energy since
January 1994, Chief Executive Officer since November 1993, President since 1989
and a Director since 1989. Mr. Peterson was also Chief
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<PAGE> 23
Operating Officer of NRG Energy from June 1992 to November 1993. Prior to
joining NRG Energy, Mr. Peterson was Vice President, Non-Regulated Generation
for Northern States Power, and he has served in various other management
positions with Northern States Power during the last 20 years.
James J. Bender has been Vice President, General Counsel and Secretary of
NRG since June 1997. He served as the General Counsel of the Polymers Division
of Allied Signal Inc. from May 1996 until June 1997. From June 1994 to May 1996,
Mr. Bender was employed at NRG Energy, acting as Senior Counsel until December
1994 and as Assistant General Counsel and Corporate Secretary from December 1994
to May 1996.
Brian B. Bird has been Vice President and Treasurer of NRG Energy since
June 1999 and Treasurer since June 1997, prior to which he was Director of
Corporate Finance and Treasury for Deluxe Corporation in Shoreview, Minnesota
from September 1994 to May 1997. Mr. Bird was Manager of Finance for the
Minnesota Vikings professional football team from March 1993 to September 1994.
Mr. Bird held several financial management positions with Northwest Airlines in
Minneapolis, Minnesota from 1988 to March 1993.
Leonard A. Bluhm has been Executive Vice President and Chief Financial
Officer of NRG Energy since January 1997. Immediately prior to that, he served
as the first President and Chief Executive Officer of Cogeneration Corporation
of America. Mr. Bluhm was Vice President, Finance of NRG Energy from January
1993 through April 1996. Mr. Bluhm was Chief Financial Officer of Cypress Energy
Partners, a wholly-owned project subsidiary of NRG Energy, from April 1992 to
January 1993, prior to which he was Director, International Operations and
Manager, Acquisitions and Special Projects of NRG Energy from 1991. Mr. Bluhm
previously served for 20 years in various financial positions with Northern
States Power.
W. Mark Hart is Senior Vice President, Europe and Latin America of NRG
Energy. Prior to joining NRG, Hart was vice president of Canadian Operations at
Newmont Mining Company and vice president of Business Processes and Operations
for Europe, South America and Asia. Before that he managed mining operations,
engineering and machinery with Cyprus Amax Minerals Company where he served as
senior vice president of U.S. Operations and president and chief executive
officer of Australia. He has also worked for American Electric Power Fuel
Supply, Standard Oil Company's minerals division and Consolidated Coal Company.
Roy R. Hewitt has been Vice President, Administrative Services at NRG
Energy since February 1999. He has over 30 years experience in the power
industry including 24 years with Northern States Power and seven years with NRG
Energy. Mr. Hewitt joined NRG Energy in 1994 as a member of the senior
management team with NRG's Gladstone Power Station project in Queensland,
Australia. In 1996, he returned to NRG Energy's corporate headquarters as
Executive Director, Human Resources. In 1997, Mr. Hewitt returned to Australia
as Managing Director of the Gladstone Project and later served as Executive
Director, Operations and Engineering for NRG Energy's Asia-Pacific region
headquartered in Brisbane, Australia.
Keith G. Hilless has been Senior Vice President, Asia Pacific of NRG Energy
and Managing Director of NRG Asia Pacific since July 1998, prior to which he was
a senior executive since August 1997. Prior to joining NRG Energy, Mr. Hilless
was Chief Executive Officer of the Queensland Transmission and Supply
Corporation where he had served since January 1995. From 1993 to January 1995,
Mr. Hilless served as the Queensland Electricity Commissioner.
Craig A. Mataczynski has been Senior Vice President, North America of NRG
Energy and President and Chief Executive Officer of NRG North America, since
July 1998. From December 1994 until July 1998, Mr. Mataczynski served as Vice
President, U.S. Business Development of NRG. From May 1993 to January 1995, Mr.
Mataczynski served as President of NEO Corporation, NRG Energy's wholly-owned
subsidiary that develops small electric generation projects within the United
States. Prior to joining NRG Energy, Mr. Mataczynski worked for Northern States
Power from 1982 to 1994 in various positions, including Director, Strategy and
Business Development and Director, Power Supply Finance.
John A. Noer has been Senior Vice President of NRG Energy and President of
NRG Worldwide Operations since January 1, 2000. Immediately prior to that he
served as President-NSP Combustion and
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<PAGE> 24
Hydro Generation for Northern States Power Company and as a director of NRG
since June 1997. He was President and CEO of Northern States Power Wisconsin, a
wholly-owned subsidiary of Northern States Power, since January 1993. Prior to
joining Northern States Power Wisconsin, Mr. Noer was President of Cypress
Energy Partners, a project subsidiary of NRG Energy, from March 1992 to January
1993. Prior to joining Cypress Energy Partners, Mr. Noer held various management
positions with Northern States Power since joining the company in September
1968.
William T. Pieper has been Controller of NRG Energy since May 2000. He has
also held the positions of Assistant Controller and Manager of International
Accounting since joining NRG Energy in March 1995. Prior to joining NRG Energy,
Mr. Pieper practiced as a Certified Public Accountant for six years with the
firm of KPMG.
Ronald J. Will has been Senior Vice President, Europe of NRG Energy and
President and Chief Executive Officer of NRG Europe since July 1998. From March
1994 until July 1998, Mr. Will served as Vice President, Operations and
Engineering of NRG Energy, prior to which he served as Vice President,
Operations from June 1992. Prior to joining NRG, he served as President and
Chief Executive Officer of NRG Thermal from February 1991 to June 1993. Prior to
February 1991, Mr. Will served in a variety of positions with Norenco, a
wholly-owned thermal services subsidiary of NRG, including Vice President and
General Manager from August 1989 to February 1991.
Wayne H. Brunetti is president and CEO of Xcel Energy Inc. Prior to
assuming his current position in August, 2000, Brunetti was vice chairman,
president and chief executive officer of NCE. He was vice chairman, president
and chief operating officer of Public Service Company of Colorado before it
merged with Southwestern Public Service Company to form NCE. He joined Public
Service Company of Colorado as president and chief operating officer in 1994.
Luella G. Goldberg is a member of the boards of directors of TCF Financial,
ReliaStar Financial and Hormel Foods Corporations. From 1985 to 1993, Goldberg
served as chair of the Wellesley College Board of Trustees. She served as acting
president of the college from July 1993 to October 1993 and is now a Trustee
Emerita.
Pierson M. (Sandy) Grieve is a member of the boards of directors of The St.
Paul Companies, Inc., Media One Group, Inc., Reliant Energy Minnegasco, Guide
Corporation, Mesaba Aviation and Bank of Naples. Grieve served as chairman and
CEO of Ecolab, Inc. from 1983 to 1995 after moving from his position as
president and CEO of Questor Corp.
William A. Hodder is a member of the boards of directors of Musicland
Stores Corp., ReliaStar Financial Corp., SUPERVALU, Inc., Wells Fargo & Co, and
the University of Minnesota, Carlson School of Management (Board of Overseers).
Hodder served as chairman and CEO of Donaldson Company, Inc. from 1994 to 1996
and chairman, president and CEO from 1985 to 1994. Hodder joined Donaldson as
president in 1973.
James J. Howard is chairman, of Xcel Energy. He served as chairman,
President and CEO of Northern States Power from 1994 until August 2000. He
joined NSP as president and CEO in 1987. Before joining NSP, Howard was
president and chief operating officer of Ameritech. Howard is also chairman of
the Federal Reserve Bank of Minneapolis, a director of Ecolab Inc., Honeywell
International Inc. and Walgreen Co.
Gary R. Johnson has been a Director of NRG Energy since 1993 and has been
Vice President and General Counsel of Xcel since August 2000. He served as Vice
President and General Counsel of Northern States Power from November 1991 to
August 2000. Prior to November 1991, Mr. Johnson was Vice President-Law of
Northern States Power from January 1989, acting Vice President from September
1988 and Director of Law from February 1987, and he has served in various
management positions with Northern States Power during the last 20 years.
Richard C. Kelly has been a Director of NRG Energy since August 2000. He is
President -- Enterprises of Xcel, and was formerly executive vice president,
financial and support services, and chief financial officer for
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<PAGE> 25
NCE. Before that, Kelly was senior vice president of finance, treasurer and
chief financial officer for Public Service Company of Colorado, which he joined
in 1968.
Edward J. McIntyre has been a Director of NRG Energy since 1993. He has
been Vice President and Chief Financial Officer of Xcel Energy since August
2000, and prior to that was Vice President and Chief Financial Officer of
Northern States Power from January 1993. Mr. McIntyre served as President and
Chief Executive Officer of Northern States Power-Wisconsin, a wholly-owned
subsidiary of Northern States Power, from July 1990 to December 1992, as Vice
President Gas Utility from November 1985 to June 1990, and he has served in
various other management positions since joining Northern States Power in 1973.
ITEM 2 -- PROPERTIES
Listed below are descriptions of NRG Energy's interests in facilities,
operations and/or projects under construction as of December 31, 2000.
INDEPENDENT POWER PRODUCTION AND COGENERATION FACILITIES
<TABLE>
<CAPTION>
NRG'S
NET PERCENTAGE
CAPACITY OWNERSHIP
NAME AND LOCATION OF FACILITY PURCHASER/POWER MARKET (MW)(2) INTEREST FUEL TYPE
- - ----------------------------- ---------------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
NORTHEAST REGION:
Oswego, New York............... Niagara Mohawk/NYISO 1,700 100% Oil/Gas
Huntley, New York.............. Niagara Mohawk/NYISO 760 100% Coal
Dunkirk, New York.............. Niagara Mohawk/NYISO 600 100% Coal
Arthur Kill, New York.......... Con Ed/NYISO 842 100% Gas
Astoria Gas Turbines, New
York......................... Con Ed/NYISO 614 100% Gas
Somerset, Massachusetts........ NEPOOL/ISO-NE 229 100% Coal/Oil
Middletown, Connecticut........ NEPOOL/NYPP/ISO-NE 856 100% Oil/Gas
Montville, Connecticut......... NEPOOL/NYPP/ISO-NE 498 100% Gas/Oil
Norwalk, Connecticut........... NEPOOL/NYPP/ISO-NE 353 100% Oil
Connecticut Remote Jets,
Connecticut.................. NEPOOL/NYPP/IOS-NE 127 100% Oil
Devon, Connecticut............. NEPOOL/NYPP/IOS-NE 401 100% Gas/Oil
Other -- 10 projects........... Various 124 Various Various
SOUTH CENTRAL REGION:
Big Cajun I, Louisiana
Unit 1....................... Cooperatives/SERC/Municipals 110 100% Gas
Unit 2....................... Cooperatives/SERC/Municipals 110 100% Gas
Big Cajun I expansion,
Louisiana.................... Cooperatives/SERC/Municipals 238 100% Gas
Big Cajun II, Louisiana
Unit 1....................... Cooperatives/SERC/Municipals 575 100% Coal
Unit 2....................... Cooperatives/SERC/Municipals 575 100% Coal
Unit 3....................... Cooperatives/SERC/Municipals 338 58% Coal
Sterlington, Louisiana......... SERC/Various 130 100% Gas
Sterlington expansion,
Louisiana.................... SERC/Various 72 100% Gas
Sabine River Works, Texas...... Dupont/ERCOT 210 50% Gas
Other -- 3 projects............ Various 55 Various Various
WEST COAST REGION:
El Segundo Power, California... Cal PX 510 50% Gas
Encina, California............. Cal PX/Must-run 483 50% Gas/Oil
Long Beach Generating,
California................... Cal PX 265 50% Gas
San Diego Combustion Turbines,
California................... Cal PX/Must-run 127 50% Gas/Oil
Crockett Cogeneration,
California................... PG&E 138 57.67% Gas
Mt. Poso Cogeneration,
California................... PG&E 20 39.50% Coal
Other -- 4 projects............ Various 27 Various Various
NORTH CENTRAL REGION:
Rocky Road Power, Illinois..... ECAR/MAIN 175 50% Gas
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
NRG'S
NET PERCENTAGE
CAPACITY OWNERSHIP
NAME AND LOCATION OF FACILITY PURCHASER/POWER MARKET (MW)(2) INTEREST FUEL TYPE
- - ----------------------------- ---------------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
MID-ATLANTIC REGION:
Dover, Delaware................ Conectiv/PJM 18 100% Gas
Dover expansion, Delaware...... Conectiv/PJM 88 100% Gas
INTERNATIONAL PROJECTS:
Australia:
Flinders, South Australia...... National Electricity Market 760 100% Coal
Gladstone Power Station,
Queensland................... QPTC; Boyne Smelter 630 37.50% Coal
Loy Yang Power A, Victoria..... Victorian Pool 507 25.37% Coal
Collinsville, Collinsville
Australia.................... QPTC 96 50% Coal
Energy Investors Funds,
Various...................... Various 2 0.25% Coal
Energy Developments Limited,
Various...................... Various 88 26.59% LFG/Methane
Europe:
Killingholm, UK................ UK Electricity Grid 680 100% Gas
Enfield, UK.................... UK Electricity Grid 99 25% Gas
Schkopau Power Station,
Germany...................... VEAG 200 20.95% Coal
MIBRAG mbH, Germany............ WESAG/MIBRAG 78 33.33% Coal
Energy Center Kladno, (ECK)/
ECKG......................... STE/Industrials 166 44% Coal
Latin America:
COBEE, Bolivia................. Electropaz/ELF 108 49.45% Hydro/Gas
Bulo Bulo, Bolivia............. Bolivian Grid 26 30% Gas
Itiquira Energetica S.A.,
Brazil....................... 38 25.05% Hydro
Latin Power, Various........... Various 53 Various Gas/Coal/Oil/Geo
OTHER NORTH AMERICA
NEO Corporation................ Various 97 Various Various
Energy Investors funds (1&3)... Various 11 Various Various
</TABLE>
24
<PAGE> 27
THERMAL ENERGY PRODUCTION AND TRANSMISSION FACILITIES
AND RESOURCE RECOVERY FACILITIES
<TABLE>
<CAPTION>
NRG'S
PERCENTAGE THERMAL ENERGY
DATE OF OWNERSHIP PURCHASER/MSW
NAME AND LOCATION OF FACILITY ACQUISITION NET EQUITY CAPACITY(1) INTEREST SUPPLIER
----------------------------- ----------- ---------------------- ---------- --------------
<S> <C> <C> <C> <C>
San Francisco Thermal LLC,
California.................... 1995 Steam; 490 mmBtu/hr 100.00 Approximately 185
customers
(Purchased remaining 51%)....... 1999 (144 MWt)
San Diego Power & Cooling,
California.................... 1997 Chilled Water: 8,000 100.00 Approximately 19
tons/hr. customers
Camas Power Boiler,
Washington.................... 1997 200mmBtu/hr (59 MWt) 100.00 Fort James Corp.
NRG Minneapolis Energy Center
(MEC), Minnesota.............. 1993 Steam: 1,408 mmBtu/hr. 100.00 Approximately 92 steam
(413 MWt) customers and 39 chilled
water customers
Chilled water: 40,750
tons/hr.
Hennepin Co. Energy Center,
Minn.......................... NA 140 mmBtu/hr (81 MWt) -- MEC Customers
Rock-Tenn, Minnesota............ 1992 Steam: 430 mmBtu/hr. 100.00 Rock-Tenn Company
(12 MWt)
Washco, Minnesota............... 1992 160 mmBtu/hr. (47 MWt) 100.00 Andersen Corporation
Minnesota Correctional
Facility
Pittsburgh Thermal LLC,
Pennsylvania.................. 1995 Steam; 240 mmBtu/hr 100.00 Approximately 29 steam
customers and 27 chilled
water customers
(Purchased remaining 51%)....... 1999 (70 MWt) Chilled Water
10,180 tons
Energy Center Kladno, Czech
Republic (2).................. 1994 227 mmBtu/hr. (150 44.26 City of Kladno
MWt)
NRG Energy Center Harrisburg.... 2000 Steam -- 490 mmBtu/hr. 100.00 City of Harrisburg and
Chilled Water 1,800 Commonwealth of
tons Pennsylvania
NRG Energy Center Dover......... 2000 190 mmBtu/hr. 100.00 Local manufacturing
corporation and Dover
municipal electric
utility
RESOURCE RECOVERY FACILITIES
Newport, Minnesota.............. 1993 MSW: 1,500 tons/day 100.00 Ramsey and Washington
Counties
Elk River, Minnesota............ NA(3) MSW: 0 tons/day -- Anoka, Hennepin, and
Sherburne Counties;
Tri-County Solid Waste
Management Commission
Penobscot Energy Recovery,
Maine......................... 1997 MSW: 209 tons/day 26.12 Bangor Hydroelectric
Company
Maine Energy Recovery, Maine.... 1997 MSW: 111 tons/day 16.25 Central Maine Power
</TABLE>
- - ---------------
(1) Thermal production and transmission capacity is based on 1,000 Btus per
pound of steam production or transmission capacity. The unit mmBtu is equal
to one million Btus.
(2) Kladno also is included in the Independent Power Production and Cogeneration
Facilities table on the preceding page.
(3) NRG Energy operates the Elk River resource recovery facility on behalf of
Xcel.
25
<PAGE> 28
OTHER PROPERTIES
In addition to the above, NRG Energy leases its corporate offices at 901
Marquette, Suite 2300, Minneapolis, Minnesota 55402 and various other office
spaces.
ITEM 3 -- 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.
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, 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 LLC's and Niagara Mohawk Power
Corporation'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 summary judgment motions to dispose of the litigation. A
hearing on these motions was held in January 2001. A ruling on these motions has
not yet been issued. NRG Energy intends to continue to vigorously defend the
suit and believes Fortistar's complaint to be without merit. No trial date has
been set.
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 the prior owner of the Huntley
and Dunkirk facilities relating to physical changes made at those facilities
prior to our 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. NRG Energy is currently
in settlement discussions with the Department of Environmental Conservation and
the State Attorney General's office.
CALIFORNIA LITIGATION
NRG Energy and other power generators and power traders have been named as
defendants in certain private plaintiff class actions filed in the Superior
Court of the State of California for the County of San Diego in San Diego,
California on November 27, 2000 (Pamela R. Gorden v. Reliant Enegy, Inc., et
al.) and November 29, 2000 (Ruth Hendricks v. Dynegy Power Marketing Inc., et
al.), and in the Superior Court of the State of California, City and County of
San Francisco (Pier 23 Restaurant v. PG&E Energy Trading, et al., filed January
16, 2001 in the Superior Court of the State of California for the County of San
Diego, brought by three California water districts, as consumers of electricity
(Sweetwater Authority v. Dynegy Inc., et al.), and in a suit filed on January
18, 2001 in Superior Court of the State of California, County of San Francisco,
brought by the San Francisco City Attorney on behalf of the People of the State
of California (The People of the State of California v. Dynegy Power Marketing,
Inc., et al.). Although the complaints contain a number of allegations, the
basic claim is that, by underbidding forward contracts and exporting electricity
to surrounding markets, the defendants, acting in collusion, were able to drive
up wholesale prices on the Real Time and Replacement Reserve markets, through
the Western Systems Coordinating Council and otherwise.
26
<PAGE> 29
The complaints allege that the conduct violated California antitrust and unfair
competition laws. NRG Energy does not believe that it has engaged in any illegal
activities, and intends to vigorously defend these lawsuits. While these cases
are in too preliminary a stage to speculate on their outcome, if they were
ultimately resolved adversely to the defendants it could have a material adverse
effect on NRG Energy's results of operations and financial condition.
There are no other material legal proceedings pending to which NRG Energy
is a party. There are no material legal proceedings to which an officer or
director is a party or has a material interest adverse to NRG Energy or its
subsidiaries. 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 NRG Energy is or would be a
party.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were considered during the fourth quarter of 2000.
PART II
ITEM 5 -- MARKET PRICE FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY STOCK DATA
NRG Energy's common stock is traded principally on the New York Stock
Exchange (the Exchange). The common stock was first traded on the Exchange on
June 5, 2000, concurrent with the underwritten initial public offering of shares
of NRG Energy's common stock at an initial price to the public of $15.00 per
share. The following table reflects the range of high and low selling prices of
NRG Energy's common stock by quarter from June 5, 2000 through December 31,
2000. This information is based on selling prices as reported by the New York
Stock Exchange.
<TABLE>
<CAPTION>
2000 1999
---------------- ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter.......................................... N.A N.A. N.A. N.A.
Second Quarter......................................... $18.15 $16.25 N.A.. N.A.
Third Quarter.......................................... $36.50 $18.15 N.A.. N.A.
Fourth Quarter......................................... $36.50 $22.50 N.A.. N.A.
N.A. -- Not available -- stock not publicly traded
</TABLE>
HOLDERS
At March 15, 2001, there were approximately 98 holders of record of common
stock and 1 holder of Class A common stock.
DIVIDENDS
NRG Energy has not paid and does not currently intend to distribute any
earnings as dividends.
27
<PAGE> 30
ITEM 6 -- SELECTED FINANCIAL DATA
The following table presents selected financial data of NRG Energy, Inc.
This historical data should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto in Item 8 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
(In thousands, except per share data.) ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Total operating revenues.............. $2,157,986 $ 500,018 $182,130 $ 118,252 $104,464
Total operating costs and expenses.... 1,584,913 390,498 125,118 100,143 84,188
Net Income............................ 182,935 57,195 41,732 21,982 19,978
Weighted Average Number of Common
Shares Outstanding -- Basic......... 165,861 147,605 147,605 147,605 147,605
Weighted Average Number of Common
Shares Outstanding -- Diluted....... 166,989 147,605 147,605 147,605 147,605
Earnings per Weighted Average Common
Share -- Basic...................... $ 1.10 $ .39 $ .28 $ .15 $ .14
Earnings per Weighted Average Common
Share -- Diluted.................... 1.10 .39 .28 .15 .14
Total Assets.......................... 5,978,992 3,431,684 1,293426 1,168,102 680,809
Long-term debt, including current
maturities.......................... 3,797,318 1,971,860 626,476 620,855 212,141
</TABLE>
- - -------------------------
* Earnings Per Share amounts for the years 1999 and earlier have been restated
to reflect the issuance of Class A common stock.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned operations..................... 94% 87% 55%
Equity in earnings of unconsolidated affiliates............. 6% 13% 45%
--- --- ---
TOTAL OPERATING REVENUES AND EQUITY EARNINGS................ 100% 100% 100%
--- --- ---
OPERATING COSTS AND EXPENSES
Cost of majority-owned operations........................... 59% 54% 29%
Depreciation and amortization............................... 6% 7% 9%
General, administrative, and development.................... 8% 17% 31%
--- --- ---
TOTAL OPERATING COSTS AND EXPENSES.......................... 73% 78% 69%
--- --- ---
OPERATING INCOME............................................ 27% 22% 31%
--- --- ---
OTHER INCOME (EXPENSE)
Minority interest in earnings of consolidated
Subsidiaries.............................................. (1%) -- (1%)
Other income, net........................................... -- 3% 6%
Interest expense............................................ (13%) (19%) (27%)
--- --- ---
TOTAL OTHER EXPENSE......................................... (14%) (16%) (22%)
--- --- ---
INCOME BEFORE INCOME TAXES.................................. 13% 6% 9%
INCOME TAX EXPENSE (BENEFIT)................................ 4% (5%) (14%)
--- --- ---
NET INCOME.................................................. 9% 11% 23%
=== === ===
</TABLE>
28
<PAGE> 31
FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31,
1999
For the year ended December 31, 2000, net income was $182.9 million
compared to $57.2 million for 1999, an increase of $125.7 million or 219.8%.
This increase was due to the factors described below.
REVENUES AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
For the year ended December 31, 2000, NRG Energy had total revenues and
equity earnings of $2,157.9 million, compared to $500.0 million for the year
ended December 31, 1999, an increase of $1,657.9 million or 331.6%. NRG Energy's
operating revenues from majority-owned operations were $2,018.6 million compared
to $432.5 million, an increase of $1,586.1 million or 366.7%. The increase in
revenues from majority-owned operations is primarily due to increased sales
resulting from recently completed acquisitions of electric generating
facilities, primarily during the later portion of 1999 and the first and third
quarters of 2000. During the later portion of 1999, NRG Energy acquired certain
electric generating facilities in the northeastern region of the United States.
In addition, NRG Energy acquired certain electric generating facilities located
in Louisiana and the United Kingdom at the end of the first quarter of 2000.
During the third quarter of 2000, NRG Energy acquired Flinders Power and certain
thermal operations. In addition, NRG Energy's increased ownership in Crockett
Cogeneration has contributed significantly to its revenue growth during 2000, as
compared to 1999.
For the year ended December 31, 2000, NRG Energy had equity in earnings of
unconsolidated affiliates of $139.4 million, compared to $67.5 million for the
year ended December 31, 1999, an increase of $71.9 million or 106.5%. The
increase in equity earnings of unconsolidated affiliates is due primarily to NRG
Energy's investment in West Coast Power LLC, which benefited from favorable
market conditions in California. In addition, NRG Energy's investment in Rocky
Road LLC, in the fourth quarter of 1999, also contributed favorably to the
increase in equity earnings, compared to the prior year. These increases were
partially offset by reductions in the earnings attributable to NRG Energy's
international equity investments and its investment in NEO Corporation. NEO
Corporation derives a significant portion of its net income from Section 29 tax
credits. NRG Energy does not expect its investment in West Coast Power LLC to
generate similar earnings in the year 2001.
OPERATING COSTS AND EXPENSES
For the year ended December 31, 2000, cost of majority-owned operations,
was $1,289.5 million, compared to $269.9 million, an increase of $1,019.6
million or 377.8%. For the year ended December 31, 2000 and 1999, cost of
majority-owned operations represented 59.8% and 54.0% of total operating
revenues and equity earnings, respectively.
For the year ended December 31, 2000, the increase of $1,019.6 million is
primarily due to NRG Energy's recent acquisitions of electric generating
facilities during the later portion of 1999 and primarily the first and third
quarters of 2000. During the later portion of 1999, NRG Energy acquired certain
electric generating facilities in the northeastern region of the United States.
In addition, NRG Energy acquired certain electric generating facilities located
in Louisiana and the United at the end of the first quarter of 2000. During the
third quarter of 2000, NRG Energy acquired Flinders Power and certain thermal
operations. In addition, NRG Energy's ownership in Crockett Cogeneration has
contributed significantly to the growth the cost of majority-owned operations
during 2000, as compared to 1999.
DEPRECIATION AND AMORTIZATION
For the year ended December 31, 2000, depreciation and amortization was
$122.9 million, compared to $37.0 million for the year ended December 31, 1999,
an increase of $85.9 million or 232.1%. This increase is primarily due to the
addition of property, plant and equipment related to NRG Energy's recently
completed acquisitions of electric generating facilities during the later
portion of 1999 and primarily the first and third quarters of 2000. In addition
the consolidation of NRG Energy's investment in Crockett Cogeneration at the end
of 1999 also contributed to the increase in depreciation and amortization during
2000. Through these acquisitions NRG Energy's net property, plant and equipment
balance has grown to $4,041.7 million at the end of 2000 from $1,975.4 million
at the end of 1999, an increase of $2,066.3 million or 104.6%.
29
<PAGE> 32
GENERAL, ADMINISTRATIVE AND DEVELOPMENT
For the year ended December 31, 2000, general, administrative and
development costs were $172.5 million, compared to $83.6 million, an increase of
$88.9 million or 106.4%. This increase is primarily due to increased business
development activities, associated legal, technical and accounting expenses,
employees and equipment resulting from expanded operations and pending
acquisitions. NRG Energy's asset base has grown to $5,978.9 million at the end
of 2000, compared to $3,431.7 million at the end of 1999, an increase of
$2,547.2 million or 74.2%. NRG Energy expects this trend to continue as it
continues to be successful in expanding its operations through closure of its
pending acquisitions and business development activities.
OTHER INCOME (EXPENSE)
For the year ended December 31, 2000, total other expense was $297.4
million, compared to $78.4 million for the year ended December 31, 1999, an
increase of $219.0 million or 279.3%.
The increase in total other expense of $219.0 million, as compared to 1999,
consisted primarily of an increase in Interest expense and Minority interest in
earnings of consolidated subsidiary. These increases were partially offset by
decreases in other income, net and gain on sale of interest in projects, in
comparison to 1999.
For the year ended December 31, 2000, interest expense (which includes both
corporate and project level interest expense) was $293.9 million, as compared to
$93.4 million in 1999, an increase of $200.5 million or 214.8%. This increase is
due to increased corporate and project level debt issued during 2000 as compared
to 1999. During 2000, NRG Energy issued substantial amounts of long term debt at
both the corporate level (recourse debt) and project level (non-recourse debt)
to either directly finance the acquisition of electric generating facilities or
refinance short term bridge loans incurred to finance such acquisitions. NRG
Energy's outstanding long-term debt balances have grown to $3,797.3 million at
the end of 2000 from $1,971.9 million at the end of 1999. The growth of such
outstanding debt balances has contributed directly to the growth in interest
expense during 2000 as compared to 1999.
For the year ended December 31, 2000, minority interest in earnings of
consolidated subsidiaries was $11.3 million, compared to $2.5 million, an
increase of $8.8 million or 361.5% as compared to 1999. The increase is due to
the consolidation of NRG Energy's 58% interest in Crockett Cogeneration at the
end of 1999 and the recognition of the minority interest in the project.
For the year ended December 31, 2000, NRG Energy did not recognize any
gains on the sale of any project interests. During 1999 NRG Energy recognized a
gain of $11.0 million related to the reduction in its ownership of Cogeneration
Corporation of America (CogenAmerica). For the year ended December 31, 2000,
other income, net, was $7.9 million, as compared to $6.4 million, for the year
ended December 31, 1999, an increase of $1.5 million, or 22.2%. Other income,
net consists primarily of interest income on loans to affiliates, and
miscellaneous other items, including the income statement impact of certain
foreign currency translation adjustments and the impact of project write-downs
and gains and losses on the dispositions of investments. The increase of $1.5
million is primarily due to an increase in interest income in 2000.
INCOME TAX
For the year ended December 31, 2000, income tax expense was $92.7 million,
compared to an income tax benefit of $26.1 million, an increase of $118.8
million or 455.6%, compared to 1999. The increase in tax expense in 2000
compared to 1999 is due primarily to higher domestic taxable income. This
increase was partially offset by additional IRC Section 29 energy credits. For
the year ended December 31, 2000, NRG Energy's overall effective income tax rate
was approximately 34%. NRG Energy's effective income tax rate before recognition
of tax credits is 46%. This rate is higher than a combined federal and Minnesota
statutory rate because a significant portion of NRG Energy's income is generated
in New York City, an area with high state and local tax rates. In addition, NRG
Energy has recorded a valuation allowance on certain state and foreign tax
losses, also increasing the effective tax rate.
30
<PAGE> 33
FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31,
1998
Net income for the year ended December 31, 1999, was $57.2 million, an
increase of $15.5 million or 37.1%, compared to net income of $41.7 million in
the same period in 1998. This increase was due to the factors described below.
REVENUES AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES
For the year ended December 31, 1999, NRG Energy had total revenues of
$500.0 million, compared to $182.1 million for the year ended December 31, 1998,
an increase of $317.9 million or 174.5%. NRG Energy's operating revenues from
wholly owned operations for the twelve months ended December 31, 1999 were
$432.5 million, an increase of $332.1 million, or 330.7%, over the same period
in 1998. Approximately $303.6 million of the increase in revenues was due to the
acquisition of the NRG Northeast assets during 1999. Approximately $29.1 million
of the increase is due to increased revenues due to the consolidation of
Pittsburgh and San Francisco Thermal and the consolidation of Crockett
Cogeneration during 1999. These increases in revenues were partially offset by a
drop in the processing rates received by NRG Energy's resource recovery
operations. For the twelve months ended December 31, 1999, revenues from wholly
owned operations consisted primarily of revenue from electrical generation
(78.3%), heating, cooling and thermal activities (17.6%) and technical services
(4.1%).
Equity in earnings of unconsolidated affiliates was $67.5 million for the
year ended December 31, 1999, compared to $81.7 million for the year ended
December 31, 1998, a decrease of $14.2 million or 17.4%. The decrease was due to
a $12.8 million reduction in earnings for NRG Energy's interest in the West
Coast power generation facilities resulting from unfavorable weather conditions
during the summer of 1999 compared to the summer of 1998, which was more
favorable than normal. In addition, the results of operations of the West Coast
facilities were adversely impacted by project level debt that was issued during
the year. Equity earnings were also reduced by lower earnings at Mt. Poso, by
the consolidation of NRG Energy's Thermal operations and Crockett Cogeneration
subsidiaries during 1999 and by an unfavorable currency translation adjustment
relating to the Kladno project. These reductions were partially offset by a
favorable legal settlement at CogenAmerica and increased earnings from MIBRAG.
OPERATING COSTS AND EXPENSES
Cost of wholly owned operations was $269.9 million for the year ended
December 31, 1999. This is an increase of $217.5 million or 414.9% over the same
period in 1998. Approximately $194.9 million of this increase was due to the
acquisition of the NRG Northeast assets during 1999. The remaining increase was
due to the consolidation of NRG Energy's Thermal operations and the addition of
new projects during 1999 by NRG Energy's NEO subsidiary. Cost of operations, as
a percentage of revenues from wholly owned operations for the year, was 62.4%,
which is 10.2 percentage points higher than the same period in 1998.
Depreciation and amortization costs were $37.0 million for the year ended
December 31, 1999, compared to $16.3 million for the year ended December 31,
1998. The increase in depreciation and amortization was due primarily to the
addition of the NRG Northeast assets and the addition of new projects by NRG
Energy's NEO subsidiary during 1999. In addition, depreciation and amortization
also increased due to the consolidation of NRG Energy's Thermal operations and
Crockett Cogeneration in 1999.
General, administrative and development costs were $83.6 million for the
year ended December 31, 1999, compared to $56.4 million for the year ended
December 31, 1998. Approximately $8.0 million of the increase was due to the
acquisition of the NRG Northeast assets during 1999. The remaining increase was
due primarily to increased business development activities and increased legal,
technical, and accounting expenses resulting from expanded operations. As a
percent of total revenues, administrative and general expenses declined to 16.7%
from 31.0% during the same period one-year earlier.
31
<PAGE> 34
OTHER INCOME (EXPENSE)
Minority interest in projects was $2.5 million for the twelve-month period
compared to $2.3 million for the same period in 1998. Minority interest relates
to certain Pacific Generation projects that were acquired in November 1997 and
certain Thermal operations which have a minority interest.
In December 1999, NRG Energy sold a portion of its interest in
CogenAmerica, an affiliate of NRG Energy, for a pretax gain of approximately
$11.0 million ($4.1 million after-tax) to Calpine. NRG Energy retained a 20%
interest in CogenAmerica.
Interest expense was $93.4 million for the twelve months ended December 31,
1999 compared with $50.3 million for the twelve months ended December 31, 1998.
The increase in interest expense was due primarily to the acquisition of the NRG
Northeast assets and the incremental interest expense resulting from the $686.5
million of project level debt issued by NRG Northeast Generating LLC and to the
issuance by NRG Energy of $300 million and $240 million of senior notes in June
1999 and November 1999, respectively. Additionally, a higher average outstanding
balance of NRG Energy's revolving line of credit and the consolidation of
Crockett Cogeneration and NRG Energy's Thermal operations contributed to higher
interest expense.
INCOME TAX
NRG Energy has recognized an income tax benefit due to the recognition of
certain tax credits. The net income tax benefit for the year ended December 31,
1999, increased by $0.4 million to $26.1 million as compared to $25.7 million in
the same period one year earlier. The increase in tax benefits for the twelve
month period was due to increased interest expense on domestic debt, project
write downs and an increase in Section 29 credits related to NRG Energy's NEO
subsidiary operations and foreign tax benefits associated with the Loy Yang
project, which was substantially offset by higher overall earnings.
LIQUIDITY AND CAPITAL RESOURCES
To date, NRG Energy and its subsidiaries have obtained cash from
operations, issuance of debt and equity securities, borrowings under credit
facilities, capital contributions from Xcel, reimbursement by Xcel of tax
benefits pursuant to a tax sharing agreement and proceeds from non-recourse
project financings. NRG Energy has used these funds to finance operations,
service debt obligations, fund the acquisition, development and construction of
generation facilities, finance capital expenditures and meet other cash and
liquidity needs.
CASH FLOWS
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net cash provided by (used in) operating activities (in
thousands)................................................ $361,984 ($11,380) $21,998
</TABLE>
Net cash provided by operating activities increased during 2000 compared
with 1999, primarily due to increased earnings during the year, increased
depreciation and amortization and deferred income tax and investment tax
credits, non-cash reductions in earnings and improved working capital. Cash
provided by operating activities in 1999 decreased compared to 1998, primarily
due to a decrease in working capital due to a timing of cash flows.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net cash used in investing activities (in thousands).... ($2,204,454) ($1,668,613) ($131,620)
</TABLE>
Net cash used in investing activities increased in 2000, compared with
1999, primarily due to acquisitions of electric generating facilities and
increased capital expenditures and project investments. Net cash used in
investing activities also increased in 1999 compared to 1998, primarily due to
the acquisition of electric generating facilities.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net cash provided by financing activities (in thousands)... $1,905,870 $1,705,095 $104,017
</TABLE>
32
<PAGE> 35
Net cash provided by financing activities during 2000 increased, compared
to 1999, primarily due to the issuance of debt and equity securities to finance
asset acquisitions. Net cash provided by financing activities during 1999
increased, compared to 1998, primarily due to the issuance of debt and capital
contributions from NRG Energy's parent to finance asset acquisitions.
PROSPECTIVE CAPITAL REQUIREMENTS
As of December 31, 2000, NRG Energy estimates its capital expenditure
program to be approximately $6,500 million for the period 2001 - 2005. NRG
Energy expects to spend approximately $3,138 million in 2001, $1,341 million in
2002 and $1,517 million in 2003. These estimated expenditures are primarily for
NRG Energy's project acquisition and development program. For 2001, NRG Energy's
capital requirements reflect the expected acquisition of existing generating
facilities, including the Conectiv assets, North Valmy, LS Power, Reid Gardner
and Clark assets and the Bridgeport and New Haven Harbor facilities as well as
certain other projects under construction.
NRG Energy's capital expenditure program is subject to continuing review
and modification. Actual expenditures may differ significantly depending upon
such factors as the success, timing of and the level of involvement in projects
under consideration.
CAPITAL SOURCES
NRG Energy expects to meet its future financing requirements through a
combination of internally generated cash, corporate and project level long term
and short term debt, equity securities and equity like securities. NRG Energy
has generally financed the acquisition and development of its projects under
financing arrangements to be repaid solely from each of its project's cash
flows, which are typically secured by the plant's physical assets and equity
interests in the project company.
Financing needs are subject to continuing review and can change depending
on market and business conditions and changes, if any, in the capital
requirements of NRG Energy and its subsidiaries.
During the second quarter of 2000, NRG Energy completed its initial public
offering of 32.4 million shares priced at $15 per share. Upon completion of the
offering, Xcel owned approximately 147.6 million Class A common shares or 82% of
NRG Energy's outstanding common shares. The net proceeds of approximately $453.7
million were used primarily to repay short-term debt and for general corporate
purposes.
During March of 2001, NRG Energy raised net proceeds of approximately
$473.9 million through a second common stock offering of 18.4 million shares of
common stock. In addition, approximately $278.4 million of net proceeds was
raised through the issuance of 11.5 million equity units. Each equity unit
initially comprises a $25 principal amount of NRG Energy's senior debentures and
an obligation to acquire shares of NRG Energy's common stock no later then May
18, 2004. A portion of the combined net proceeds were used to repay a $600
million bridge credit agreement entered into in January 2001 to acquire certain
generating facilities and projects from LS Power; the remaining net proceeds
will be used for general corporate purposes.
NRG REVOLVING CREDIT FACILITY
NRG Energy is in the process of structuring and marketing an up to $2.5
billion revolving funding program, which will be used to finance a significant
portion of its U.S. acquisitions and development projects over the next five
years. This revolving credit facility will allow NRG Energy to procure temporary
funding for both the non-recourse debt portion as well as equity contributions
for new projects through an expedient and simplified review and approval
process. NRG Energy is permitted under the revolver to repay borrowed funds,
thus making them available to be borrowed again. NRG Energy plans to do that by
refinancing projects in the long-term capital or bank markets when construction
projects reach commercial operation or when market conditions are favorable. Any
unutilized borrowing capacity may be deployed for future projects.
33
<PAGE> 36
REGISTRATION STATEMENT
In December 2000, NRG Energy filed a universal shelf registration statement
with the SEC. Based on this registration, NRG Energy can issue up to $1,650
million of debt securities, preferred stock, common stock, depositary shares,
warrants and convertible securities. This registration statement includes $150
million of securities that are being carried forward from a previous shelf
registration. During March 2001, NRG Energy issued 18.4 million shares of common
stock and 11.5 million corporate units under this shelf registration.
SHORT TERM BORROWING ARRANGEMENT
For information on NRG Energy's short term borrowing arrangements, see Item
8 -- Note 9 to the Financial Statements.
ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), subsequently amended by SFAS
No. 137 and SFAS No. 138. SFAS No. 133 requires NRG Energy to record all
derivatives on the balance sheet at fair value. Changes in derivative fair
values will either be recognized in earnings as offsets to the changes in fair
value of related hedged assets, liabilities and firm commitments or, for
forecasted transactions, deferred and recorded as a component of other
accumulated comprehensive income until the hedged transactions occur and are
recognized in earnings. The ineffective portion of a hedging derivative's change
in fair value will be immediately recognized in earnings.
SFAS No. 133 will apply to NRG Energy's energy and energy related
commodities financial instruments, long-term power sales contracts and long-term
gas purchase contracts 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. SFAS No. 133 will also
apply to various interest rate swaps used to mitigate the risks associated with
movements in interest rates.
NRG Energy has adopted SFAS No. 133 effective January 1, 2001. The effect
of adopting SFAS No. 133 was as follows:
- A one-time after-tax unrealized loss of $22.6 million recorded to other
accumulated comprehensive income related to the initial adoption of SFAS
No. 133 during the quarter ended March 31, 2001, and
- Increased volatility in future earnings is possible due to the impact of
market fluctuations on derivative instruments used by NRG Energy.
In September 2000, the FASB issued Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-
A Replacement of FASB Statement No. 125 (SFAS No. 140). SFAS No. 140 revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of SFAS No. 125's provisions without reconsideration. SFAS No. 140 is effective
for NRG Energy's fiscal year ending December 31, 2001. The adoption of SFAS No.
140 is not expected to have a significant impact on NRG Energy's consolidated
financial position or results of operations.
CALIFORNIA LIQUIDITY CRISIS
NRG Energy owns approximately 1,569 MW of net generating capacity in
California, which represented approximately 11% of its net MW of operating
projects and projects under construction as of December 31, 2000. Due to the
acquisition and construction of projects outside of California, NRG Energy
expects that by December 31, 2001, this percentage will decrease to
approximately 7% of its net MW of operating projects and projects under
construction. Net income from NRG Energy's California assets represented
approximately 33% of its net income in 2000. Due both to the acquisition and
construction of projects outside of California and to an expected decrease in
earnings from NRG Energy's California assets, NRG Energy expects this percentage
will decrease to approximately 14% of its net income in 2001.
34
<PAGE> 37
NRG Energy's California generation assets consist primarily of interests in
the Crockett and Mt. Poso facilities and a 50% interest in West Coast Power LLC,
formed in 1999 with Dynegy Inc. Through the California Power Exchange (PX) and
the California Independent System Operator (ISO), the West Coast Power
facilities sell power to Pacific Gas and Electric Company (PG&E), Southern
California Edison Company (SCE), and San Diego Gas and Electric Company (SDG&E),
the three major California investor-owned utilities. Crockett, Mt. Poso and
certain of NRG Energy's other California facilities also sell directly to PG&E,
SCE and SDG&E. The liquidity crisis faced by both PG&E and SCE, as a result of
tight electricity supplies, rising wholesale electric prices and caps on the
rates that PG&E and SCE may charge their retail customers, has caused both PG&E
and SCE to partially suspend payments to the California PX and the California
ISO.
NRG Energy's share of the total amounts owed to its California affiliates
by the California PX, the California ISO, and the three major California
utilities totaled approximately $303 million as of February 28, 2001, based upon
financial information provided to NRG Energy by such affiliates. This total
amount consists of NRG Energy share of (a) accounts receivable, which
constituted a majority of such total amount, and (b) amounts that are currently
treated as "disputed revenues" and are not recorded as accounts receivable in
the financial statements of NRG Energy's California affiliates. In March 2001,
certain affiliates of West Coast Power entered into an agreement with the
California Department of Water Resources pursuant to which these affiliates have
agreed to sell up to 1,000 MW to CDWR for the remainder of 2001 and up to 2,300
MW from January 1, 2002 through December 31,2004.
NRG Energy believes at this time that the amounts that have been recorded
as accounts receivable will ultimately be collected in full; however, if some
form of financial relief or support is not provided to PG&E and SCE, the
collectibility of these receivables will become more questionable in terms of
both timing and amount. With respect to disputed revenues, these amounts relate
to billing disputes arising in the ordinary course of business and to disputes
that have arisen as a result of the California ISO imposing various revenue caps
on the wholesale price of electricity. None of these disputed revenues will be
recorded in the financial statements of NRG Energy's California affiliates until
after the particular issue that caused them to be excluded from the financial
statements is resolved.
The FERC has jurisdiction over sales for resale of electricity in the
California wholesale power markets. In March 2001, FERC issued orders that
presumptively approved prices up to $273/MWh during January 2001 and $430/MWh
during February 2001. The orders direct electricity suppliers to either refund a
portion of their January and February sales or justify prices charged above
these approved prices. The orders, if finalized, could require West Coast Power
to refund approximately $45 million in revenues from January and February, of
which NRG Energy's share would be approximately $22.5 million. Dynegy Power
Marketing, Inc., as the power marketer for West Coast Power, has submitted
notice of its intent to submit information justifying each component of the
prices charged.
The delayed collection of receivables owed to West Coast Power resulted in
a covenant default under its credit agreement. West Coast Power is working with
its lenders to secure their agreement to forbear exercising their remedies under
the credit agreement with respect to such covenant default. While a similar
covenant default could be called under NRG Energy's Crockett facilities credit
agreement, NRG Energy is working with the lenders under that agreement to avert
a default. Defaults under the Crockett and West Coast Power credit agreements do
not trigger defaults under any of NRG Energy corporate-level financing
facilities.
Various legislative, regulatory and legal remedies to the liquidity crisis
faced by PG&E and SCE have been implemented or are being pursued. Assembly Bill
1X,which authorizes the California Department of Water Resources to enter into
contracts for the purchase of electric power through January 1, 2003 and to
issue revenue bonds to fund such purchases, was signed into law by the Governor
of California on February 1, 2001. Assembly Bill 18X, which provides a framework
for the recovery of PG&E and SCE's uncollected expenses for purchasing power for
delivery to their retail customers, is currently under consideration in the
California legislature. Additionally, on March 27, the California Public
Utilities Commission (PUC) approved an approximately 40% increase in the energy
component of the retail electric rates paid by certain
35
<PAGE> 38
California rate payers. This proposed increase would be in addition to the 9%
increase approved in January and a 10% increase expected to take effect next
year. The PUC also ordered the utilities to pay qualifying facilities for power
delivered on a go-forward basis. However, the order did not address repayment of
amounts already owed for past deliveries.
ITEM 7 A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NRG Energy uses a variety of financial instruments to manage its exposure
to fluctuations in foreign currency exchange rates on its international project
cash flows, interest rates on its cost of borrowing and energy and energy
related commodities prices.
CURRENCY EXCHANGE RISK
NRG Energy has an investment in the Kladno project in the Czech Republic.
Statement of Financial Accounting Standard (SFAS) No. 52, Foreign Currency
Translation, requires foreign currency gains and losses to flow through the
income statement if settlement of an obligation is in a currency other than the
local currency of the entity. A portion of the Kladno project debt is in a
non-local currency (U.S. dollars and German deutsche marks). As of December 31,
2000, if the value of the Czech koruna decreases by 10 percent in relation to
the U.S. dollar and the German deutsche mark, NRG Energy would record a $3.6
million loss (after tax) on the currency transaction adjustment. If the value of
the Czech koruna increased by 10 percent, NRG Energy would record a $3.6 million
gain (after tax) on the currency transaction adjustment. These currency
fluctuations are inherent to the debt structure of the project and not
indicative of the long-term earnings potential of the investment. Kladno is the
only project NRG Energy has at this time with this type of debt structure.
INTEREST RATE RISK
NRG Energy has historically used interest rate hedging contracts to
mitigate the risks associated with movements in interest rates and, when deemed
appropriate, has entered into swap agreements effectively converting floating
rate obligations into fixed rate obligations. As of December 31, 2000, NRG
energy had four-interest rate swap agreements with notional amounts totaling
approximately $530 million. If the swaps had been discontinued on December 31,
2000, NRG Energy would have owed the counter parties approximately $28.9
million. Based on the investment grade rating of the counter parties, NRG Energy
believes that its exposure to credit risk due to nonperformance by the counter
parties to its hedging contracts is insignificant.
- NRG Energy entered into a swap agreement effectively converting 6.96%
floating rate on AUD$105 million debt into fixed rate debt. The swap
expires on September 8, 2012.
- A second swap effectively converts a $16 million issue of non-recourse
variable rate debt into a fixed rate debt. The swap expires on September
30, 2002 and is secured by the Camas Power Boiler assets.
- A third swap converts $177 million of non-recourse variable rate debt
into fixed rate debt. The swap expires on December 17, 2014 and is
secured by the Crockett Cogeneration assets.
- A fourth swap converts (pounds) 188 million of non-recourse variable rate
debt into fixed rate debt. The swap expires on June 30, 2019 and is
secured by the Killingholme assets.
NRG Energy and its subsidiaries have both long and short term-debt
instruments that subject it to the risk of loss associated with movements in
market interest rates. As of December 31, 2000, NRG Energy does not have a
material interest rate exposure as a result of interest rate swaps, which
convert floating rate debt into fixed rate debt.
COMMODITY PRICE RISK
NRG Energy is exposed to commodity price variability in electricity,
emission allowances and natural gas, oil and coal used to meet fuel
requirements. To manage earnings volatility associated with these commodity
price risks, NRG Energy 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.
36
<PAGE> 39
NRG Energy utilizes a "Value-at-Risk" (VAR) model to determine the maximum
potential three-day loss in the fair value of the commodity price related
financial instruments. Various modeling techniques can be used in VAR
computations. The VAR for NRG Energy assumes a 95% confidence interval and
reflects NRG Energy's merchant strategy, the generation assets, load obligations
and bilateral physical and financial transactions of NRG Energy. The volatility
estimate is based on a lognormal calculation of closing prices for the latest 30
days for forward markets where NRG Energy has exposure. This model encompasses
the following generating regions, Entergy, NEPOOL and NYPP. NRG Energy is in the
process of expanding the model into other geographic areas.
The estimated maximum potential three-day loss in fair value of the
commodity price related financial instruments, calculated using the VAR model is
as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Year end December 31, 2000.................................. $116.0
Average..................................................... 80.0
High........................................................ 125.0
Low......................................................... 50.0
</TABLE>
CREDIT RISK
NRG Energy is exposed to credit risk in its risk management activities.
Credit risk relates to the risk of loss resulting from the nonperformance by a
counter party of its contractual obligations. NRG Energy maintains credit
policies intended to minimize overall credit risk and actively monitors these
policies to reflect changes in scope of operations. NRG Energy conducts standard
credit reviews for all of its counter parties.
37
<PAGE> 40
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of NRG Energy, Inc. as of December 31, 2000 and
1999, and for the years then ended together with the Report of Independent
Accountants are included in this Form 10-K on the pages indicated below.
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Independent Accountants........................... 39
Consolidated Statement of Income............................ 40
Consolidated Statement of Cash Flows........................ 41
Consolidated Balance Sheet.................................. 42
Consolidated Statement of Stockholders' Equity.............. 43
Notes to Consolidated Financial Statements.................. 44
Schedule II. Valuation and Qualifying Accounts.............. 73
</TABLE>
38
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of NRG Energy, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of NRG Energy, Inc. and its subsidiaries at December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 2, 2001
39
<PAGE> 42
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned operations............... $2,018,622 $432,518 $100,424
Equity in earnings of unconsolidated affiliates....... 139,364 67,500 81,706
---------- -------- --------
Total operating revenues and equity earnings..... 2,157,986 500,018 182,130
---------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of majority-owned operations..................... 1,289,471 269,900 52,413
Depreciation and amortization......................... 122,953 37,026 16,320
General, administrative and development............... 172,489 83,572 56,385
---------- -------- --------
Total operating costs and expenses............... 1,584,913 390,498 125,118
---------- -------- --------
OPERATING INCOME........................................ 573,073 109,520 57,012
---------- -------- --------
OTHER INCOME (EXPENSE)
Minority interest in earnings of consolidated
subsidiaries....................................... (11,335) (2,456) (2,251)
Gain on sale of interest in projects.................. -- 10,994 29,950
Write-off of project investments...................... -- -- (26,740)
Other income, net..................................... 7,857 6,432 8,420
Interest expense...................................... (293,922) (93,376) (50,313)
---------- -------- --------
Total other expense................................ (297,400) (78,406) (40,934)
---------- -------- --------
INCOME BEFORE INCOME TAXES.............................. 275,673 31,114 16,078
INCOME TAX EXPENSE (BENEFIT)............................ 92,738 (26,081) (25,654)
---------- -------- --------
NET INCOME.............................................. $ 182,935 $ 57,195 $ 41,732
========== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC................................... 165,861 147,605 147,605
EARNINGS PER WEIGHTED AVERAGE COMMON SHARE - BASIC...... $ 1.10 $ 0.39 $ 0.28
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - DILUTED................................. 166,989 147,605 147,605
EARNINGS PER WEIGHTED AVERAGE COMMON SHARES - DILUTED... $ 1.10 $ 0.39 $ 0.28
</TABLE>
See notes to consolidated financial statements.
40
<PAGE> 43
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 182,935 $ 57,195 $ 41,732
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Undistributed equity in earnings of unconsolidated
affiliates.......................................... (43,258) (27,181) (23,391)
Depreciation and amortization....................... 122,953 37,026 16,320
Deferred income taxes and investment tax credits.... 38,458 (3,401) 7,618
Minority interest................................... 4,993 857 (5,019)
Investment write-downs.............................. -- -- 26,740
Gain on sale of investments......................... -- (10,994) (29,950)
Cash provided by (used in) changes in certain
working
capital items, net of effects from acquisitions
and dispositions
Accounts receivable............................... (198,091) (99,608) 297
Accounts receivable-affiliates.................... 10,703 9,964 21,657
Inventory......................................... (12,316) (17,287) (28)
Prepayments and other current assets.............. (608) (13,433) 469
Accounts payable.................................. 143,045 40,616 (8,082)
Accrued income taxes.............................. 39,137 25,834 (24,861)
Accrued property and sales taxes.................. 3,743 1,740 (553)
Accrued salaries, benefits, and related costs..... (8,153) 1,955 4,735
Accrued interest.................................. 38,479 5,192 1,050
Other current liabilities......................... (5,136) (3,533) (2,219)
Cash provided by (used by) changes in other assets
and liabilities................................... 45,100 (16,322) (4,517)
----------- ----------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES...... 361,984 (11,380) 21,998
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Businesses and assets acquired, net of liabilities
assumed............................................. (1,912,957) (1,519,365) --
Consolidation of equity subsidiaries................... -- 20,181 --
Cash from sale of investments.......................... 8,917 43,500 18,053
Decrease /(increase) in restricted cash................ 5,306 (13,067) (2,433)
(Increase)/decrease in notes receivable................ (5,444) 58,331 16,858
Capital expenditures................................... (223,560) (94,853) (31,719)
Proceeds from sale of property......................... 9,785 -- --
Investment in decommissioning fund..................... (306) -- --
Investments in projects................................ (86,195) (163,340) (132,379)
----------- ----------- ---------
NET CASH USED BY INVESTING ACTIVITIES.................... (2,204,454) (1,668,613) (131,620)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments)/borrowings under line of credit
agreement........................................... (367,766) 216,000 2,000
Proceeds from issuance of stock........................ 453,719 -- --
Capital contributions from parent...................... -- 250,000 100,000
Proceeds from issuance of long-term debt............... 3,034,909 575,633 23,169
Proceeds from issuance of note......................... -- 682,096 --
Principal payments on long-term debt................... (1,214,992) (18,634) (21,152)
----------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................ 1,905,870 1,705,095 104,017
----------- ----------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................ 360 -- --
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 63,760 25,102 (5,605)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........... 31,483 6,381 11,986
=========== =========== =========
CASH AND CASH EQUIVALENTS AT END OF YEAR................. $ 95,243 $ 31,483 $ 6,381
=========== =========== =========
</TABLE>
See notes to consolidated financial statements.
41
<PAGE> 44
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 95,243 $ 31,483
Restricted cash........................................... 12,135 17,441
Accounts receivable-trade, less allowance for doubtful
accounts of $21,199 and $186............................ 360,075 126,376
Inventory................................................. 174,864 119,181
Current portion of notes receivable....................... 267 287
Prepayments and other current assets...................... 30,074 29,202
---------- ----------
Total current assets.................................... 672,658 323,970
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
In service................................................ 4,106,653 2,078,804
Under construction........................................ 206,992 53,448
---------- ----------
Total property, plant and equipment..................... 4,313,645 2,132,252
Less accumulated depreciation............................. (271,977) (156,849)
---------- ----------
Net property, plant and equipment....................... 4,041,668 1,975,403
---------- ----------
OTHER ASSETS
Investments in projects................................... 973,261 932,591
Capitalized project costs................................. 10,262 2,592
Notes receivable, less current portion.................... 76,745 71,281
Decommissioning fund investments.......................... 3,863 --
Intangible assets, net of accumulated amortization of
$6,770 and $4,308....................................... 61,352 55,586
Debt issuance costs, net of accumulated amortization of
$6,443 and $6,640....................................... 48,773 20,081
Other assets, net of accumulated amortization of $12,809
and $8,909.............................................. 90,410 50,180
---------- ----------
Total other assets...................................... 1,264,666 1,132,311
---------- ----------
TOTAL ASSETS................................................ $5,978,992 $3,431,684
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 146,469 $ 30,462
Revolving line of credit.................................. 8,000 340,000
Revolving line of credit, non-recourse.................... -- 35,766
Accounts payable-trade.................................... 255,917 61,211
Accounts payable-affiliate................................ 7,191 6,404
Accrued income taxes...................................... 43,870 4,730
Accrued property and sales taxes.......................... 10,531 4,998
Accrued salaries, benefits and related costs.............. 24,830 9,648
Accrued interest.......................................... 51,962 13,479
Other current liabilities................................. 14,220 17,657
---------- ----------
Total current liabilities............................... 562,990 524,355
OTHER LIABILITIES
Consolidated project-level, long-term, non-recourse
debt.................................................... 2,146,953 1,026,398
Corporate level long-term, recourse debt.................. 1,503,896 915,000
Deferred income taxes..................................... 55,642 16,940
Postretirement and other benefit obligations.............. 83,098 24,613
Other long-term obligations and deferred income........... 149,640 16,351
Minority interest......................................... 14,685 14,373
---------- ----------
Total liabilities....................................... 4,516,904 2,538,030
---------- ----------
STOCKHOLDERS' EQUITY
Class A - Common stock; $.01 par value; 250,000 shares
authorized; 147,605 shares issued and outstanding....... 1,476 1,476
Common stock; $.01 par value; 550,000 shares authorized;
32,396 shares issued and outstanding.................... 324 --
Additional paid-in capital................................ 1,233,833 780,438
Retained earnings......................................... 370,145 187,210
Accumulated other comprehensive income.................... (143,690) (75,470)
---------- ----------
Total Stockholders' Equity.............................. 1,462,088 893,654
---------- ----------
Commitments and Contingencies
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $5,978,992 $3,431,684
========== ==========
</TABLE>
See notes to consolidated financial statements.
42
<PAGE> 45
NRG ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A ACCUMULATED
COMMON COMMON ADDITIONAL OTHER TOTAL
---------------- --------------- PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK SHARES STOCK SHARES CAPITAL EARNINGS INCOME EQUITY
----- ------ ----- ------ ---------- -------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1997.... $1,476 147,605 $ -- -- $ 430,438 $ 88,283 $ (69,499) $ 450,698
------ ------- ------ ------ ---------- -------- --------- ----------
Net Income..................... 41,732 41,732
Foreign currency translation
adjustments................ (13,098) (13,098)
----------
Comprehensive income for
1998....................... 28,634
Capital contribution from
parent..................... 100,000 100,000
------ ------- ------ ------ ---------- -------- --------- ----------
BALANCES AT DECEMBER 31, 1998.... $1,476 147,605 $ -- -- $ 530,438 $130,015 $ (82,597) $ 579,332
====== ======= ====== ====== ========== ======== ========= ==========
Net Income..................... 57,195 57,195
Foreign currency translation
adjustments................ 7,127 7,127
----------
Comprehensive income for
1999....................... 64,322
Capital contribution from
parent..................... 250,000 250,000
------ ------- ------ ------ ---------- -------- --------- ----------
BALANCES AT DECEMBER 31, 1999.... $1,476 147,605 $ -- -- $ 780,438 $187,210 $ (75,470) $ 893,654
====== ======= ====== ====== ========== ======== ========= ==========
Net Income..................... 182,935 182,935
Foreign currency translation
adjustments................ (68,220) (68,220)
----------
Comprehensive income for
2000....................... 114,715
Issuance of Common stock, net
of issuance costs of $32.2
million.................... 324 32,396 453,395 453,719
------ ------- ------ ------ ---------- -------- --------- ----------
BALANCES AT DECEMBER 31, 2000.... $1,476 147,605 $ 324 32,396 $1,233,833 $370,145 $(143,690) $1,462,088
====== ======= ====== ====== ========== ======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
43
<PAGE> 46
NOTE 1 -- ORGANIZATION
NRG Energy, Inc., (NRG Energy), was incorporated as a Delaware Corporation
on May 29, 1992. Beginning in 1989, NRG Energy conducted business through its
predecessor companies, NRG Energy, Inc. and NRG Group, Inc., Minnesota
corporations, which were merged into NRG Energy subsequent to its incorporation.
NRG Energy and its wholly owned subsidiaries and affiliates are principally
engaged in the acquisition, development, construction, ownership, operation and
maintenance of power generation facilities and the sale of energy, capacity and
related products.
On June 5, 2000, NRG Energy completed its initial public offering. Prior to
completing its initial public offering, NRG Energy was a wholly owned subsidiary
of Northern States Power Company (NSP). During August 2000, NSP and New Century
Energies, Inc. completed their merger. The surviving company operates under the
new name Xcel Energy, Inc. (Xcel). The shares of NRG Energy's class A common
stock previously held by NSP are now owned by Xcel. As of December 31, 2000,
Xcel owned an 82% interest in NRG Energy's outstanding common and class A common
stock, representing 98% of the total voting power of NRG Energy's common stock
and class A common stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include NRG Energy's accounts and
those of its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Accounting policies for all of
NRG Energy's operations are in accordance with accounting principles generally
accepted in the United States of America. As discussed in Note 6, NRG Energy has
investments in partnerships, joint ventures and projects for which the equity
method of accounting is applied. Earnings from equity in international
investments are recorded net of foreign income taxes.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments (primarily commercial
paper) with an original maturity of three months or less at the time of
purchase.
RESTRICTED CASH
Restricted cash consists primarily of cash collateral for letters of credit
issued in relation to project development activities and funds held in trust
accounts to satisfy the requirements of certain debt agreements.
INVENTORY
Inventory is valued at the lower of average cost or market and consists
principally of fuel oil, spare parts, coal, kerosene and raw materials used to
generate steam.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at original cost. Significant
additions or improvements extending asset lives are capitalized, while repairs
and maintenance are charged to expense as incurred. Depreciation is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Facilities and improvements................................. 10-45 years
Machinery and equipment..................................... 7-30 years
Office furnishings and equipment............................ 3-5 years
</TABLE>
The assets and related accumulated depreciation amounts are adjusted for
asset retirements and disposals with the resulting gain or loss included in
operations. NRG Energy analyzes property, plant and equipment quarterly for
potential impairment, assessing the appropriateness of lives and recoverability
of net balances in
44
<PAGE> 47
accordance with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of (SFAS No. 121).
Long-lived assets and intangibles are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the assets to the future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
the cost to sell.
CAPITALIZED INTEREST
Interest incurred on funds borrowed to finance projects expected to require
more than three months to complete is capitalized. Capitalization of interest is
discontinued when the project is completed and considered operational.
Capitalized interest is amortized using the straight-line method over the useful
life of the related project. Capitalized interest was approximately $2,667,000,
$287,000, and $172,000 in 2000, 1999 and 1998, respectively.
DEVELOPMENT COSTS AND CAPITALIZED PROJECT COSTS
Development costs and capitalized project costs include third party
professional services, permits, and other costs which are incurred incidental to
a particular project. Such costs are expensed as incurred until an acquisition
agreement or letter of intent is signed, and the project has been approved by
NRG Energy's Board of Directors. Additional costs incurred after this point are
capitalized. When project operations begin, previously capitalized project costs
are reclassified to investment in projects and amortized on a straight-line
basis over the lesser of the life of the project's related assets or revenue
contract period.
DEBT ISSUANCE COSTS
Costs to issue long-term debt are capitalized and amortized over the terms
of the related debt.
INTANGIBLES
Intangibles consist principally of the excess of the cost of investment in
subsidiaries over the underlying fair value of the net assets acquired and are
amortized using the straight-line method over 20 to 30 years. NRG Energy
evaluates the recovery of goodwill and other intangibles quarterly, based on an
analysis of estimated undiscounted future cash flows.
OTHER LONG TERM ASSETS
Other long-term assets consist primarily of service agreements and
operating contracts. These assets are being amortized over the remaining terms
of the individual contracts, which range from seven to thirty years.
INCOME TAXES
NRG Energy is included in the consolidated tax returns of Xcel. NRG Energy
calculates its income tax provision on a separate return basis under a tax
sharing agreement with Xcel as discussed in Note 10. Current federal and state
income taxes are payable to or receivable from Xcel. NRG Energy records income
taxes using the liability method. Income taxes are deferred on all temporary
differences between pretax financial and taxable income and between the book and
tax bases of assets and liabilities.
Deferred taxes are recorded using the tax rates scheduled by law to be in
effect when the temporary differences reverse. NRG Energy's policy for income
taxes related to international operations is discussed in Note 10.
45
<PAGE> 48
REVENUE RECOGNITION
Revenues from the sale of electricity and steam are recorded based upon the
output delivered and capacity provided at rates as specified under contract
terms or prevailing market rates. Revenues and related costs under cost
reimbursable contract provisions are recorded as costs are incurred. Anticipated
future losses on contracts are charged against income when identified. Several
of NRG Energy's power plants rely on one power sales contract with a single
customer for the majority of the plant's revenues. The prolonged failure of any
of these customers to fulfill contractual obligations or make required payments
could have a substantial negative impact on NRG Energy's results of operations.
NRG Energy enters into financial instrument contracts to hedge purchase and
sale commitments, fuel requirements and inventories to minimize the risk of
market fluctuations. Gains and losses on these hedge transactions are recognized
into income in the periods for which the underlying commodity is hedged.
FOREIGN CURRENCY TRANSLATION
The local currencies are generally the functional currency of NRG Energy's
foreign operations. Foreign currency denominated assets and liabilities are
translated at end-of-period rates of exchange. Revenues, expenses and cashflows
are translated at weighted-average rates of exchange for the period. The
resulting currency adjustments are accumulated and reported as a separate
component of stockholders' equity.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject NRG Energy to
concentrations of credit risk consist primarily of cash, accounts receivable,
and notes receivable. Cash accounts are generally held in federally insured
banks. Accounts receivable and notes receivable are concentrated within entities
engaged in the energy industry. These industry concentrations may impact NRG
Energy's overall exposure to credit risk, either positively or negatively, in
that the customers may be similarly affected by changes in economic, industry or
other conditions. Receivables are generally not collateralized; however, NRG
Energy believes the credit risk posed by industry concentration is offset by the
diversification and creditworthiness of its customer base. See Note 17.
DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, NRG Energy employs a variety of
off-balance sheet instruments to manage its exposure to fluctuations in foreign
currency exchange rates, interest rates and energy and energy related
commodities prices. NRG Energy does not enter into transactions for speculative
purposes. Accordingly, NRG Energy classifies its derivative financial
instruments as held or issued for purposes other than trading.
Foreign currency exchange rates
To preserve the U.S. dollar value of projected foreign currency cash flows,
NRG Energy may hedge, or protect, those cash flows if appropriate foreign
hedging instruments are available. The gains and losses on those agreements
offset the effect of exchange rate fluctuations on NRG Energy's known and
anticipated cash flows. NRG Energy defers gains on agreements that hedge firm
commitments of cash flows, and accounts for them as part of the relevant foreign
currency transaction when the transaction occurs. NRG Energy defers expected
losses on these agreements, unless it appears that the deferral would result in
recognizing a loss later.
Interest rates
From time to time NRG Energy uses interest rate hedging instruments to
protect it from an increase in the cost of borrowing. Gains and losses on
interest rate hedging instruments are reported as part of the asset for
Investment In Projects when the hedging instrument relates to a project that has
financial statements that are not consolidated into NRG Energy's financial
statements. Otherwise, these gains and losses are reported as part of debt.
46
<PAGE> 49
Energy and energy related commodities
NRG Energy is exposed to commodity price variability in electricity,
emission allowances, natural gas, oil and coal used to meet fuel requirements.
In order to manage these commodity price risks, NRG Energy enters into
transactions for physical delivery of particular commodities for a specific
period. These financial instruments are used to hedge physical deliveries, 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. These
transactions are utilized to:
- Manage and hedge fixed-price purchase and sales commitments;
- Reduce exposure to the volatility of spot market prices;
- Hedge fuel requirements at generation facilities; and
- Protect investment in fuel inventories.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
In recording transactions and balances resulting from business operations,
NRG Energy uses estimates based on the best information available. Estimates are
used for such items as plant depreciable lives, tax provisions, uncollectible
accounts and actuarially determined benefit costs, among others. As better
information becomes available (or actual amounts are determinable), the recorded
estimates are revised. Consequently, operating results can be affected by
revisions to prior accounting estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133), subsequently amended by SFAS No. 137 and SFAS No. 138. SFAS No.
133 requires NRG Energy to record all derivatives on the balance sheet at fair
value. Changes in derivative fair values will either be recognized in earnings
as offsets to the changes in fair value of related hedged assets, liabilities
and firm commitments, or, for forecasted transactions, deferred and recorded as
a component of other accumulated comprehensive income until the hedged
transactions occur and are recognized in earnings. The ineffective portion of a
hedging derivative's change in fair value will be immediately recognized in
earnings.
SFAS No. 133 will apply to NRG Energy's energy and energy related
commodities financial instruments, long-term power sales contracts and long-term
gas purchase contracts 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. SFAS No. 133 will also
apply to various interest rate swaps used to mitigate the risks associated with
movements in interest rates.
NRG Energy has adopted SFAS No. 133 effective January 1, 2001. The effect
of adopting SFAS No. 133 was as follows:
- A one-time after-tax unrealized loss of approximately $22.6 million
recorded to other accumulated comprehensive income related to the initial
adoption of SFAS No. 133 during the quarter ended March 31, 2001; and
- Increased volatility in future earnings is possible due to the impact of
market fluctuations on derivative instruments used by NRG Energy.
In September 2000, the FASB issued Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- A Replacement of FASB Statement No. 125 (SFAS
47
<PAGE> 50
No. 140). SFAS No. 140 revises the standards for accounting for securizations
and other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS No. 125's provisions without
reconsideration. SFAS No. 140 is effective for NRG Energy's fiscal year ending
December 31, 2001. The adoption of SFAS No. 140 is not expected to have a
significant impact on NRG Energy's consolidated financial position or results of
operations.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified for comparative purposes.
These reclassifications had no effect on net income or total stockholders'
equity as previously reported.
NOTE 3 -- ASSET ACQUISITIONS AND DIVESTITURES
In March 2000, NRG Energy acquired the assets of the Killingholme A
generation facility from National Power plc for (pound)390 million
(approximately $615 million at the time of acquisition), subject to post-
closing adjustments. Killingholme is a combined cycle gas-fired baseload
facility located in North Lincolnshire, England. The facility comprises three
units with a total generating capacity of 680 megawatts (MW). NRG Energy owns
and operates the facility, which sells power into the wholesale electricity
market of England and Wales.
In March 2000, NRG Energy acquired 1,708 MW of coal and gas-fired
generation assets in Louisiana for approximately $1,055.9 million (the Cajun
facilities). These assets were formally owned by Cajun Electric Power
Cooperative, Inc. (Cajun Electric). NRG Energy sells a significant amount of the
energy and capacity of the Cajun facilities to 11 of Cajun Electric's former
power cooperative members. Seven of these cooperatives have entered into 25-year
power purchase agreements with NRG Energy, and four have entered into two to
four year power purchase agreements. In addition, NRG Energy sells power under
contract to two municipal power authorities and one investor-owned utility that
were former customers of Cajun Electric. See Note 21 for unaudited pro forma
results of operations as if the acquisition of the Cajun facilities had occurred
at the beginning of the periods disclosed.
In September 2000, NRG Energy completed the acquisition of Flinders Power
in South Australia. NRG Energy paid approximately AUD $314.4 million (U.S.$180
million as of the date of the acquisition) for a 100-year lease of the Flinders
Power assets. Flinders Power includes two power stations totaling 760 MW: the
Leigh Creek coal mine and a dedicated rail line. The lease agreement also
includes managing the long-term fuel supply and power purchase agreement of the
180 MW Osborne Cogeneration Station.
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 were as
follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Facilities and equipment............................ $4,009,244 $2,003,173
Land and improvements............................... 79,190 64,330
Office furnishings and equipment.................... 18,219 11,301
Construction in Progress............................ 206,992 53,448
---------- ----------
Total property, plant and equipment............ 4,313,645 2,123,252
Accumulated depreciation (271,977) (156,849)
---------- ----------
Net property, plant and equipment................... $4,041,668 $1,975,403
========== ==========
</TABLE>
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<PAGE> 51
NOTE 5 -- INVENTORY
Inventory, which is stated at the lower of weighted average cost or market,
at December 31, consists of:
<TABLE>
<CAPTION>
2000 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Fuel oil............................................... $ 48,541 $ 35,987
Coal................................................... 17,439 16,404
Kerosene............................................... 1,524 1,395
Spare parts............................................ 85,136 56,766
Other.................................................. 22,224 8,629
-------- --------
Total Inventory................................. $174,864 $119,181
======== ========
</TABLE>
NOTE 6 -- INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
NRG Energy has investments in various international and domestic energy
projects. The equity method of accounting is applied to such investments in
affiliates, which include joint ventures and partnerships, because the ownership
structure prevents NRG Energy from exercising a controlling influence over
operating and financial policies of the projects. Under this method, equity in
pretax income or losses of domestic partnerships and, generally, in the net
income or losses of international projects are reflected as equity in earnings
of unconsolidated affiliates.
A summary of NRG Energy's significant equity-method investments which were
in operation at December 31, 2000 is as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC ECONOMIC
NAME AREA INTEREST
---- -------------- --------
<S> <C> <C>
Loy Yang Power A............................................ Australia 25.37%
Enfield Energy Center....................................... Europe 25.00%
Gladstone Power Station..................................... Australia 37.50%
COBEE (Bolivian Power Co. Ltd.)............................. South America 49.10%
ECK Generating.............................................. Czech Republic 44.50%
MIBRAG GmbH................................................. Europe 33.33%
Cogeneration Corp. of America............................... USA 20.00%
Schkopau Power Station...................................... Europe 20.95%
Long Beach Generating....................................... USA 50.00%
El Segundo Generating....................................... USA 50.00%
Encina...................................................... USA 50.00%
San Diego Combustion Turbines............................... USA 50.00%
Energy Developments Limited................................. Australia 29.14%
Scudder Latin American Power................................ Latin America 6.63%
</TABLE>
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<PAGE> 52
Summarized financial information for investments in unconsolidated
affiliates accounted for under the equity method as of and for the year ended
December 31, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating revenues....................................... $2,349,108 $1,732,521 $1,491,197
Costs and expenses....................................... 1,991,086 1,531,958 1,346,569
---------- ---------- ----------
Net income.......................................... $ 358,022 $ 200,563 $ 144,628
---------- ---------- ----------
Current assets........................................... $1,000,670 $ 742,674 $ 710,159
Noncurrent assets........................................ 7,470,766 7,322,219 7,938,841
---------- ---------- ----------
Total assets........................................ $8,471,436 $8,064,893 $8,649,000
---------- ---------- ----------
Current liabilities...................................... $1,094,304 $ 708,114 $ 527,196
Noncurrent liabilities................................... 4,306,142 5,168,893 5,854,284
Equity................................................... 3,070,990 2,187,886 2,267,520
---------- ---------- ----------
Total liabilities and equity........................ $8,471,436 $8,064,893 $8,649,000
NRG's share of equity.................................... $ 973,261 $ 932,591 $ 800,924
NRG's share of income.................................... $ 139,364 $ 67,500 $ 81,706
</TABLE>
In accordance with SFAS No. 121, NRG Energy reviews long lived assets,
investments and certain intangibles for impairment whenever events or
circumstances indicate the carrying amounts of an asset may not be recoverable.
During 1998, NRG Energy wrote down accumulated project development expenditures
of $26.7 million. NRG Energy's West Java, Indonesia, project totaling $22.0
million was written off due to the uncertainties surrounding infrastructure
projects in Indonesia. Also during 1998, NRG Energy wrote off its $1.9 million
investment in the Sunnyside project and its $2.8 million investment in Alto
Cachopoal. The charge represents the difference between the carrying amount of
the investment and the fair value of the asset, determined using a cash flow
model.
NOTE 7 -- RELATED PARTY TRANSACTIONS
OPERATING AGREEMENTS
NRG Energy has two agreements with Xcel for the purchase of thermal energy.
Under the terms of the agreements, Xcel charges NRG Energy for certain costs
(fuel, labor, plant maintenance, and auxiliary power) incurred by Xcel to
produce the thermal energy. NRG Energy paid Xcel $5.5 million, $4.4 million and
$5.1 million in 2000, 1999 and 1998, respectively under these agreements.
NRG Energy has a renewable 10-year agreement with Xcel, expiring on
December 31, 2001, whereby Xcel agrees to purchase refuse-derived fuel for use
in certain of its boilers and NRG Energy agrees to pay Xcel a burn incentive.
Under this agreement, NRG Energy received $1.5 million, $1.4 million and $1.4
million from Xcel, and paid $2.8 million, $2.7 million and $3.1 million to Xcel
in 2000, 1999 and 1998, respectively.
ADMINISTRATIVE SERVICES AND OTHER COSTS
NRG Energy has an administrative services agreement in place with Xcel.
Under this agreement NRG Energy reimburses Xcel for certain overhead and
administrative costs, including benefits administration, engineering support,
accounting, and other shared services as requested by NRG Energy. In addition,
NRG Energy employees participate in certain employee benefit plans of Xcel as
discussed in Note 11. NRG Energy received services from Xcel of $4.7 million,
$6.4 million and $5.2 million, during 2000, 1999 and 1998, respectively under
this agreement.
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<PAGE> 53
NOTE 8 -- NOTES RECEIVABLE
Notes receivable consists primarily of fixed and variable rate notes
secured by equity interests in partnerships and joint ventures. The notes
receivable at December 31, are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Central Texas Commercial Air Conditioning & Heating, Inc.,
due July 10, 2001, 10%.................................... $ 60 $ --
O'Brien Cogen II note, due 2008, non-interest bearing....... 513 465
Southern Minnesota-Praireland Solid Waste, note due 2003,
7%........................................................ 34 44
Omega Energy, LLC, due 2004, 12.5%.......................... 3,745 3,745
Omega Energy, LLC, due 2009, 11%............................ 1,533 1,533
------- -------
Notes receivable - non-affiliates......................... 5,885 5,787
Various secured notes due 2000 and later, non-interest and
interest bearing.......................................... -- 224
NEO notes to various affiliates due primarily 2012, prime
+2%....................................................... 23,277 21,572
TOSLI, various notes due 2000, LIBOR plus 4.0%, 6.56% at
December 31, 2000......................................... 207 207
Pacific Generation, various notes, prime +2% to 12%......... 3,368 3,368
NRGenerating International BV notes to various affiliates,
non-interest bearing...................................... 44,275 40,410
------- -------
Notes receivable - affiliates............................. 71,127 65,781
------- -------
Total................................................. $77,012 $71,568
======= =======
</TABLE>
NOTE 9 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
COBEE, due upon demand, non-interest bearing................ 69 5,761
O'Brien Cogen II due August 31, 2000, 9.5%.................. -- 2,893
NRG San Diego, Inc. promissory note, due June 25, 2003,
8.0%...................................................... 1,283 1,729
Pittsburgh Thermal LP -- Credit Line, due 2004,
LIBOR+4.25%............................................... -- 1,100
San Francisco Thermal LP -- Credit Line, due 2004,
LIBOR+4.25%............................................... -- 900
Pittsburgh Thermal LP, due 2002-2004, 10.61%-10.73%......... 5,525 6,800
San Francisco Thermal LP, October 5, 2004, 10.61%........... 4,984 5,905
NRG Energy senior notes, due February 1, 2006, 7.625%....... 125,000 125,000
Note payable to Xcel, due December 1, 1995-2006,
5.40%-6.75%............................................... -- 6,495
NRG Energy senior notes, due June 15, 2007, 7.50%........... 250,000 250,000
Camas Power Boiler LP, unsecured term loan, due June 30,
2007, 7.65%............................................... 14,526 17,087
Camas Power Boiler LP, revenue bonds, due August 1, 2007,
4.65%..................................................... 9,130 9,130
Various NEO debt due 2005-2008, 9.35%....................... 27,186 28,615
NRG Energy senior notes, due June 1, 2009, 7.50%............ 300,000 300,000
NRG Energy senior notes, due September 15, 2010, 8.25%...... 350,000 --
Flinders Power Finance Pty, due September 2012, 7.58%....... 83,820 --
NRG Energy Center, Inc. senior secured notes due June 15,
2013,7.31%................................................ 65,762 68,881
NRG Energy senior notes, due Nov. 1, 2013, 8.00%............ 240,000 240,000
Crockett Corp. LLP, due December 31, 2014, 8.13%............ 245,229 255,000
NRG Northeast Generating LLC term loan...................... -- 646,564
NRG Northeast Generating LLC senior bonds,due various dates
through December 15, 2024, various interest rates......... 700,000 --
NRG South Central Generating LLC senior bonds, due various
dates through September 15, 2024, various interest
rates..................................................... 788,750 --
NRG Energy ROARS, due March 15, 2005, 7.97%................. 239,386 --
Sterling Luxemburg #3, term loan due June 30, 2019,
7.86%,.................................................... --
LIBOR+1.31%............................................... 346,668 --
---------- ----------
3,797,318 1,971,860
Less current maturities..................................... (146,469) (30,462)
---------- ----------
Total................................................. $3,650,849 $1,941,398
========== ==========
</TABLE>
51
<PAGE> 54
As of December 31, 2000, NRG Energy had a $500 million revolving credit
facility under a commitment fee arrangement that matures in March of 2001. This
facility provides short-term financing in the form of bank loans. At December
31, 2000, NRG Energy had $8 million outstanding under this facility. In March
2001, the revolving credit facility will terminate and be replaced with a
substantially similar facility, terminating in March 2002. During the period
ended December 31, 2000 the facility bore interest at a floating rate of 9.5%
and had a weighted average interest rate of 7.986%.
As of December 31, 1999, NRG Energy had $550 million in revolving credit
facilities under a commitment fee arrangement. These facilities provide
short-term financing in the form of bank loans and letters of credit. At
December 31, 1999, NRG Energy had $340.0 million outstanding under this
revolving credit agreement.
NRG Energy had $63.0 million and $116.0 million in outstanding letters of
credit as of December 31, 2000 and 1999, respectively.
The NRG Energy Center, Inc. notes are secured principally by long-term
assets of the Minneapolis Energy Center (MEC). In accordance with the terms of
the note agreement, MEC is required to maintain compliance with certain
financial covenants primarily related to incurring debt, disposing of MEC
assets, and affiliate transactions. MEC was in compliance with these covenants
at December 31, 2000.
The NRG Energy $125 million, $250 million, $300 million, $240 million and
$350 million senior notes are unsecured and are used to support equity
requirements for projects acquired and in development. The interest is generally
paid semi-annually.
The $240 million NRG Energy Senior notes due November 1, 2013 are
remarketable or redeemable Security (ROARS). November 1, 2003 is the first
remarketing date for these notes. Interest is payable semi-annually on May 1,
and November 1, of each year through 2003, and then at intervals and interest
rates as discussed in the indenture. On the remarketing date, the notes will
either be mandatorily tendered to and purchased by Credit Suisse Financial
Products or mandatorily redeemed by NRG Energy at prices discussed in the
indenture. The notes are unsecured debt that rank senior to all of NRG Energy's
existing and future subordinated indebtedness.
The various NEO notes are term loans. The loans are secured principally by
long-term assets of NEO Landfill Gas collection system. NEO Landfill Gas is
required to maintain compliance with certain covenants primarily related to
incurring debt, disposing of the NEO Landfill Gas assets, and affiliate
transactions. NEO was in compliance with these covenants at December 31, 2000.
The Camas Power Boiler LP notes are secured principally by its long-term
assets. In accordance with the terms of the note agreements, Camas Power Boiler
LP is required to maintain compliance with certain financial covenants primarily
related to incurring debt, disposing of assets, and affiliate transactions.
Camas Power Boiler was in compliance with these covenants at December 31, 2000.
The Crockett Corporation term loan is secured by primarily the long-term
assets of the Crockett Cogeneration project.
On February 22, 2000, NRG Northeast Generating LLC, an indirect,
wholly-owned subsidiary of NRG Energy issued $750 million of project level
senior secured bonds, to refinance short-term project borrowings and for certain
other purposes. The bond offering included three tranches: $320 million with an
interest rate of 8.065% due in 2004, $130 million with an interest rate of
8.842% due in 2015 and $300 million with an interest rate of 9.292% due in 2024.
The bonds are jointly and severally guaranteed by each of NRG Northeast's
existing and future subsidiaries. The bonds are secured by a security interest
in NRG Northeast's membership or other ownership interests in the guarantors and
its rights under all intercompany notes between NRG Northeast and the
guarantors. Approximately $646.6 million of the proceeds from these bonds were
used to repay short-term borrowings outstanding at December 31, 1999;
accordingly, $646.6 million of short-term debt was re-classified as long-term
debt, based on this refinancing. In December, 2000, NRG Northeast Generating LLC
exchanged all of its outstanding bonds for bonds registered under the Securities
Act of 1933. As of December 31, 2000, there remains $700 million of outstanding
bonds.
52
<PAGE> 55
In March 2000, NRG Energy issued $250 million of 8.70% ROARS due March 15,
2005. Each security represents a fractional interest in the assets of an
unconsolidated grantor trust that pays interest semi-annually on March 15, and
September 15, of each year through 2005. The sole assets of the Trust consists
of (pound)160 million of Reset senior notes due March 15, 2020 issued by NRG
Energy pursuant to the Indenture and certain other defined rights. The Reset
senior notes were used principally to finance NRG Energy's acquisition of the
Killingholme facility. On March 15, 2005, these senior notes may be remarketed
by Bank of America, N.A. at a fixed rate of interest through the maturity date
or, at a floating rate of interest for up to one year and then at a fixed rate
of interest through 2020. Interest is payable semi-annually on these securities
beginning September 15, 2000 through March 15, 2005, and then at intervals and
interest rates established in the remarketing process.
Additionally, three of NRG Energy's foreign subsidiaries entered into a
(pounds) 325 million (US $517 million at March 31, 2000) secured borrowing
facility agreement with Bank of America International Limited. Under this
facility, the financial institutions have made available to our subsidiaries
various term loans totaling (pounds)235 million (US $374 million at March 31,
2000) for purposes of financing the acquisition of the Killingholme facility and
(pounds)90 million (US $143 million at March 31, 2000) of revolving credit and
letter of credit facilities to provide working capital for operating the
Killingholme facility. The final maturity date of the facility is the earlier of
June 30, 2019, or the date on which all borrowings and commitments under the
largest tranche of the term facility have been repaid or cancelled.
In March 2000, NRG South Central Generating LLC, an indirect wholly-owned
subsidiary of NRG Energy issued $800 million of senior secured bonds in a
two-part offering, to finance its acquisition of the Cajun generating
facilities. The first tranche was for $500 million with a coupon of 8.962% and a
maturity of 2016. The second tranche was for $300 million with a coupon of
9.479% and a maturity of 2024. The bonds are secured by a security interest in
NRG Central U.S. LLC's and South Central Generating Holding LLC's membership
interests in NRG South Central and NRG South Central's membership interests in
Louisiana Generating and all of the assets related to the Cajun facilities
including its rights under a guarantor loan agreement and all intercompany notes
between it and Louisiana Generating and a revenue account and a debt service
reserve account. In January 2001, NRG South Central Generating LLC exchanged all
of its outstanding bonds for bonds registered under the Securities Act of 1933.
In September 2000, Flinders Power Finance Pty, an Australian wholly owned
subsidiary, entered into a twelve year AUD $150 million promissory note (US
$81.4 million at September 2000). The interest has a fixed and variable
component. At December 31, 2000, the effective interest rate was 8.25% and is
paid semi annually.
In December 1999, NRG Energy filed a shelf registration statement with the
SEC to issue up to $500 million of unsecured debt securities. During 2000, NRG
Energy issued $350 million of debt under this shelf for general corporate
purposes, which includes financing, development and construction of new
facilities, additions to working capital and financing capital expenditures and
pending or potential acquisitions. The remaining $150 million was combined with
NRG Energy's recently filed shelf registration made in December 2000.
In December 2000, NRG Energy filed a shelf registration with the SEC to
issue up to $1,650.0 million of an indeterminate amount of debt securities,
preferred stock, common stock, depository shares, debt warrants, stock purchase
contracts, stock purchase units and hybrid securities. This shelf registration
includes $150 million of securities that are being carried forward from NRG
Energy's previous shelf registration filed in December 1999.
53
<PAGE> 56
Annual maturities of long-term debt for the years ending after December 31,
2000 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
----------------------
<S> <C>
2001....................................................... $ 146,469
2002....................................................... 166,075
2003....................................................... 98,269
2004....................................................... 91,324
2005....................................................... 51,332
Thereafter................................................. 3,243,849
----------
Total................................................. $3,797,318
==========
</TABLE>
GUARANTEES
NRG Energy is directly liable for the obligations of certain of its project
affiliates and other subsidiaries pursuant to guarantees relating to certain of
their indebtedness, equity and operating obligations. In addition, in connection
with the purchase and sale of fuel, emission credits and power generation
products to and from third parties with respect to the operation of some of NRG
Energy's generation facilities in the United States, NRG Energy may be required
to guarantee a portion of the obligations of certain of its subsidiaries. As of
December 31, 2000, NRG Energy's obligations pursuant to its guarantees of the
performance, equity and indebtedness obligations of its subsidiaries totaled
approximately $493 million.
NOTE 10 -- INCOME TAXES
NRG Energy and its parent, Xcel, have entered into a federal and state
income tax sharing agreement relative to the filing of consolidated federal and
state income tax returns. The agreement provides, among other things, that (1)
if NRG Energy, along with its subsidiaries, is in a taxable income position, NRG
Energy will be currently charged with an amount equivalent to its federal and
state income tax computed as if the group had actually filed separate federal
and state returns, and (2) if NRG Energy, along with its subsidiaries, is in a
tax loss position, NRG Energy will be currently reimbursed to the extent its
combined losses are utilized in a consolidated return, and (3) if NRG Energy,
along with its subsidiaries, generates tax credits, NRG Energy will be currently
reimbursed to the extent its tax credits are utilized in a consolidated return.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current
Federal................................................ $ 49,048 $ 3,620 $(10,773)
State.................................................. 39,972 1,041 (3,940)
Foreign................................................ (614) 4,040 2,358
-------- -------- --------
88,406 8,701 (12,355)
Deferred
Federal................................................ 25,836 (2,792) 8,828
State.................................................. 5,475 (3,901) 1,541
Foreign................................................ 7,104 (7,668) (7,736)
-------- -------- --------
38,415 (14,361) 2,633
Tax credits recognized................................... (34,083) (20,421) (15,932)
-------- -------- --------
Total income tax (benefit).......................... $ 92,738 $(26,081) $(25,654)
======== ======== ========
Effective tax rate....................................... 34% (84)% (160)%
</TABLE>
54
<PAGE> 57
The components of the net deferred income tax liability at December 31
were:
<TABLE>
<CAPTION>
2000 1999
---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred tax liabilities
Differences between book and tax basis of property........ $82,392 $37,713
Investments in projects................................... 29,475 17,308
Goodwill.................................................. 2,015 1,117
Other..................................................... 10,546 5,544
------- -------
Total deferred tax liabilities............................ 124,428 61,682
Deferred tax assets
Deferred revenue.......................................... 280 841
Deferred compensation, accrued vacation and other
reserves............................................... 23,703 10,996
Development costs......................................... 13,891 6,768
Deferred investment tax credits........................... 345 450
Steam capacity rights..................................... 778 844
Foreign tax loss carryforwards............................ 25,063 20,919
Other..................................................... 4,726 3,924
------- -------
Total deferred tax assets................................. 68,786 44,742
------- -------
Net deferred tax liability................................ $55,642 $16,940
======= =======
</TABLE>
The effective income tax rate for 2000 differs from the statutory federal
income tax rate of 35% as follows:
<TABLE>
<S> <C> <C>
Net Income before income taxes................. $275,673
Tax at 35%..................................... 96,486 35.00%
State taxes (net of federal benefit)........... 29,541 10.72%
Foreign operations............................. (10,692) (3.88)%
Tax credits.................................... (34,083) (12.36)%
Permanent differences, reserves and other...... 11,486 4.16%
-------- --------
Income tax expense............................. $ 92,738 33.64%
======== ========
</TABLE>
For the year ended December 31, 2000, income tax expense was $92.7 million,
compared to an income tax benefit of $26.1 million for the year ended December
31, 1999, an increase of $118.8 million. The increase in tax expense compared to
1999 is due primarily to higher domestic taxable income. This increase was
partially offset by additional IRC Section 29 energy tax credits. For the year
ended December 31, 2000, NRG Energy's overall effective income tax rate was
approximately 34%. NRG Energy's effective income tax rate before recognition of
tax credits was approximately 46%. This rate is higher than a combined federal
and Minnesota statutory rate because a significant portion of NRG Energy's
income is generated in New York City, an area with high state and local tax
rates. In addition, NRG Energy has recorded a valuation allowance on certain
state and foreign tax losses, also increasing the effective tax rate.
The effective income tax rate for the years 1999 and 1998 differs from the
statutory federal income tax rate of 35% primarily due to state tax, foreign tax
and tax credits as shown above. Income and expenses from foreign operations are
not subject to U.S. taxes (as discussed below).
NRG Energy intends to reinvest the earnings of foreign operations except to
the extent the earnings are subject to current U.S. income taxes. Accordingly,
U.S. income taxes and foreign withholding taxes have not been provided on a
cumulative amount of unremitted earnings of foreign subsidiaries of
approximately $232 million and $195 million at December 31, 2000 and 1999. The
additional U.S. income tax and foreign withholding tax on the unremitted foreign
earnings, if repatriated, would be offset in whole or in part by foreign tax
credits. Thus, it is not practicable to estimate the amount of tax that might be
payable.
55
<PAGE> 58
NOTE 11 -- BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS PENSION BENEFITS
PENSION BENEFITS
NRG Energy participates in the portion of Xcel's noncontributory, defined
benefit pension plan which was formerly administered by NSP, and covers
substantially all of NRG's employees. Benefits are based on a combination of
years of service, and in most cases the employee's highest average pay. Some
formulas also take into account Social Security benefits. During 2000, the
pension benefits attributable to NRG Energy's 1999 acquisitions were combined
with Xcel's plan. Plan assets principally consist of the common stock of public
companies, corporate bonds and U.S. government securities. NRG Energy's net
annual periodic pension cost includes the following components:
COMPONENTS OF NET PERIODIC BENEFIT COST
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost benefits earned................................ $ 5,769 $ 1,602 $ 1,303
Interest cost on benefit obligation......................... 6,728 1,739 1,417
Expected return on plan assets.............................. (11,227) (2,866) (2,226)
Amortization of prior service cost.......................... 394 393 172
Recognized actuarial gain................................... (5,355) (2,053) (1,878)
-------- ------- -------
Net periodic benefit credit............................... $ (3,691) $(1,185) $(1,212)
======== ======= =======
</TABLE>
The funded status of the pension plan in which NRG Energy employees
participate is as follows at December 31:
RECONCILIATION OF FUNDED STATUS
<TABLE>
<CAPTION>
2000 1999
-------------------------- --------------------------
XCEL PLAN NRG PORTION XCEL PLAN NRG PORTION
--------- ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Benefit obligation at Jan. 1.................. $1,247,849 $ 24,289 $1,143,464 $20,112
Service cost.................................. 36,895 5,769 36,421 1,602
Interest cost................................. 99,254 6,728 86,429 1,739
Plan amendments............................... 1,925 -- 184,255 2,214
Actuarial (gain)/loss......................... (27,446) 5,357 (105,634) (178)
Acquisitions.................................. 52,800 52,800 -- --
Benefit payments......................... (135,462) (4,371) (97,086) (1,200)
---------- -------- ---------- -------
Benefit obligation at Dec. 31............ $1,275,815 $ 90,572 $1,247,849 $24,289
========== ======== ========== =======
Fair value of plan assets at Jan. 1........... $2,418,637 $ 47,078 $2,221,819 39,079
Actual return on plan assets.................. 89,651 90,058 293,904 9,199
Benefit payments.............................. (135,462) (4,371) (97,086) (1,200)
Acquisitions.................................. 38,412 38,412 -- --
---------- -------- ---------- -------
Fair value of plan assets at Dec. 31..... $2,411,238 $171,177 $2,418,637 $47,078
========== ======== ========== =======
Funded status at Dec. 31 - excess of assets
over obligation............................. $1,135,423 $ 80,605 $1,170,788 $22,789
Unrecognized transition asset................. (235) -- (311) --
Unrecognized prior service cost............... 254,798 4,381 277,350 4,775
Unrecognized net gain......................... (1,276,435) (98,874) (1,381,889) (26,944)
---------- -------- ---------- -------
Accrued asset (liability) at Dec. 31..... $ 113,551 $(13,888) $ 65,938 $ 620
========== ======== ========== =======
</TABLE>
56
<PAGE> 59
AMOUNT RECOGNIZED IN THE BALANCE SHEET
<TABLE>
<CAPTION>
2000 1999
-------------------------- --------------------------
XCEL PLAN NRG PORTION XCEL PLAN NRG PORTION
--------- ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Prepaid benefit cost............................. $128,034 $ -- $65,938 $ 868
Accrued benefit liability........................ (14,483) (13,888) -- (248)
-------- -------- ------- -----
Net amount recognized -- asset (liability)..... $113,551 $(13,888) $65,938 $ 620
======== ======== ======= =====
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75% for December 31,
2000 and 1999. The rate of increase in future compensation levels used in
determining the actuarial present value of the projected obligation was 4.5% in
2000 and 1999. The assumed long-term rate of return on assets used for cost
determinations was 8.5% for 2000 and 1999.
NRG Energy participates in Xcel's defined contribution 401(K) savings plan,
as well as sponsoring several of its own defined contribution savings plans as a
result of its 1999 and 2000 acquisition activity. Substantially all employees
are covered by one of these plans. Total contributions to the plan were
approximately $2.2 million, $0.5 million and $0.2 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
NRG EQUITY PLAN
During 1998 and 1999, NRG Energy's employees were eligible to participate
in its Equity Plan (the Plan). The Plan granted, to employees, phantom equity
units that were intended to simulate Stock options. Grant size was based on the
participant's position in the Company and base salary. Equity unit valuations
were performed annually by an outside valuation firm. The value of an equity
unit was the approximate value per share of NRG Energy's stockholder equity as
of the valuation date, less the value of Xcel's (formerly NSP) equity
investments. The units were awarded to employees annually at the respective
year's calculated share price (grant price). The Plan provided employees with a
cash pay out for the unit's appreciation in value over the vesting period. The
Plan had a seven year vesting schedule with actual payments beginning after the
end of the third year and continuing at 20% each year for the subsequent five
years. During 2000, 1999 and 1998, NRG Energy recorded compensation expense of
approximately $6.0 million, $13.0 million and $2.6 million, respectively, for
the Plan.
The Plan included a change of control provision, which allowed all shares
to vest if NRG Energy's ownership were to change. Subsequent to the completion
of NRG Energy's initial public offering in June 2000, the Plan was converted to
a new stock option plan; see Note 14.
POSTRETIREMENT HEALTH CARE
NRG Energy participates in Xcel's contributory health and welfare benefit
plan which was formerly administered by NSP, and provides health care and death
benefits to substantially all NRG Energy retirees. The legacy Xcel plan was
terminated for nonbargaining employees retiring after 1998 and for bargaining
employees retiring after 1999. For covered retirees, the plan enables NRG Energy
to share the cost of retiree health costs. Cost-sharing for bargaining employees
is governed by the terms of the collective bargaining agreement.
NRG Energy also provides postretirement health and welfare benefits for
substantially all of its employees associated with the 1999 acquisition
activity. The plan administered by NRG Energy provides eligible retirees with
both health care and death benefits. Cost sharing varies by acquisition group
and the terms of the collective bargaining agreements. The cost of these
benefits was reported in the Xcel plan costs in 2000.
Postretirement health care benefits for NRG Energy are determined and
recorded under the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106
57
<PAGE> 60
requires the actuarially determined obligation for postretirement health care
and death benefits to be fully accrued by the date employees attain full
eligibility for such benefits, which is generally when they reach retirement
age.
NRG Energy's net annual periodic benefit cost under SFAS No. 106 includes
the following components:
COMPONENTS OF NET PERIODIC BENEFIT COST
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost benefits earned................................ $ 833 $ 9 $165
Interest cost on benefit obligation......................... 1,270 24 145
Amortization of transition asset............................ -- -- 17
Amortization of prior service cost.......................... (104) (104) (40)
Recognized actuarial (gain)/loss............................ (28) (34) 2
------ ----- ----
Net periodic benefit cost (credit)........................ $1,971 $(105) $289
====== ===== ====
</TABLE>
Plan assets as of December 31, 2000 consisted of investments in equity
mutual funds, fixed income securities and cash equivalents. NRG Energy's funding
policy is to contribute to Xcel's benefits actually paid under the plan.
The following table sets forth the funded status of the health care plan in
which NRG Energy's employees participate at December 31:
RECONCILIATION OF FUNDED STATUS
<TABLE>
<CAPTION>
2000 1999
-------------------------- --------------------------
XCEL PLAN NRG PORTION XCEL PLAN NRG PORTION
--------- ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Benefit obligation at Jan. 1..................... $139,934 $ 421 $219,762 $1,517
Service cost..................................... 997 833 196 9
Interest cost.................................... 12,576 1,270 9,184 24
Employee contributions........................... 2,338 6 -- --
Plan amendments.................................. -- -- (80,840) (770)
Actuarial loss/(gain)............................ 18,782 (755) 3,269 (359)
Acquisitions..................................... 16,445 16,445 -- --
Benefit payments................................. (20,140) (_26) (16,637) --
-------- ------- -------- ------
Benefit obligation at Dec. 31.................. $170,932 $18,194 $134,934 $ 421
======== ======= ======== ======
Fair Value of plan assets at Jan. 1.............. $ 35,198 $ -- $ 34,514 $ --
Actual return on plan assets..................... 527 -- 3,982 --
Employee contributions........................... 2,338 6 -- --
Employer contributions........................... 14,204 20 13,339 --
Benefit payments................................. (20,140) (26) (16,637) --
-------- ------- -------- ------
Fair value of plan assets at Dec. 31........... $ 32,127 $ -- $ 35,198 $ --
======== ======= ======== ======
Funded status at Dec. 31-unfunded obligation..... $138,805 $18,194 $104,736 $ 421
Unrecognized transition obligation............... (20,376) -- (22,073) --
Unrecognized prior service cost.................. 2,637 1,348 2,926 1,452
Unrecognized net (gain)/loss..................... (29,901) 2,106 (10,580) 562
-------- ------- -------- ------
Accrued liability recorded at Dec. 31............ $ 91,165 $21,648 $ 75,009 $2,435
======== ======= ======== ======
</TABLE>
The assumed health care cost trend rates used in measuring the accumulated
projected benefit obligation (APBO) at both December 31, 2000 and 1999, were
8.1% for those under age 65, and 6.1 % for those over age
58
<PAGE> 61
65. The assumed cost trends are expected to decrease each year until they reach
5.5% for both age groups in the year 2004, after which they are assumed to
remain constant. A one percent increase in the assumed health care cost trend
rate would increase the APBO by approximately $1.8 million as of December 31,
2000. Service and interest cost components of the net periodic postretirement
cost would increase by approximately $230,000 with a similar one percent
increase in the assumed health care cost trend rate. A one percent decrease in
the assumed health care cost trend rate would decrease the APBO by approximately
$1.4 million as of December 31, 2000. Service and interest cost components of
the net periodic post retirement cost would decrease by approximately $175,000
with a similar one percent decrease in the assumed health care cost trend rate.
The assumed discount rate used in determining the APBO was 7.75% for both
December 31, 2000 and 1999, compounded annually. The assumed long-term rate of
return on assets used for cost determinations under SFAS No. 106 was 8% for
2000, 1999 and 1998.
PENSION AND OTHER BENEFITS -- 1999 ACQUISITIONS
During 1999, NRG Energy acquired several generating assets and assumed
benefit obligations for a number of employees associated with those
acquisitions. The plans assumed included noncontributory defined benefit pension
formulas, matched 401(k) savings plans, and contributory post-retirement welfare
plans. Of the 1999 acquisitions where these obligations were assumed
approximately 66 percent of such employees are represented by seven local labor
unions under collective bargaining agreements, which expire between 2001 and
2003.
For these employees, NRG Energy sponsored one noncontributory, defined
benefit pension plan that covered most of the employees associated with the 1999
acquisitions. Generally, the benefits are based on a combination of years of
service and in most cases the employee's highest average pay. Some formulas also
take into account Social Security benefits. During the year 2000, the pension
benefit attributable to NRG Energy's 1999 acquisitions were combined with Xcel's
plan. The pension formulas remained unchanged.
COMPONENTS OF NET PERIODIC BENEFIT COST
<TABLE>
<CAPTION>
1999
----
(THOUSANDS OF DOLLARS)
<S> <C>
Service cost benefits earned.............................. $ 968
Interest cost on benefit obligation....................... 1,115
Expected return on plan assets............................ (1,193)
-------
Net periodic (benefit) cost............................. $ 890
=======
</TABLE>
59
<PAGE> 62
RECONCILIATION OF FUNDED STATUS
<TABLE>
<CAPTION>
1999
----
(THOUSANDS OF DOLLARS)
<S> <C>
Benefit obligation at beginning of year................... $ 24,954
Additional Acquisitions during the year................... 27,330
Service cost.............................................. 968
Interest cost............................................. 1,115
Plan amendments........................................... --
Actuarial gain............................................ (1,098)
Benefit payments.......................................... (403)
--------
Benefit obligation at Dec. 31........................ $ 52,866
========
Fair value of plan assets at beginning of year............ $ 24,905
Additional assets transferred............................. 10,070
Actual return on plan assets.............................. 3,091
Benefit payments.......................................... (403)
--------
Fair value of plan assets at Dec. 31................. $ 37,663
========
Funded status at Dec. 31- unfunded obligation............. $(15,203)
Unrecognized transition (asset) obligation................ --
Unrecognized prior service cost........................... --
Unrecognized net gain..................................... (2,996)
--------
Accrued benefit obligation at Dec. 31................ $(18,199)
</TABLE>
AMOUNT RECOGNIZED IN THE BALANCE SHEET
<TABLE>
<CAPTION>
1999
----
(THOUSANDS OF DOLLARS)
<S> <C>
Prepaid benefit cost...................................... $ --
Accrued benefit liability................................. (18,199)
--------
Net amount recognized -- (liability).................... $(18,199)
--------
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% for December 31,
1999. The rate of increase in future compensation levels used in determining the
actuarial present value of the projected obligation was 4.5% for nonunion
employees and 3.50% for union employees. The assumed long-term rate of return on
assets used for cost determinations was 8.5% for 1999.
POSTRETIREMENT HEALTH CARE
NRG Energy has also assumed post retirement health care benefits for some
of its employees associated with the 1999 acquisitions. The plan enables NRG
Energy and the retirees to share the costs of retiree health care. The cost
sharing varies by acquisition group and collective bargaining agreements. There
are no existing retirees under these plans as of December 31, 1999. The
estimated net periodic postretirement benefit cost for 1999 is $0.85 million.
The estimated accumulated post-retirement benefit obligation is $16 million at
December 31, 1999.
During the year 2000, the postretirement health care benefit obligations
attributable to NRG Energy's 1999 acquisitions were combined with Xcel's plan.
401(K) PLANS
NRG Energy also assumed several contributory, defined contribution employee
savings plans as a result of its 1999 acquisition activity. These plans comply
with Section 401(k) of the Internal Revenue Code and
60
<PAGE> 63
cover substantially all of our employees who are not covered by Xcel's 401(k)
Plan. NRG Energy matches specified amounts of employee contributions to the
plan. Employer contributions made to these plans were approximately $0.31
million in 1999, respectively.
PENSION AND OTHER BENEFITS -- 2000 ACQUISITIONS
Flinders Power, South Australia
Flinders Power participates with other companies in the electric generation
industry in South Australia, in making payments to pension funds, which are not
administered by Flinders Power. Pension costs relating to multi-employer plans
were approximately $1.3 million for the period ended August 3, 2000 (date of
acquisition), to December 31, 2000.
NOTE 12 -- SALES TO SIGNIFICANT CUSTOMERS
During 2000, sales to two customers accounted for 22.2% and 12.2% of total
revenues from majority owned operations in 2000. Sales to three customers
accounted for 21.0%, 19.7% and 10.5% of total revenues from wholly owned
operations in 1999.
NRG Energy and the Ramsey/Washington Resource Recovery Project have a
service agreement for waste disposal, which expires in 2006. In 1998,
approximately 26.5% of NRG Energy's operating revenues were recognized under
this contract. In addition, sales to one thermal customer amounted to 10.3% of
operating revenues in 1998.
NOTE 13 -- FINANCIAL INSTRUMENTS
The estimated December 31 fair values of NRG Energy's recorded financial
instruments are as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 95,243 $ 95,243 $ 31,483 $ 31,483
Restricted cash............................... 12,135 12,135 17,441 17,441
Notes receivable, including current portion... 77,012 77,012 71,568 71,568
Long-term debt, including current portion..... 3,797,318 3,838,627 1,971,860 1,931,969
</TABLE>
For cash and cash equivalents and restricted cash, the carrying amount
approximates fair value because of the short-term maturity of those instruments.
The fair value of notes receivable is based on expected future cash flows
discounted at market interest rates. The fair value of long-term debt is
estimated based on the quoted market prices for the same or similar issues.
DERIVATIVE FINANCIAL INSTRUMENTS
Foreign currency exchange rates
In the third quarter of 2000, NRG Energy entered into a contract with a
notional amount of approximately $8.8 million to hedge or protect foreign
currency denominated cash flows. This foreign currency exchange instrument was a
hedge of a Killingholme project distribution and expired in January 2001. If
this hedge had been discontinued on December 31, 2000, NRG Energy would have
owed the counterparty approximately $700,000.
Interest rates
As of December 31, 2000, NRG Energy has four interest rate swap agreements
with notional amounts totaling approximately $530 million. The contracts are
used to manage NRG Energy's exposure to changes in interest rates. If the swaps
had been discontinued on December 31, 2000, NRG Energy would have owed the
counterparties approximately $28.9 million.
61
<PAGE> 64
Energy and energy related commodities
As discussed in Note 2, NRG Energy 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,
NRG Energy 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. At December 31, 2000 and 1999, the net
notional amount of such transactions was approximately $309 million and $207
million. If these contracts were terminated at December 31, 2000 and 1999, the
Company would have received approximately $52.8 and $12 million based on price
fluctuations to date.
CREDIT RISK
Management believes that NRG Energy's exposure to credit risk due to
nonperformance by the counterparties to its hedging contracts is insignificant,
based on the investment grade rating of the counterparties. Counterparties
consist principally of financial institutions and major energy companies.
NOTE 14 -- CAPITAL STOCK
SALE OF STOCK
In June 2000, NRG Energy sold 32.4 million shares of common stock at $15.00
per share. Net proceeds from the offering were $453.7 million. NRG Energy has
authorized capital stock consisting of 550,000,000 shares of common stock, and
250,000,000 shares of Class A common stock. At December 31, 2000, there were
approximately 32,396,000 shares of common stock, and 147,605,000 shares of Class
A common stock issued and outstanding.
INCENTIVE COMPENSATION PLAN
In June 2000, NRG Energy adopted a new incentive compensation plan (the New
Stock Plan), which will be administered by the Board of Directors, or a
committee appointed by the Board of Directors. The New Stock Plan provides for
awards in the form of stock options, stock appreciation rights, restricted
stock, performance units, performance shares, or cash based awards as determined
by the Board of Directors. All officers, certain other employees, and
non-employee directors are eligible to participate in the plan. Nine million
shares of common stock are authorized for issuance under the Stock Plan.
Initially, only stock option grants will be made to certain officers and
employees under the plan.
STOCK OPTIONS
Each new option granted is valued at the fair market value per share at
date of grant. The difference between the option price and the fair market
value, if any, of each option on the date of grant is recorded as compensation
expense over a vesting period. Options granted vest over a period of five years,
with 25% vesting in each of the years two through five and generally expire ten
years from the date of grant. The average exercise price of vested options at
December 31, 2000 was $9.51 all of which were granted in replacement of units
previously outstanding under the equity plan. Compensation expense related to
options granted totaled $7.2 million, for the year ended December 31, 2000.
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<PAGE> 65
At December 31, 2000, no employee stock options were exercisable. Other
options currently granted under the equity plan will fully vest periodically and
become exercisable through the year 2005 at prices ranging from $5.75 to $17.25.
Stock option transactions for 2000 were (shares in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 2000
----------------------
WEIGHTED
AVERAGE
SHARES OPTION PRICE
------ ------------
<S> <C> <C>
Outstanding at beginning of period.......................... -- $ --
Granted..................................................... 4,304 9.51
Exercised................................................... -- --
Canceled or expired......................................... -- --
Other, contingent share issuance............................ -- --
------ -----
Outstanding at end of period................................ 4,304 $9.51
------ -----
Exercisable at end of period................................ -- $ --
------ -----
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 2000 (in thousands of shares):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISED
---------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
TOTAL LIFE EXERCISE TOTAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
------------------------ ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.13 - $7.67............................... 1,340 3.1 $6.31 -- $--
$7.68 - $10.25.............................. 1,894 6.9 8.57 -- --
$10.26 - $15.38............................. 1,032 9.4 15.00 -- --
$15.39 - $17.94............................. 19 7.3 17.25 -- --
$17.95 - $23.06............................. 16 9.9 22.50 -- --
$23.07 - $25.63............................. 3 9.3 25.63 -- --
----- --- ----- -------- --
Total..................................... 4,304 6.3 $9.51 -- $--
===== === ===== ======== ==
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model, with the following
weighted-average assumptions used for grants in 2000.
<TABLE>
<CAPTION>
2000
----
<S> <C>
Dividends per year........................ --
Expected volatility....................... 50.26
Risk-free interest rate................... 5.01
Expected life (years)..................... 7
</TABLE>
Using the Black-Scholes option-pricing model, the weighted average fair
value of NRG Energy's stock options granted for 2000 is $14.38.
NRG Energy accounts for its stock option plan in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, under
which, no compensation cost has been recognized. Had compensation cost been
determined consistent with SFAS No. 123, Accounting for Stock-Based
63
<PAGE> 66
Compensation (SFAS No. 123), NRG Energy's net income and per share amounts would
have approximated the following pro forma amounts for the year ended December
31, 2000.
<TABLE>
<CAPTION>
2000
----
<S> <C> <C>
Net income............................... As reported $182,935
Pro Forma 182,279
Earnings per share data:
Basic earnings per share................. As reported $ 1.10
Pro Forma 1.10
Diluted earnings per share............... As reported 1.10
Pro Forma 1.09
</TABLE>
NOTE 15 -- EARNINGS PER SHARE
Basic earnings per common share were computed by dividing net income by the
weighted average number of common shares outstanding for the period. The
dilutive effect of the potential exercise of outstanding options to purchase
shares of common stock is calculated using the treasury stock method. NRG
Energy's only common equivalent shares are those that result from dilutive
common stock options. The reconciliation of basic earnings per common share to
diluted earnings per share is shown in the following table (in thousands, except
per share data):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ----------------------------- -----------------------------
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income before
extraordinary items.... $182,935 165,861 $1.10 $57,195 147,605 $.39 $41,732 147,605 $.28
Effect of dilutive
securities Stock
options................ -- 1,128 -- -- -- -- -- -- --
-------- ------- ----- ------- ------- ---- ------- ------- ----
Diluted earnings per
share.................... $182,935 166,989 $1.10 $57,195 147,605 $.39 $41,732 147,605 $.28
======== ======= ===== ======= ======= ==== ======= ======= ====
</TABLE>
As of December 31, 2000, 2,700 options have been excluded from the dilutive
calculation above as their exercise price exceeded the average fair market value
of NRG Energy's common stock.
NOTE 16 -- CASHFLOW INFORMATION
Detail of supplemental disclosures of cash flow and non-cash investing and
financing information was:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest paid (net of amount capitalized)................... $ 352,813 $ 82,891 $49,089
---------- ---------- -------
Taxes paid/(refunds)........................................ $ 20,923 $ (54,384) $(6,797)
---------- ---------- -------
Detail of businesses and assets acquired:
Current assets and other.................................. $ 97,970 $ 110,821 $ --
Fair value of non-current assets.......................... 1,896,113 1,433,370 --
Liabilities assumed, including deferred taxes............. (81,126) (24,826) --
---------- ---------- -------
Cash paid net of cash acquired............................ $1,912,957 $1,519,365 $ --
========== ========== =======
</TABLE>
NOTE 17 -- COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
NRG Energy leases certain of its facilities and equipment under operating
leases, some of which include escalation clauses, expiring on various dates
through 2010. Rental expense under these operating leases was
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<PAGE> 67
$2.3 million, $2.2 million and $1.7 million in 2000, 1999 and 1998,
respectively. Future minimum lease commitments under these leases for the years
ending after December 31, 2000 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS OF
DOLLARS)
-------------
<S> <C>
2001........................................................ $ 3,254
2002........................................................ 2,962
2003........................................................ 2,878
2004........................................................ 2,743
2005........................................................ 2,365
Thereafter.................................................. 11,434
-------
Total..................................................... $25,636
=======
</TABLE>
CAPITAL COMMITMENTS
NRG Energy's management expects future capital expenditures related to
projects listed below, as well as construction and the purchase of turbines, to
total approximately $6,500 million in the years 2001 through 2005. NRG Energy
anticipates funding its ongoing capital requirements through the issuance of
debt, equity and equity like instruments, preferred stock and operating cash
flows.
NRG Energy has contractually agreed to the monetization of certain tax
credits generated from landfill gas sales through the year 2007.
In 1999, NRG Energy and its partners were selected as winning bidder to
enter into a 20-year lease of the 600 MW Seyitomer Power Station and related
lignite mine located in Kuthya, Turkey. In 1998, also with partners, NRG Energy
won a bid to enter into a 20-year lease of the 457 MW coal-fired Kangal plant in
central Turkey. A law has been introduced in the Turkish parliament that would
require these projects, among others, to close by June 30, 2001 or be cancelled,
and NRG Energy is working to meet this deadline.
In January 2000, NRG Energy executed purchase agreements with subsidiaries
of Conectiv to acquire 1,875 MW of coal, gas and oil-fired electric generating
capacity and other assets in New Jersey, Delaware, Maryland and Pennsylvania.
NRG Energy will pay approximately $800 million for the assets. NRG Energy
expects the acquisition to close in the second quarter of 2001.
In August 2000, NRG Energy signed a Heads of Terms Agreement with Eesti
Energia, the Estonian state-owned electric utility, providing for the purchase
for approximately $65.5 million of a 49% stake in Narva Power, the owner and
operator of the oil shale-fired Eesti and Balti power plants, located near
Narva, Estonia. The plants have a combined capacity of approximately 2,700 MW.
NRG Energy expects the acquisition to close in the second quarter of 2001.
In October 2000, NRG Energy signed an asset purchase agreement to acquire
from Sierra Pacific Resources its 50% interest in the 522 MW coal-fired North
Valmy Station located in Valmy, Nevada, and a 100% interest in 25 MW of peaking
units near the North Valmy Station, for a purchase price of approximately $273
million. Idaho Power, the other 50% owner of the North Valmy Station, has a
180-day right of first refusal to purchase this 50%. The right of first refusal
expires in May 2001. In addition, the California legislature recently enacted
legislation prohibiting any public utility from selling any generation asset
until 2006. This law applies to Sierra Pacific Resources because approximately
10% of its ratepayers are located in California. NRG Energy is working to have
legislation introduced to exempt the North Valmy Station and the peaking units
from the application of this law.
In November 2000, NRG Energy agreed to form a partnership with Avista-STEAG
LLC to build, operate and manage a 633 MW natural gas-fired power plant in Fort
Bend County, Texas. NRG Energy expects to own 50% of the project. NRG Energy
estimates that its investment in the project will total approximately $163
million. Construction of the plant is expected to begin in early 2001, with
commercial operation expected in February 2003.
65
<PAGE> 68
In November 2000, NRG Energy in conjunction with its partner Dynegy Inc.,
executed asset purchase agreements to acquire the 740 MW gas-fired Clark Station
and 445 MW of the 605 MW coal-fired Reid Gardner Station, both located near Las
Vegas, Nevada. The purchase price is approximately $634 million. NRG Energy
expects to close the acquisition during the second quarter of 2001. In addition,
NRG Energy and Dynegy are negotiating to acquire an additional 145 MW of the
Reid Gardner Station.
In December 2000, NRG Energy signed asset purchase agreements to acquire
the 585 MW coal-fired Bridgeport Harbor Station and the 466 MW oil and gas-fired
New Haven Harbor Station in Connecticut for approximately $325 million. NRG
Energy expects the acquisition to close during the second quarter of 2001.
In December 2000, NRG Energy and its partner, Dynegy Inc., submitted permit
applications in respect of a planned repowering of our jointly-owned El Segundo
Station in El Segundo, California. The planned repowering would add
approximately 621 MW of generating capacity to the facility at a cost of
approximately $368 million. Prior to the repowering, approximately 350 MW at the
El Segundo Station will be decommissioned. The repowering project has a targeted
operation date of June 2003.
In December 2000, NRG Energy signed a purchase agreement to acquire a 540
MW natural gas-fired generation facility being developed in Meriden,
Connecticut, for a purchase price of approximately $25 million. NRG Energy
expects to close the acquisition in the first quarter of 2001. NRG Energy
estimates costs of approximately $384 million to complete construction of the
plant, which has a planned commercial operation date of June 2003.
CONTINGENT REVENUES
Regulatory Issue
On March 30, 2000, NRG Energy received notification from the New York
Independent System Operator (NYISO) of its petition to the Federal Energy
Regulatory Commission (FERC) to place a $2.52 per megawatt hour market cap on
ancillary service revenues. The NYISO also requested authority to impose this
cap on a retroactive basis to March 1, 2000.
On May 31, 2000, the FERC approved the NYISO's request to impose price
limitations on one ancillary service, Ten Minute Non-Synchronized Reserves
(TMNSR) on a prospective basis only, effective March 28, 2000. The FERC rejected
the NYISO's request for authority to adjust the market-clearing prices for TMNSR
on a retroactive basis. As a result of the FERC order, (unless the NYISO or
other party successfully appeals the order), NRG Energy will retain
approximately $8.0 million of revenues collected in February 2000. NRG Energy
has included in revenues, but has not yet collected for March 2000,
approximately $8.2 million, which has been fully reserved for as of December 31,
2000.
Disputed Revenues
As of December 31, 2000, NRG Energy had disputed revenues totaling $13.1
million relating to the interpretation of certain transmission power sales
agreements and to 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. NRG Energy is actively pursuing resolution and/or collection of these
amounts. 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.
As of December 31, 2000, NRG Energy's portion of disputed revenues of its
California affiliates totaled $17.4 million. These amounts relate to disputes
arising in the ordinary course of business and to disputes that have arisen as a
result of the California ISO imposing various revenue caps on the wholesale
price of electricity. 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.
66
<PAGE> 69
California Liquidity Crisis
NRG Energy owns approximately 1,569 MW of net generating capacity in
California, which represented approximately 11% of its net MW of operating
projects and projects under construction as of December 31, 2000.
NRG Energy's California generation assets consist primarily of interests in
the Crockett and Mt. Poso facilities and a 50% interest in West Coast Power LLC,
formed in 1999 with Dynegy, Inc. Through the California Power Exchange (PX) and
the California Independent System Operator (ISO), the West Coast Power
facilities sell power to Pacific Gas and Electric Company (PG&E), Southern
California Edison Company (SCE) and San Diego Gas and Electric Company (SDG&E),
the three major California investor owned utilities. Crockett, Mt. Poso, and
certain of NRG Energy's other California facilities also sell directly to PG&E,
SCE and SDG&E. The liquidity crisis faced by both PG&E and SCE, as a result of
tight electricity supplies, rising wholesale electric prices and caps on the
rates that PG&E and SCE may charge their retail customers, has caused both PG&E
and SCE to partially suspend payments to the California PX and the California
ISO.
NRG Energy's share of the accounts receivable owed to its California
operations by the California PX, the California ISO and the three major
California utilities totaled approximately $105 million as of December 31, 2000.
NRG Energy believes that the amounts that have been recorded as accounts
receivable will ultimately be collected in full; however, if some form of
financial relief or support is not provided to PG&E and SCE, the collectibility
of these receivables will become more questionable in terms of both timing and
amount.
CONTRACTUAL COMMITMENTS
In connection with the recent acquisition of certain generating facilities
NRG Energy has entered into various long-term transition agreements and standard
offer agreements that obligated NRG Energy to provide its customers, primarily
the previous owners of the acquired facilities, with a certain portion of the
energy and capacity output of the acquired facilities.
During 1999, NRG Energy acquired the Huntley and Dunkirk generating
facilities from Niagara Mohawk Power Corporation (NiMo). In connection with this
acquisition, NRG Energy entered into a 4-year agreement with NiMo that requires
NRG Energy to provide to NiMo pursuant to a predetermined schedule fixed
quantities of energy and capacity at a fixed price.
During 1999, NRG Energy acquired certain generating facilities from
Connecticut Light and Power Company (CL&P). NRG also entered into a 4-year
standard offer agreement that requires NRG Energy to provide to CL&P a portion
of its load requirements through the year 2003 at a substantially fixed rate.
During 2000, NRG Energy acquired the non-nuclear generating assets of Cajun
Electric. Upon acquisition of the facilities, NRG Energy entered into various
long-term power purchase agreements with the former customers of Cajun Electric,
primarily distribution cooperatives and municipalities. These agreements specify
that NRG Energy provide these customers with all requirements necessary to
satisfy the energy and capacity needs of their retail load.
Also during 2000, NRG Energy acquired the Killingholme generating
facilities from National Power plc. In connection with this acquisition, NRG
Energy entered into certain agreements to provide the natural gas to operate the
facility which generally sells its power into the spot market. NRG Energy has
entered into two gas purchase agreements, the first being a 5-year agreement
that provides approximately 30% of the generating facilities natural gas
requirements and the second agreement being a 10-year agreement that provides
approximately 70% of the generating facilities natural gas requirements. NRG
Energy has also entered into a 5-year fixed price agreement to resell up to 15%
of the gas it has contracted for at a slightly higher price.
Also during 2000, NRG Energy acquired the Flinders Power operations in
South Australia. Upon the closing of the acquisition, NRG Energy assumed a gas
purchase and sales agreement relating to the Osborne generating plant with a
remaining life of 18-years. These agreements require NRG Energy to purchase a
67
<PAGE> 70
specified quantity of natural gas from a third party supplier at a fixed price
for 18-years and resell the natural gas to Osborne at a fixed price for
13-years. The sales price is substantially lower than the purchase price. NRG
Energy has recorded the loss associated with this out of the market contract on
its balance sheet. In addition, NRG Energy has entered into a contract for
differences agreement which provides for the sale of energy into the South
Australian power pool through the year 2002. The agreement provides for a swap
of the variable market price to a fixed price.
ENVIRONMENTAL REGULATIONS
NRG Energy, like most industrial enterprises, is subject to regulation with
respect to the environmental impact of its operations, including air, water and
land, limitations on land use, disposal of waste, aesthetics and other matters.
Environmental laws and/or regulations derived therefrom generally require
air emissions and water discharges to meet specified limits. They also impose
potential joint and several liability, with regard to fault, on entities
responsible for certain releases of hazardous substances to manage such
materials properly and to clean up property affected by their production and
discharge. NRG Energy expects to spend approximately $60 million for capital
expenditures between 2001 and 2005 for environmental compliance, which includes
the possible installation of Nitrogen oxides (NOx) control technology at the
Somerset facility, resolution of consent orders for remediation at the Arthur
Kill and Astoria facilities, the resolution of a consent order for water intake
at the Arthur Kill facility, and completing remediation-related requirements
under the Connecticut Transfer Act. During the years 2000, 1999 and 1998, NRG
Energy recorded approximately $3.4 million, $0.3 million and $0 of expenditures
related to environmental matters.
In response to liabilities associated with these activities, accruals have
been established when reasonable estimates are possible. As of December 31,
2000, NRG Energy has established such accruals in the amount of approximately
$6.0 million. Such accruals primarily include estimated costs associated with
remediation. NRG Energy has not used discounting in determining its accrued
liabilities for environmental remediation and no claims for possible recovery
from third party issuers or other parties related to environmental costs have
been recognized in NRG Energy's consolidated financial statements. NRG Energy
adjusts the accruals when new remediation responsibilities are discovered and
probable costs become estimatable, or when current remediation estimates are
adjusted to reflect new information.
NOTE 18 -- SEGMENT REPORTING
NRG Energy conducts its business within six segments: Independent Power
Generation in North America, Independent Power Generation outside North America
(Europe, Asia Pacific and Other Americas regions), Alternative Energy and
Thermal projects. NRG Energy's Revenues from wholly owned operations
attributable to Europe and Asia Pacific primarily relate to operations in the
United Kingdom and Australia, respectively. These segments are distinct
components with separate operating results and management structures in place.
The "Other" category includes operations that do not meet the threshold for
separate
68
<PAGE> 71
disclosure and corporate charges (primarily interest expense) that have not been
allocated to the operating segments.
<TABLE>
<CAPTION>
POWER GENERATION
-----------------------------------------------------
OTHER
NORTH AMERICA EUROPE ASIA PACIFIC AMERICAS
------------- ------ ------------ --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
2000
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned
operations............................. $1,578,706 $197,718 $ 94,681 $ 291
Inter-segment Revenues................... -- -- -- --
Equity in earnings of unconsolidated
Affiliates............................. 138,655 9,098 3,456 5,704
---------- -------- --------- --------
Total operating revenues and equity
earnings............................... 1,717,361 206,816 98,137 5,995
---------- -------- --------- --------
Operating Income......................... 596,919 32,573 6,297 2,268
---------- -------- --------- --------
Net Income............................... $ 241,846 $ 9,706 $ 9,343 $ 3,607
========== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
ALTERNATIVE
ENERGY THERMAL OTHER TOTAL
----------- ------- ----- -----
<S> <C> <C> <C> <C>
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned
Operations............................ $ 39,379 $ 87,802 $ 17,789 $2,016,366
Inter-segment Revenues.................. 2,256 -- -- 2,256
Equity in earnings of unconsolidated
Affiliates............................ (17,300) (249) -- 139,364
---------- -------- --------- ----------
Total operating revenues and equity
earnings.............................. 24,335 87,553 17,789 2,157,986
---------- -------- --------- ----------
Operating (Loss) Income................. (28,898) 20,303 (56,389) 573,073
---------- -------- --------- ----------
Net Income (Loss)....................... $ 14,637 $ 7,590 $(103,794) $ 182,935
========== ======== ========= ==========
</TABLE>
Total assets as of December 31, 2000, for North America, Europe, Asia
Pacific and Other Americas total $4,411 million, $828 million, $599 million and
$141 million, respectively.
<TABLE>
<CAPTION>
POWER GENERATION
-----------------------------------------------------
OTHER
NORTH AMERICA EUROPE ASIA PACIFIC AMERICAS
------------- ------ ------------ --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
1999
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned
operations............................. $ 319,598 $ -- $ 3,155 $ 189
Inter-segment Revenues................... -- -- -- --
Equity in earnings of unconsolidated
Affiliates............................. 31,052 22,840 9,915 5,879
---------- -------- --------- --------
Total operating revenues and equity
earnings............................... 350,650 22,840 13,070 6,068
---------- -------- --------- --------
Operating Income......................... 114,628 9,168 7,901 2,916
---------- -------- --------- --------
Net Income............................... $ 71,850 $ 9,509 $ 15,028 $ 3,502
========== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
ALTERNATIVE
ENERGY THERMAL OTHER TOTAL
----------- ------- ----- -----
<S> <C> <C> <C> <C>
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned
operations............................. $ 26,934 $ 76,277 $ 5,402 $431,555
Inter-segment Revenues................... 963 -- -- 963
Equity in earnings of unconsolidated
Affiliates............................. (2,205) 19 -- 67,500
---------- -------- --------- --------
Total operating revenues and equity
Earnings............................... 25,692 76,296 5,402 500,018
---------- -------- --------- --------
Operating Income (Loss).................. (13,288) 18,746 (30,551) 109,520
---------- -------- --------- --------
Net Income (Loss)........................ $ 10,243 $ 6,506 $ (59,443) $ 57,195
========== ======== ========= ========
</TABLE>
69
<PAGE> 72
Total assets as of December 31, 1999, for North America, Europe, Asia
Pacific and Other Americas total $2,789 million, $179 million, $346 million and
$117 million, respectively.
<TABLE>
<CAPTION>
POWER GENERATION
-----------------------------------------------------
OTHER
NORTH AMERICA EUROPE ASIA PACIFIC AMERICAS
------------- ------ ------------ --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
1998
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned
operations............................. $ 8,185 $ -- $ -- $ --
Intersegment Revenues.................... -- -- -- --
Equity in earnings of unconsolidated
Affiliates............................. 49,354 13,561 17,264 1,769
---------- -------- --------- --------
Total operating revenues and equity
Earnings............................... 57,539 13,561 17,264 1,769
---------- -------- --------- --------
Operating Income......................... 56,561 13,561 17,264 1,769
---------- -------- --------- --------
Change of interest in projects........... 231 27,819 (22,023) (2,816)
---------- -------- --------- --------
Net Income (Loss)........................ $ 40,103 $ 31,160 $ 2,025 $ 118
========== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
ALTERNATIVE
ENERGY THERMAL OTHER TOTAL
----------- ------- ----- -----
<S> <C> <C> <C> <C>
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned
operations............................. $ 30,143 $ 52,699 $ 7,660 $ 98,687
Intersegment Revenues.................... 1,737 -- -- 1,737
Equity in earnings of unconsolidated
Affiliates............................. (1,314) 1,215 (143) 81,706
---------- -------- --------- --------
Total operating revenues and equity
earnings............................... 30,566 53,914 7,517 182,130
---------- -------- --------- --------
Operating Income......................... (3,780) 16,693 (45,056) 57,012
---------- -------- --------- --------
Change of interest in projects........... -- -- -- 3,211
---------- -------- --------- --------
Net Income (Loss)........................ $ 13,427 $ 6,600 $ (51,701) $ 41,732
========== ======== ========= ========
</TABLE>
Total assets as of December 31, 1998, for North America, Europe, Asia
Pacific and Other Americas total $702 million, $168 million, $328 million and
$95 million, respectively.
NOTE 19 -- JOINTLY OWNED PLANT
On March 31, 2000, NRG Energy acquired a 58% interest in the Big Cajun II,
Unit 3 generation plant. Entergy Gulf States owns the remaining 42%. Big Cajun
II, Unit 3 is operated and maintained by Louisiana Generating pursuant to a
joint ownership participation and operating agreement. Under this agreement,
Louisiana Generating and Entergy Gulf States are each entitled to their
ownership percentage of the hourly net electrical output of Big Cajun II, Unit
3. All fixed costs are shared in proportion to the ownership interests. Fixed
costs include the cost of operating common facilities. All variable costs are
incurred in proportion to the energy delivered to the owners. NRG Energy's
income statement includes our share of all fixed and variable costs of operating
the unit. NRG Energy's 58% share of the original cost included in Plant,
Property and Equipment at December 31, 2000 was $179.1 million. The
corresponding accumulated depreciation and amortization was $3.4 million.
NOTE 20 -- DECOMMISSIONING FUNDS
NRG Energy is required by the State of Louisiana Department of
Environmental Quality ("DEQ") to rehabilitate NRG Energy's Big Cajun II ash and
wastewater impoundment areas, subsequent to the Big Cajun II facilities' removal
from service. On July 1, 1989, a guarantor trust fund (the "Solid Waste Disposal
Trust Fund") was established to accumulate the estimated funds necessary for
such purpose. NRG Energy's predecessor deposited $1.06 million in the Solid
Waste Disposal Trust Fund in 1989, and funded $116,000 annually thereafter,
based upon an estimated future rehabilitation cost (in 1989 dollars) of
approximately $3.5 million and the remaining estimated useful life of the Big
Cajun II facilities. Cumulative contributions to the Solid Waste Disposal Trust
Fund and earnings on the investments therein are accrued as a decommissioning
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<PAGE> 73
liability. At December 31, 2000, the carrying value of the trust fund
investments and the related accrued decommissioning liability was approximately
$3.9 million. The trust fund investments are comprised of various debt
securities of the United States and are carried at amortized cost, which
approximates their fair value.
NOTE 21 -- UNAUDITED PRO FORMA RESULTS OF OPERATIONS -- CAJUN ACQUISITION
During March 2000, NRG Energy completed its acquisition of two fossil
fueled generating plants from Cajun Electric Power Cooperative, Inc. for
approximately $1,056 million. The following information summarizes the unaudited
pro forma results of operations as if the acquisition had occurred as of the
beginning of the twelve-month period ended December 31, 2000 and 1999. The
unaudited pro forma information presented is for informational purposes only and
is not necessarily indicative of future earnings or financial position or of
what the earnings and financial position would have been had the acquisition of
the Cajun facilities been consummated at the beginning of the respective periods
or as of the date for which unaudited pro forma financial information is
presented.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TWELVE TWELVE
MONTHS MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
(THOUSANDS OF DOLLARS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
OPERATING REVENUES AND EQUITY EARNINGS
Revenues from majority-owned operations................... $2,098,604 $801,080
Equity in earnings of unconsolidated affiliates........... 139,364 67,500
---------- --------
TOTAL OPERATING REVENUES AND EQUITY EARNINGS................ 2,237,968 868,580
Total operating costs and expenses.......................... 1,653,021 678,915
---------- --------
OPERATING INCOME............................................ 584,947 189,665
Other expense............................................... 315,191 153,524
---------- --------
INCOME BEFORE INCOME TAXES.................................. 269,756 36,141
Income tax expense (benefit)................................ 90,290 (24,001)
---------- --------
NET INCOME.................................................. $ 179,466 $ 60,142
========== ========
EARNINGS PER AVERAGE COMMON SHARE -- DILUTED................ $ 1.07 $ 0.41
</TABLE>
NOTE 22 -- SUBSEQUENT EVENTS
LS Power Acquisition
In January 2001, NRG Energy completed the acquisition of a 5,691 MW
portfolio of operating projects and projects in construction and advanced
development from LS Power, LLC for $708 million, subject to purchase price
adjustments. Additionally, until December 31, 2005, NRG Energy has the
opportunity to acquire ownership interests in the next 3,000 MW of generation
projects developed and offered for sale by LS Power and its partners. This
acquisition was initially financed in part by a $600 million bridge credit
agreement which has a maturity date of December 31, 2001. At January 31, 2001,
the weighted average interest rate was 6.425%.
California Liquidity Crisis
With respect to the liquidity crisis in California discussed in Note 17,
various legislative, regulatory and legal remedies to the liquidity crisis faced
by PG&E and SCE have been implemented or are being pursued. Assembly Bill 1X,
which authorizes the California Department of Water Resources to enter into
contracts for the purchase of electric power through January 1, 2003 and to
issue revenue bonds to fund such purchases, was signed into law by the Governor
of California on February 1, 2001. Assembly Bill 18X, which provides a
71
<PAGE> 74
framework for the recovery of PG&E and SCE's uncollected expenses for purchasing
power for delivery to their retail customers, is currently under consideration
in the California legislature.
The delayed collection of receivables owed to West Coast Power resulted in
a covenant default under its credit agreement. West Coast Power is working with
its lenders to secure their agreement to forebear exercising their remedies
under the credit agreement.
NOTE 23 -- UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly unaudited financial data is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED 2000
-------------------------------------------------------------
MAR 31 JUNE 30 SEPT 30 DEC 31 TOTAL YEAR(1)
------ ------- ------- ------ -------------
(THOUSANDS OF DOLLARS,EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues and equity earnings............ $323,027 $522,009 $624,798 $688,152 $2,157,986
Operating Income........................ 62,937 154,128 227,209 128,799 573,073
Net income.............................. 8,746 43,581 88,604 42,004 182,935
Earnings per share:
Basic................................. $ .06 $ .28 $ .49 $ .23 $ 1.10
Diluted............................... .06 .28 .49 .23 1.10
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED 1999
-------------------------------------------------------------
MAR 31 JUNE 30 SEPT 30 DEC 31 TOTAL YEAR(1)
------ ------- ------- ------ -------------
(THOUSANDS OF DOLLARS,EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues and equity earnings............ $ 46,514 $ 66,659 $170,408 $216,437 $ 500,018
Operating (loss) income................. (2,145) 2,956 57,948 50,761 109,520
Net (loss) income....................... (940) 2,341 27,607 28,187 57,195
Earnings per share:
Basic................................. $ (.01) $ .02 $ .19 $ .19 $ .39
Diluted............................... (.01) .02 .19 .19 .39
</TABLE>
- - ---------------
(1) The sum of earnings per share for the four quarters may not equal earnings
per share for the total year due to changes in the average number of common
shares outstanding.
72
<PAGE> 75
NRG ENERGY, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - -------------------------------------- ------------ ------------------------ ------------- ----------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
----------- ------------ ---------- ---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts,
deducted from accounts receivable in
the balance sheet:
2000................................ $186 $25,885 $(4,872) $21,199
1999................................ 100 116 (30) 186
1998................................ 100 -- -- -- 100
</TABLE>
- - ---------------
Note:
(1) Amounts deemed to be uncollectible, Net of recoveries.
73
<PAGE> 76
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers required by this Item is set forth
as Part I Item 1 Business (pursuant to Instruction 3 to Item 401(b) of
Regulation S-K). Other information required by this Item will be contained in
NRG Energy's definitive Proxy Statement for its 2001 Annual Meeting of
Stockholders, to be filed on or before April 30, 2001, and such information is
incorporated herein by reference.
ITEM 11 -- EXECUTIVE COMPENSATION
Information required by this Item will be contained in NRG Energy's
definitive Proxy Statement for its 2001 Annual Meeting of Stockholders, to be
filed on or before April 30, 2001, and such information is incorporated herein
by reference.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item will be contained in NRG Energy's
definitive Proxy Statement for its 2001 Annual Meeting of Stockholders, to be
filed on or before April 30, 2001, and such information is incorporated herein
by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be contained in NRG Energy's
definitive Proxy Statement for its 2001 Annual Meeting of Stockholders, to be
filed on or before April 30, 2001, and such information is incorporated herein
by reference.
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<PAGE> 77
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PENDING COMPLETION
(a)(1) Consolidated Financial Statements
Included in Part II.
(a)(2) Supplemental Financial Statement Schedules
Exhibit 99.1 contains the financial statements of Mitteldeutsche
Braunkohlengesell Schaft mbH ("MIBRAG").
Exhibit 99.2 contains the financial statements of Saale Energie GmbH
("Saale").
Exhibit 99.3 contains the financial statements of Sunshine State
Power BVI and Sunshine State Power BVII (the "Sunshines").
Exhibit 99.4 contains the financial statements of West Coast Power
LLC ("West Coast Power").
All other financial statement schedules have been omitted because
either they are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements
or in the Notes thereto.
(a)(3) Exhibits
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation.(9)
3.2 By-Laws.(9)
4.1 Indenture, dated as of January 31, 1996, between the Company
and Norwest Bank Minnesota, National Association, As
Trustee.(1)
4.2 Indenture, dated as of June 1, 1997, between the Company and
Norwest Bank Minnesota, National Association.(1)
4.3 Form of Exchange Notes.(1)
4.4 Indenture between the Company and Norwest Bank Minnesota,
National Association, as Trustee dated as of May 25,
1999.(4)
4.5 Indenture, dated as of November 8, 1999, between the Company
and Norwest Bank Minnesota, National Association as
Trustee.(7)
4.6 Indenture, dated as of February 22, 2000, between the
Company, NRG Northeast Generating LLC and Chase Manhattan
Bank, as Trustee.(8)
4.7 NRG Energy Pass-Through Trust 2000-1, $250,000,000 8.70%
Remarketable or Redeemable Securities ("ROARS") due March
15, 2005.(8)
4.8 Trust Agreement, dated March 20, 2000, between the Company
and The Bank of New York, as Trustee.(8)
4.9 Indenture, dated March 20, 2000, between the Company and The
Bank of New York, as Trustee, 160,000,000 pounds sterling
Reset Senior Notes due March 15, 2020.(8)
4.10 Form of Common Stock Certificate.(9)
4.11 Indenture, dated September 11, 2000, between the Company and
Wells Fargo Bank Minnesota, National Association, as
Trustee.(10)
4.12 Form of Supplemental Indenture to be used in connection with
the issuance of Debentures.(11)
4.13 Form of Indenture.(11)
4.14 Form of Purchase Contract Agreement between the Company and
the Purchase Contract Agent to be named therein.(11)
</TABLE>
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<PAGE> 78
<TABLE>
<C> <S>
4.15 Form of Corporate Unit Certificate.(11)
4.16 Form of Pledge Agreement among the Company, the Collateral
Agent and the Unit Agent, each to be named therein.(11)
4.17 Form of Remarketing Agreement among the Company, the
Purchase Contract Agent and the Remarketing Agent, each to
be named therein.(11)
4.18 Indenture, dated March 13, 2001, between the Company and The
Bank of New York, a New York banking corporation, as
Trustee.(12)
4.19 First Supplement Indenture, dated March 13, 2001, between
the Company and The Bank of New York, a New York banking
corporation, as Trustee.(12)
10.1 Employment Contract, dated as of June 28, 1995, between the
Company and David H. Peterson.(1)
10.2 Note Agreement, dated August 20, 1993, between the Company,
Energy Center, Inc. and each of the purchasers named
therein.(1)
10.3 Master Shelf and Revolving Credit Agreement, dated August
20, 1993, between the Company, Energy Center, Inc., The
Prudential Insurance Registrants of America and each
Prudential Affiliate, which becomes party thereto.(1)
10.4 Energy Agreement, dated February 12, 1988, between the
Company (formerly known as Norenco Corporation) and Waldorf
Corporation (the "Energy Agreement").(1)
10.5 First Amendment to the Energy Agreement, dated August 27,
1993.(1)
10.6 Second Amendment to the Energy Agreement, dated January 31,
1996.(1)
10.7 Third Amendment to the Energy Agreement, dated August 25,
1997.(1)
10.8 Construction, Acquisition and Term Loan Agreement, dated
September 2, 1997, between NEO Landfill Gas, Inc, as
Borrower, the lenders named on the signature pages, Credit
Lyonnais New York Branch, as Construction/Acquisition Agent
and Lyon Credit Corporation, as Term Agent.(1)
10.9 Guaranty, dated September 12, 1997, by the Company in favor
of Credit Lyonnais New York Branch, as agent for the
Construction/Acquisition Lenders.(1)
10.10 Construction, Acquisition and Term Loan Agreement, dated
September 2, 1997, between Minnesota Methane LLC, as
Borrower, the lenders named on the signature pages, Credit
Lyonnais New York Branch, as Construction/Acquisition Agent
and Lyon Credit Corporation, as Term Agent.(1)
10.11 Guaranty, dated September 12, 1997, by the Company in favor
of Credit Lyonnais New York Branch, as agent for the
Construction/Acquisition Lenders.(1)
10.12 Non Operating Interest Acquisition Agreement dated as of
September 12, 1997, between the Company and NEO
Corporation.(1)
10.13 Employment Agreements, dated April 15, 1998, between the
Company and certain officers.(3)
10.14 Wholesale Standard Offer Service Agreement, dated October
13, 1998, between Blackstone Valley Electric Company,
Eastern Edison Company, Newport Electric Corporation and NRG
Power Marketing, Inc.(5)
10.15 Asset Sales Agreement, dated December 23, 1998, between the
Company and Niagara Mohawk Power Corporation.(5)
10.16 First Amendment to Wholesale Standard Offer Service
Agreement, dated January 15, 1999, between Blackstone Valley
Electric Company, Eastern Edison Company, Newport Electric
Corporation and NRG Power Marketing, Inc.(5)
10.17 Generating Plant and Gas Turbine Asset Purchase and Sale
Agreement for the Arthur Kill generating plants and Astoria
gas turbines, dated January 27, 1999, between the Company
and Consolidated Edison Company of New York, Inc.(5)
</TABLE>
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<PAGE> 79
<TABLE>
<C> <S>
10.18 Transition Energy Sales Agreement, dated June 1, 1999,
between Arthur Kill Power LLC and Consolidated Edison
Company of New York, Inc.(5)
10.19 Transition Power Purchase Agreement, dated June 1, 1999,
between Astoria Gas Turbine Power LLC and Consolidated
Edison Company of New York, Inc.(5)
10.20 Transition Power Purchase Agreement, dated June 11, 1999,
between Niagara Mohawk Power Corporation and Huntley Power
LLC.(5)
10.21 Transition Power Purchase Agreement, dated June 11, 1999,
between Niagara Mohawk Power Corporation and Dunkirk Power
LLC.(5)
10.22 Power Purchase Agreement, dated June 11, 1999, between
Niagara Mohawk Power Corporation and Dunkirk Power LLC.(5)
10.23 Power Purchase Agreement, dated June 11, 1999, between
Niagara Mohawk Power Corporation and Huntley Power LLC.(5)
10.24 Amendment to the Asset Sales Agreement, dated June 11, 1999,
between the Company and Niagara Mohawk Power Corporation.(5)
10.25 Transition Capacity Agreement, dated June 25, 1999, between
Astoria Gas Turbine Power LLC and Consolidated Edison
Company of New York, Inc.(5)
10.26 Transition Capacity Agreement, dated June 25, 1999, between
Arthur Kill Power LLC and Consolidated Edison Company of New
York, Inc.(5)
10.27 First Amendment to the Employment Agreement of David H.
Peterson, dated June 27, 1999.(6)
10.28 Second Amendment to the Employment Agreement of David H.
Peterson, dated August 26, 1999.(6)
10.29 Third Amendment to the Employment Agreement of David H.
Peterson, dated October 20, 1999.(6)
10.30 [Swap] Master Agreement, dated June 11, 1999, between
Niagara Mohawk Power Corporation and NRG Power Marketing,
Inc.(6)
10.31 Standard Offer Service Wholesale Sales Agreement, dated
October 29, 1999, between the Connecticut Light And Power
Company and NRG Power Marketing, Inc.(6)
10.32 Amended Agreement for the Sale of Thermal Energy, dated
January 1, 1983, between the Company (formerly known as
Norenco Corporation) and Northern States Power and Norenco
Corporation.(9)
10.33 Operations and Maintenance Agreement, dated November 1,
1996, between the Company and Northern States Power.(9)
10.34 Agreement for the Sale of Thermal Energy and Wood Byproduct,
dated December 1, 1986, between Northern States Power and
Norenco Corporation.(9)
10.35 Federal and State Income Tax Sharing Agreement, dated April
4, 1991, between Northern States Power Company and NRG
Group, Inc.(9)
10.36 Support Agreement, dated March 27, 2000, between Northern
States Power Company and CitiCorp USA Inc.(9)
10.37 Administrative Services Agreement, dated January 1, 1992,
between Northern States Power Company and NRG Thermal
Corporation.(9)
10.38 Form of Option Agreement with Northern States Power
Company.(9)
10.39 Form of Registration Rights Agreement with Northern States
Power Company.(9)
10.40 Form of Indemnification Agreement.(9)
10.41 364 Day Revolving Credit Agreement dated as of March 9,
2001, among NRG Energy, Inc., The Financial Institutions
Party Hereto and ABN AMRO Bank N.V. as agent.
21 Subsidiaries of the Company.
</TABLE>
77
<PAGE> 80
<TABLE>
<C> <S>
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Financial Statements of "MIBRAG."
99.2 Financial Statements of "Saale" (upon amendment).
99.3 Financial Statements of "Sunshines."
99.4 Financial Statements of "West Coast Power."
</TABLE>
- - ---------------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-33397.
(2) Incorporated herein by reference to the Company's annual report on Form
10-K for the year ended December 31, 1997.
(3) Incorporated herein by reference to the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1998.
(4) Incorporated herein by reference to the Company's current report on Form
8-K filed on May 27, 1999.
(5) Incorporated herein by reference to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1999.
(6) Incorporated herein by reference to the Company's quarterly report on Form
10-Q for the quarter ended September 31, 1999.
(7) Incorporated herein by reference to the Company's current report on Form
8-K filed on November 16, 1999.
(8) Incorporated herein by reference to the Company's annual report on Form
10-K for the year ended December 31, 1999.
(9) Incorporated herein by reference to the Company's Registration Statement on
Form S-1, as amended, Registration No. 333-35096.
(10) Incorporated herein by reference to the Company's current report on Form
8-K filed on September 13, 2000.
(11) Incorporated herein by reference to the Company's Registration Statement on
Form S-3, as amended, Registration No. 333-52508.
(12) Incorporated herein by reference to the Company's current report on Form
8-K filed on March 15, 2001.
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<PAGE> 81
<TABLE>
<S> <C>
(b) Reports on Form 8-K
On October 31, 2000, NRG Energy filed a Form 8-K reporting under Item 5 -- Other Events.
NRG Energy reported its financial results for the quarter ended September 30, 2000
On November 22, 2000, NRG Energy filed a Form 8-K reporting under Item 5 -- Other Events.
NRG Energy announced that its pending acquisition in conjunction with Dynegy Inc., of 1,330
megawatts of power generation facilities from Sierra Pacific Resources will be accretive to
earnings upon closing.
On December 28, 2000, NRG Energy filed a Form 8-K reporting under Item 5 -- Other Events.
NRG Energy announced that it signed an asset purchase agreement to acquire the Bridgeport and New
Haven Harbor Stations in Connecticut from Wisconsin Energy Corp. for $325 million, subject to
normal purchase price adjustments.
On February 1, 2001, NRG Energy filed a Form 8-K reporting under Item 5 -- Other Events.
NRG Energy reported its financial results for the year ended December 31, 2000.
On February 9, 2001, NRG Energy filed a Form 8-K reporting under Item 2 - Acquisition or Disposition of
Assets.
NRG Energy announced the closing of its acquisition of a 5,633 megawatt portfolio of operating
projects and projects in construction and advanced development from LS Power, LLC and its partners.
On March 5, 2001, NRG Energy filed a Form 8-K reporting under Item 5-Other Events.
NRG Energy filed as exhibit 99.1 the audited financial statements of NRG Energy Inc. for the year
ended December 31, 2000.
On March 9, 2001, NRG Energy filed a Form 8-K reporting under Item 7. Exhibits.
NRG Energy filed an opinion of Gibson, Dunn & Gutcher LLP regarding certain tax matters in
connection with its Form S-3 Registration Statement No. 333-52508.
On March 15, 2001, NRG Energy filed a Form 8-K reporting under Item 5. Other Events.
NRG Energy filed certain exhibits under Item 7. Exhibits in connection with its Registration
Statement No. 333-52508.
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 ENERGY, INC.
March 27, 2001 By: /s/ LEONARD A. BLUHM
------------------------------------
Leonard A. Bluhm
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated :
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID H. PETERSON Chairman of the Board, President and March 27, 2001
- - --------------------------------------------- Chief Executive Officer (Principal
David H. Peterson Executive Officer)
/s/ LEONARD A. BLUHM Executive Vice President and Chief March 27, 2001
- - --------------------------------------------- Financial Officer (Principal
Leonard A. Bluhm Financial Officer)
/s/ WILLIAM T. PIEPER Controller (Principal Accounting March 27, 2001
- - --------------------------------------------- Officer)
William T. Pieper
/s/ WAYNE H. BRUNETTI Director March 27, 2001
- - ---------------------------------------------
Wayne H. Brunetti
/s/ LUELLA G. GOLDBERG Director March 27, 2001
- - ---------------------------------------------
Luella G. Goldberg
/s/ PIERSON M. GRIEVE Director March 27, 2001
- - ---------------------------------------------
Pierson M. Grieve
/s/ WILLIAM A. HODDER Director March 27, 2001
- - ---------------------------------------------
William A. Hodder
/s/ JAMES J. HOWARD Director March 27, 2001
- - ---------------------------------------------
James J. Howard
/s/ GARY R. JOHNSON Director March 27, 2001
- - ---------------------------------------------
Gary R. Johnson
/s/ RICHARD C. KELLY Director March 27, 2001
- - ---------------------------------------------
Richard C. Kelly
/s/ EDWARD J. MCINTYRE Director March 27, 2001
- - ---------------------------------------------
Edward J. McIntyre
</TABLE>
80
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.41
<SEQUENCE>2
<FILENAME>c60217ex10-41.txt
<DESCRIPTION>CREDIT AGREEMENT, DATED 3/9/01
<TEXT>
<PAGE> 1
Exhibit 10.41
- - -----------------------------------------------------------------------------
364-DAY REVOLVING CREDIT AGREEMENT
DATED AS OF
MARCH 9, 2001
AMONG
NRG ENERGY, INC.
THE FINANCIAL INSTITUTIONS PARTY HERETO,
AND
ABN AMRO BANK N.V.
AS AGENT
- - ------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
SECTION 1. DEFINITIONS; INTERPRETATION............................................................1
Section 1.1 Definitions...................................................................1
Section 1.2 Interpretation...............................................................10
SECTION 2. THE REVOLVING CREDIT..................................................................10
Section 2.1 The Loan Commitment..........................................................10
Section 2.2 [Intentionally Omitted]......................................................10
Section 2.3 Applicable Interest Rates....................................................10
Section 2.4 Minimum Borrowing Amounts....................................................12
Section 2.5 Manner of Borrowing Loans and Designating
Interest Rates Applicable to Loans...........................................12
Section 2.6 Interest Periods.............................................................14
Section 2.7 Maturity of Loans............................................................15
Section 2.8 Prepayments..................................................................15
Section 2.9 Default Rate.................................................................16
Section 2.10 The Notes....................................................................16
Section 2.11 Funding Indemnity............................................................16
Section 2.12 Commitment Terminations......................................................17
SECTION 3. FEES..................................................................................17
Section 3.1 Fees.........................................................................17
SECTION 4. PLACE AND APPLICATION OF PAYMENTS.....................................................18
Section 4.1 Place and Application of Payments............................................18
SECTION 5. REPRESENTATIONS AND WARRANTIES........................................................18
Section 5.1 Corporate Organization and Authority.........................................18
Section 5.2 Subsidiaries.................................................................19
Section 5.3 Corporate Authority and Validity of Obligations..............................19
Section 5.4 Financial Statements.........................................................19
Section 5.5 No Litigation; No Labor Controversies........................................19
Section 5.6 Taxes........................................................................20
Section 5.7 Approvals....................................................................20
Section 5.8 Validity of Notes............................................................20
Section 5.9 ERISA........................................................................20
Section 5.10 Government Regulation........................................................20
Section 5.11 Margin Stock; Use of Proceeds................................................21
Section 5.12 Licenses and Authorizations; Compliance Laws.................................21
Section 5.13 Ownership of Property Liens..................................................21
Section 5.14 No Burdensome Restrictions;
Compliance with Agreements...................................................21
Section 5.15 Full Disclosure..............................................................21
Section 5.16 Year 2000 Problem............................................................21
SECTION 6. CONDITIONS PRECEDENT..................................................................22
Section 6.1 Initial Credit Event.........................................................22
Section 6.2 All Credit Events............................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
SECTION 7. COVENANTS.............................................................................23
Section 7.1 Corporate Existence; Subsidiaries............................................23
Section 7.2 Maintenance..................................................................23
Section 7.3 Taxes........................................................................24
Section 7.4 ERISA........................................................................24
Section 7.5 Insurance....................................................................24
Section 7.6 Financial Reports and Other Information......................................24
Section 7.7 Bank Inspection Rights.......................................................26
Section 7.8 Conduct of Business..........................................................27
Section 7.9 Liens........................................................................27
Section 7.10 Use of Proceeds; Regulation U................................................27
Section 7.11 Mergers, Consolidations and Sales of Assets..................................27
Section 7.12 Consolidated Net Worth.......................................................28
Section 7.13 Indebtedness to Consolidated Capitalization..................................28
Section 7.14 Compliance with Laws.........................................................28
Section 7.15 PUHCA........................................................................29
SECTION 8. EVENTS OF DEFAULT AND REMEDIES........................................................29
Section 8.1 Events of Default............................................................29
Section 8.2 Non-Bankruptcy Defaults......................................................31
Section 8.3 Bankruptcy Defaults..........................................................31
Section 8.4 [Intentionally Omitted]......................................................31
Section 8.5 Notice of Default............................................................31
Section 8.6 Expenses.....................................................................31
SECTION 9. CHANGE IN CIRCUMSTANCES...............................................................31
Section 9.1 Change of Law................................................................31
Section 9.2 Unavailability of Deposits or Inability to Ascertain,
or Inadequacy of, LIBOR......................................................32
Section 9.3 Increased Cost and Reduced Return............................................32
Section 9.4 Lending Offices..............................................................34
Section 9.5 Discretion of Bank as to Manner of Funding...................................34
SECTION 10. THE AGENT.............................................................................34
Section 10.1 Appointment and Authorization of Agent.......................................34
Section 10.2 Agent and its Affiliates.....................................................35
Section 10.3 Action by Agent..............................................................35
Section 10.4 Consultation with Experts....................................................35
Section 10.5 Liability of Agent; Credit Decision..........................................35
Section 10.6 Indemnity....................................................................36
Section 10.7 Resignation of Agent and Successor Agent.....................................36
SECTION 11. MISCELLANEOUS.........................................................................37
Section 11.1 Withholding Taxes............................................................37
Section 11.2 No Waiver of Rights..........................................................38
Section 11.3 Non-Business Day.............................................................38
Section 11.4 Documentary Taxes............................................................38
Section 11.5 Survival of Representations..................................................38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
Section 11.6 Survival of Indemnities......................................................39
Section 11.7 Set-Off......................................................................39
Section 11.8 Notices......................................................................39
Section 11.9 Counterparts.................................................................41
Section 11.10 Successors and Assigns.......................................................41
Section 11.11 Participants and Note Assignees..............................................41
Section 11.12 Assignment of Commitments by Banks...........................................42
Section 11.13 Amendments...................................................................42
Section 11.14 Headings.....................................................................43
Section 11.15 Legal Fees, Other Costs and Indemnification..................................43
Section 11.16 Entire Agreement.............................................................43
Section 11.17 Construction.................................................................43
Section 11.18 Governing Law................................................................44
Section 11.19 Submission to Jurisdiction; Waiver of Jury Trial.............................44
</TABLE>
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<PAGE> 5
364-DAY REVOLVING CREDIT AGREEMENT
364-DAY REVOLVING CREDIT AGREEMENT, dated as of March 9, 2001 among NRG
Energy, Inc., a Delaware corporation (the "Borrower"), the financial
institutions from time to time party hereto (each a "Bank," and collectively the
"Banks") and ABN AMRO Bank N.V. in its capacity as agent for the Banks hereunder
(in such capacity, the "Agent").
WITNESSETH THAT:
WHEREAS, the Borrower desires to obtain the several commitments of the
Banks to make available a revolving credit for loans (the "Revolving Credit"),
as described herein; and
WHEREAS, the Banks are willing to extend such commitments subject to
all of the terms and conditions hereof and on the basis of the representations
and warranties hereinafter set forth;
NOW, THEREFORE, in consideration of the recitals set forth above and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
Section 1.1 Definitions. The following terms when used herein have the
following meanings:
"Adjusted LIBOR" is defined in Section 2.3(b) hereof.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with their correlative
meanings, "controlled by" and "under common control with") means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies of a Person (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
event for purposes of this definition: (i) any Person which owns directly or
indirectly 5% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or 5% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person; and (ii) each director and executive officer of the
Borrower or any Subsidiary shall be deemed an Affiliate of the Borrower and each
Subsidiary.
"Agent" is defined in the first paragraph of this Agreement and
includes any successor Agent pursuant to Section 10.7 hereof.
"Agreement" means this 364-Day Revolving Credit Agreement, including
all Exhibits and Schedules hereto, as it may be amended, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
<PAGE> 6
"Applicable Margin" means, at any time (i) with respect to Base Rate
Loans, the Base Rate Margin and (ii) with respect to Eurocurrency Loans, the
Eurocurrency Margin.
"Applicable Telerate Page" is defined in Section 2.3(b) hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Borrower pursuant to Section 6.1(e) hereof, or on any
updated such list provided by the Borrower to the Agent, or any further or
different officer of the Borrower so named by any Authorized Representative of
the Borrower in a written notice to the Agent.
"Bank" is defined in the first paragraph of this Agreement.
"Base Rate" is defined in Section 2.3(a) hereof.
"Base Rate Loan" means a Loan bearing interest prior to maturity at a
rate specified in Section 2.3(a) hereof.
"Base Rate Margin" means the percentage set forth in Schedule 1 hereto
beside the then applicable Rating.
"Borrower" is defined in the first paragraph of this Agreement.
"Borrowing" means the total of Loans of a single type advanced,
continued for an additional Interest Period, or converted from a different type
into such type by the Banks on a single date and for a single Interest Period.
Borrowings of Loans are made and maintained ratably from each of the Banks
according to their Percentages. A Borrowing is "advanced" on the day Banks
advance funds comprising such Borrowing to the Borrower, is "continued" on the
date a new Interest Period for the same type of Loan commences for such
Borrowing, and is "converted" when such Borrowing is changed from one type of
Loan to the other, all as requested by the Borrower pursuant to Section 2.5(a).
"Business Day" means any day other than a Saturday or Sunday on which
Banks are not authorized or required to close in Chicago, Illinois or New York,
New York and, if the applicable Business Day relates to the borrowing or payment
of a Eurocurrency Loan, on which dealings in U.S. Dollars may be carried on by
the Agent in the interbank eurodollar market.
"Capital Lease" means at any date any lease of Property which, in
accordance with GAAP, would be required to be capitalized on the balance sheet
of the lessee.
"Capitalized Lease Obligations" means, for any Person, the amount of
such Person's liabilities under Capital Leases determined at any date in
accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitments" means the Revolving Credit Commitments.
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<PAGE> 7
"Compliance Certificate" means a certificate in the form of Exhibit B
hereto.
"Consolidated Capitalization" means Consolidated Net Worth plus
Indebtedness of the Borrower.
"Consolidated Current Liabilities" means such liabilities of the
Borrower on a consolidated basis as shall be determined in accordance with GAAP
to constitute current liabilities.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Borrower for such period computed on a consolidated basis in
accordance with GAAP.
"Consolidated Net Tangible Assets" means, as of the date of
determination thereof, Consolidated Total Assets as of such date less the sum of
(i) Consolidated Current Liabilities and (ii) Intangible Assets.
"Consolidated Net Worth" means, as of the date of determination
thereof, the amount which would be reflected as stockholders' equity upon a
consolidated balance sheet of the Borrower (determined in accordance with GAAP)
prior to making any adjustment thereto (i) as a result of application of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
or (ii) in connection with the account entitled "currency translation account"
on such balance sheet.
"Consolidated Total Assets" means, as of the date of determination
thereof, the total amount of all assets of the Borrower determined on a
consolidated basis in accordance with GAAP.
"Contingent Performance Guarantee" means a Performance Guarantee as to
which (i) the guarantor's obligation cannot be reasonably quantified, and (ii)
neither the Borrower nor any Subsidiary has information which raises a
reasonable possibility that a demand under such Performance Guarantee may be
made prior to, or within 18 months after, the Termination Date. A Contingent
Performance Guarantee which for any reason fails to meet the criteria set forth
in either clause (i) or (ii) of this definition shall immediately cease to be
deemed a Contingent Performance Guarantee for purposes of this Agreement.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of its Property is bound.
"Controlled Group" means all members of a controlled group of
corporations and all trades and businesses (whether or not incorporated) under
common control that, together with the Borrower or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Credit Documents" means this Agreement, the Notes and the Fee Letter.
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<PAGE> 8
"Credit Event" means the advancing of any Loan or the continuation of
or conversion into a Eurocurrency Loan.
"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an Event
of Default.
"Effective Date" means March 9, 2001.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1802 et seq., the Toxic
Substances Control Act, 15 S.C. Section 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. Section 1252 et seq., the Clean Water Act, 33
U.S.C. Section 1321 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
and any other federal, state, county, municipal, local or other statute, law,
ordinance or regulation which may relate to or deal with human health or the
environment, all as may be from time to time amended.
"ERISA" is defined in Section 5.9 hereof.
"Eurocurrency Loan" means a Loan bearing interest prior to maturity at
the rate specified in Section 2.3(b) hereof.
"Eurocurrency Margin" means the percentage set forth in Schedule 1
hereto beside the then applicable Rating.
"Eurocurrency Reserve Percentage" is defined in Section 2.3(b) hereof.
"Event of Default" means any of the events or circumstances specified
in Section 8.1 hereof.
"Existing Credit Agreement" means that certain 364-Day Revolving Credit
Agreement dated as of March 10, 2000 among NRG Energy, Inc., ABN AMRO Bank N.V.,
as administrative agent, and the banks from time-to-time party thereto, as
amended or otherwise modified from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facility Fee Rate" means the percentage set forth in Schedule 1 hereto
beside the then applicable Rating.
"Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (ii) of the definition of Base Rate set forth in
Section 2.3(a) hereof.
"Fee Letter" means that certain letter between the Agent and the
Borrower dated as of the date hereof pertaining to fees to be paid by the
Borrower to the Agent for the Agent's sole account and benefit.
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<PAGE> 9
"FinCo" means NRG Finance Company I LLC, a Delaware special purpose
limited liability company which is a Wholly-Owned Subsidiary of the Borrower and
whose sole purpose is to facilitate the financing of a revolving working
capital, acquisition and construction loan facility.
"FinCo Revolving Loan Facility" means a revolving working capital,
acquisition and construction loan facility (i) under which FinCo is the sole
borrower, (ii) as to which FinCo's obligations are or may be Guaranteed by some
or all of the Borrower's Project Finance Subsidiaries whose projects or turbines
are being financed by FinCo and for which there is no other financing on a
senior basis being provided by any other Person, and (iii) which is unsecured by
any assets of, or stock or other equity interest of or owned by, the Borrower or
its Subsidiaries, other than (x) assets and/or the stock or other equity
interest of FinCo, and (y) assets and/or the stock or other equity interest of
such Project Finance Subsidiaries; provided, however, that any Guaranty of the
Indebtedness of FinCo or any security therefor given by or in respect of a
Project Finance Subsidiary to the extent permitted hereunder may continue in
existence only until the financing received by the Project Finance Subsidiary
from FinCo has been repaid.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time, applied by the Borrower and its
Subsidiaries on a basis consistent with the preparation of the Borrower's
financial statements furnished to the Banks.
"Guaranty" by any Person means all obligations (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation (including, without limitation,
limited or full recourse obligations in connection with sales of receivables or
any other Property and Performance Guarantees) of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any Property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation, or (y)
to maintain working capital or other balance sheet condition, or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purpose of all computations made under this Agreement, the
amount of a Guaranty in respect of any obligation shall be deemed to be equal to
the maximum aggregate amount of such obligation or, if the Guaranty is limited
to less than the full amount of such obligation, the maximum aggregate potential
liability under the terms of the Guaranty. Notwithstanding anything in this
definition to the contrary, a Person's support of its subsidiary's obligation to
(a) make equity contributions or (b) pay liquidated damages under an operating
and maintenance agreement should such subsidiary fail to comply with the terms
thereof shall not be considered a "Guaranty" by such Person.
5
<PAGE> 10
"Hazardous Material" means any substance or material which is hazardous
or toxic, and includes, without limitation, (a) asbestos, polychlorinated
biphenyls, dioxins and petroleum or its by-products or derivatives (including
crude oil or any fraction thereof) and (b) any other material or substance
classified or regulated as "hazardous" or "toxic" pursuant to any Environmental
Law.
"Indebtedness" means and includes, for any Person, all obligations of
such Person, without duplication, which are required by GAAP to be shown as
liabilities on its balance sheet, and in any event shall include all of the
following whether or not so shown as liabilities: (i) obligations of such Person
for borrowed money, (ii) obligations of such Person representing the deferred
purchase price of property or services, (iii) obligations of such Person
evidenced by notes, acceptances, or other instruments of such Person or arising
out of letters of credit issued for such Person's account, (iv) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from Property now or hereafter owned or acquired by such Person, (v)
Capitalized Lease Obligations of such Person and (vi) obligations for which such
Person is obligated pursuant to a Guaranty, provided that Contingent Performance
Guarantees of the Borrower shall not be deemed "Indebtedness" for purposes of
this Agreement. All calculations of the Indebtedness of any Person (and the
components thereof) shall be performed on a consolidated basis, provided, that
Indebtedness shall not include obligations which are required by GAAP to be
shown as liabilities on such Person's balance sheet, but which are non-recourse
to such Person.
"Interest Period" is defined in Section 2.6 hereof.
"Intangible Assets" means, as of the date of determination thereof, all
assets of the Borrower properly classified as intangible assets determined on a
consolidated basis in accordance with GAAP.
"Investment Grade Rating" means, with respect to any Person, that its
(i) Moody's Rating is at least Baa3 and (ii) S&P Rating is at least BBB-. If
either clause (i) or (ii) is not satisfied, such Person shall not be deemed to
have an "Investment Grade Rating".
"Lending Office" is defined in Section 9.4 hereof.
"LIBOR" is defined in Section 2.3(b) hereof.
"LIBOR Index Rate" is defined in Section 2.3(b) hereof.
"Lien" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, including, but not
limited to, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale, security agreement or trust receipt, or a lease,
consignment or bailment for security purposes. The term "Lien" shall also
include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this
6
<PAGE> 11
definition, a Person shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement, Capital Lease or
other arrangement pursuant to which title to the Property has been retained by
or vested in some other Person for security purposes, and such retention of
title shall constitute a "Lien."
"Loan" is defined in Section 2.1(a) hereof and, as so defined, includes
a Base Rate Loan or Eurocurrency Loan, each of which is a "type" of Loan
hereunder.
"Material Adverse Effect" means any material adverse change in, or any
adverse development which materially affects or could reasonably be expected to
affect, the business, financial position or results of operations of the
Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower
to perform its obligations under the Credit Documents.
"Material Subsidiary" means a Subsidiary of the Borrower whose total
assets represent at least 5% of the total assets of the Borrower and its
Subsidiaries determined based upon the most recent financial statements
delivered pursuant to Section 7.6 (as determined in accordance with GAAP).
"Minimum Consolidated Net Worth" means an amount, as of any
determination thereof, equal to the sum of $1,000,000,000 plus 25% of
Consolidated Net Income for the period from and including January 1, 2001 to
such determination date but which amount shall in no event be less than
$1,000,000,000.
"Moody's Rating" means the rating assigned by Moody's Investors
Service, Inc. and any successor thereto that is a nationally recognized rating
agency to the outstanding senior unsecured non-credit enhanced long-term debt
obligations of a Person (or if neither Moody's Investors Service, Inc. nor any
such successor shall be in the business of rating long-term indebtedness, a
nationally recognized rating agency in the U.S. as mutually agreed between the
Required Banks and Holdings). Any reference in this Agreement to any specific
rating is a reference to such rating as currently defined by Moody's Investors
Service, Inc. (or such a successor) and shall be deemed to refer to the
equivalent rating if such rating system changes.
"Non-Conforming Period" is defined in Section 7.13 hereof.
"Note" is defined in Section 2.10(a) hereof.
"Obligations" means all fees payable hereunder, all obligations of the
Borrower to pay principal or interest on Loans and all other payment obligations
of the Borrower arising under or in relation to any Credit Document.
"Percentage" means, for each Bank, the percentage of the Revolving
Credit Commitments represented by such Bank's Revolving Credit Commitment or, if
the Revolving Credit Commitments have been terminated, the percentage held by
such Bank of the aggregate principal amount of all outstanding Obligations.
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<PAGE> 12
"Performance Guarantee" means a guarantee issued by the Borrower or a
Subsidiary that the Borrower or such Subsidiary will cause some action (other
than the payment of money) to be performed, whether by performing the action
itself or paying others to perform such action.
"Person" means an individual, partnership, corporation, association,
trust, unincorporated organization or any other entity or organization,
including a government or any agency or political subdivision thereof.
"Plan" means at any time an employee pension benefit plan covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code that is either (i) maintained by a member of the Controlled Group or
(ii) maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"PBGC" is defined in Section 5.9 hereof.
"Project Finance Subsidiary" means any special purpose Subsidiary of
the Borrower formed solely to facilitate the financing of the assets of such
Subsidiary, and as to which the recourse of any creditors of such Subsidiary is
limited solely to such assets and the stock or other equity interest of such
Subsidiary.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, whether now owned or
hereafter acquired.
"Rating" means the rating given to senior unsecured non-credit enhanced
debt obligations of the Borrower by Moody's Investors Service, Inc. and Standard
& Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and any
successors thereto.
"Reference Banks" means ABN AMRO Bank N.V., and one other
representative of the Banks. In the event that any of such Banks ceases to be a
"Bank" hereunder or fails to provide timely quotations of interest rates to the
Agent as and when required by this Agreement, then such Bank shall be replaced
by a new reference bank jointly designated by the Agent and the Borrower.
"Replaceable Bank" is defined in Section 11.13(iii).
"Replacement Bank" is defined in Section 11.13(iii).
"Required Banks" means, as of the date of determination thereof, Banks
holding at least 66 2/3% of the Percentages.
"Revolving Credit Commitment" is defined in Section 2.1 hereof.
"SEC" means the Securities and Exchange Commission.
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<PAGE> 13
"Security" has the same meaning as in Section 2(l) of the Securities
Act of 1933, as amended.
"S&P Rating" means the rating assigned by Standard & Poor's Ratings
Group, a division of The McGraw-Hill Companies, Inc. and any successor thereto
that is a nationally recognized rating agency to the outstanding senior
unsecured non-credit enhanced long-term debt obligations of a Person (or, if
neither such division nor any successor shall be in the business of rating
long-term indebtedness, a nationally recognized rating agency in the U.S. as
mutually agreed between the Required Banks and Holdings). Any reference in this
Agreement to any specific rating is a reference to such rating as currently
defined by Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc. (or such a successor) and shall be deemed to refer to the
equivalent rating if such rating system changes.
"Subsidiary" means, as to the Borrower, any active, domestic
corporation or other entity of which one hundred percent (100%) of the
outstanding stock or comparable equity interests having ordinary voting power
for the election of the Board of Directors of such corporation or similar
governing body in the case of a non corporation (irrespective of whether or not,
at the time, stock or other equity interest of any other class or classes of
such corporation or other entity shall have or might have voting power by reason
of the happening of any contingency) is at the time directly owned by the
Borrower.
"Telerate Service" means the Dow Jones Telerate Service.
"Termination Date" means March 8, 2002.
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable accrued benefits under such Plan exceeds (ii) the fair market
value of all Plan assets allocable to such benefits, all determined as of the
then most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the Controlled Group to
the PBGC or the Plan under Title IV of ERISA.
"Utilization" means the percentage obtained by dividing the aggregate
outstanding principal amount of Loans on any date (after giving effect to any
Borrowings and repayments occurring on such date) by the Commitments in effect
on such date (after giving effect to any reductions thereof on such date).
"U.S. Dollars" and "$" each means the lawful currency of the United
States of America.
"Voting Stock" of any Person means capital stock of any class or
classes or other equity interests (however designated) having ordinary voting
power for the election of directors or similar governing body of such Person.
"Welfare Plan" means a "welfare plan," as defined in Section 3(1) of
ERISA.
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<PAGE> 14
"Wholly-Owned" when used in connection with any Subsidiary of the
Borrower means a Subsidiary of which all of the issued and outstanding shares of
stock or other equity interests (other than directors' qualifying shares as
required by law) shall be owned by the Borrower and/or one or more of its
Wholly-Owned Subsidiaries.
Section 1.2 Interpretation. The foregoing definitions shall be equally
applicable to both the singular and plural forms of the terms defined. All
references to times of day in this Agreement shall be references to Chicago,
Illinois time unless otherwise specifically provided. Where the character or
amount of any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, the same shall be done in accordance
with GAAP, to the extent applicable, except where such principles are
inconsistent with the specific provisions of this Agreement.
SECTION 2. THE REVOLVING CREDIT.
Section 2.1 The Loan Commitment. General Terms. Subject to the terms and
conditions hereof, each Bank severally and not jointly agrees to make a loan or
loans (individually a "Loan" and collectively "Loans") to the Borrower from time
to time on a revolving basis in U.S. Dollars up to the amount of its revolving
credit commitment set forth on the applicable signature page hereof (such
amount, as reduced pursuant to Section 2.12 or changed as a result of one or
more assignments under Section 11.12 or 11.13(iii), its "Revolving Credit
Commitment" and, cumulatively for all the Banks, the "Revolving Credit
Commitments") before the Termination Date. The aggregate amount of Loans at any
time outstanding shall not exceed the Revolving Credit Commitments in effect at
such time. Each Borrowing of Loans shall be made ratably from the Banks in
proportion to their respective Percentages. As provided in Section 2.5(a)
hereof, the Borrower may elect that each Borrowing of Loans be either Base Rate
Loans or Eurocurrency Loans. Loans may be repaid and the principal amount
thereof reborrowed before the Termination Date, subject to all the terms and
conditions hereof. The initial amount of Revolving Credit Commitments under this
Agreement equals $500,000,000.
Section 2.2 [Intentionally Omitted].
Section 2.3 Applicable Interest Rates.
(a) Base Rate Loans. Each Base Rate Loan made or maintained by a
Bank shall bear interest during each Interest Period it is outstanding
computed on the basis of a year of 365 or 366 days, as applicable, and
actual days elapsed on the unpaid principal amount thereof from the
date such Loan is advanced, continued or created by conversion from a
Eurocurrency Loan until maturity (whether by acceleration or otherwise)
at a rate per annum equal to the sum of the Applicable Margin plus the
Base Rate from time to time in effect, payable on the last day of its
Interest Period and at maturity (whether by acceleration or otherwise).
"Base Rate" means for any day the greater of:
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<PAGE> 15
(i) the rate of interest announced by the Agent at its
offices in Chicago, Illinois, from time to time as its prime rate,
or equivalent, for U.S. Dollar loans as in effect on such day,
with any change in the Base Rate resulting from a change in said
prime rate to be effective as of the date of the relevant change
in said prime rate; and
(ii) the sum of (x) the rate determined by the Agent to be
the prevailing rate per annum (rounded upwards, if necessary, to
the nearest one hundred-thousandth of a percentage point) at
approximately 10:00 a.m. (New York time) (or as soon thereafter as
is practicable) on such day (or, if such day is not a Business
Day, on the immediately preceding Business Day) for the purchase
at face value of overnight Federal funds, as published by the
Federal Reserve bank of New York, in an amount comparable to the
principal amount owed to the Agent for which such rate is being
determined, plus (y) 1/2 of 1% (0.50%).
(b) Eurocurrency Loans. Each Eurocurrency Loan made or maintained
by a Bank shall bear interest during each Interest Period it is
outstanding (computed on the basis of a year of 360 days and actual
days elapsed) on the unpaid principal amount thereof from the date such
Loan is advanced, continued, or created by conversion from a Base Rate
Loan until maturity (whether by acceleration or otherwise) at a rate
per annum equal to the sum of the Applicable Margin plus the Adjusted
LIBOR applicable for such Interest Period, payable on the last day of
the Interest Period and at maturity (whether by acceleration or
otherwise), and, if the applicable Interest Period is longer than three
months, on each day occurring every three months after the commencement
of such Interest Period. All payments of principal and interest on a
Loan (whether a Base Rate Loan or Eurocurrency Loan) shall be made in
U.S. Dollars.
"Adjusted LIBOR" means, for any Borrowing of Eurocurrency Loans, a
rate per annum determined in accordance with the following formula:
Adjusted LIBOR = LIBOR
------------------------------------
1 - Eurocurrency Reserve Percentage
"LIBOR" means, for an Interest Period, (a) the LIBOR Index Rate
for such Interest Period as from time to time quoted by the Telerate
Service, if such rate is available, and (b) if the LIBOR Index Rate is
not quoted by the Telerate Service, the arithmetic average of the rates
of interest per annum (rounded upwards, if necessary, to the nearest
one-sixteenth of one percent) at which deposits in U.S. Dollars in
immediately available funds are offered to each Reference Bank at 11:00
a.m. (London, England time) two (2) Business Days before the beginning
of such Interest Period by major banks in the interbank eurocurrency
market for delivery on the first day of and for a period equal to such
Interest Period in an amount equal or comparable to the principal
amount of the Eurocurrency Loan scheduled to be made by the Agent as
part of such Borrowing.
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"LIBOR Index Rate" means, for any Interest Period, the rate per
annum (rounded upwards, if necessary, to the next higher one-sixteenth
of one percent) for deposits in U.S. Dollars for delivery on the first
day of and for a period equal to such Interest Period in an amount
equal or comparable to the principal amount of the Loan scheduled to be
made by the Agent as part of such Borrowing, which appears on the
Applicable Telerate Page, as of 11:00 a.m. (London, England time) on
the day two (2) Business Days before the commencement of such Interest
Period.
"Applicable Telerate Page" means the display page designated as
"Page 3750" on the Telerate Service (or such other page as may replace
such pages, as appropriate, on that service or such other service as
may be nominated by the British Bankers' Association as the information
vendor for the purpose of displaying British Bankers' Association
Interest Settlement Rates for deposits in U.S. Dollars).
"Eurocurrency Reserve Percentage" means the daily average for the
applicable Interest Period of the maximum rate, expressed as a decimal,
at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed during such Interest
Period by the Board of Governors of the Federal Reserve System (or any
successor) on "eurocurrency liabilities," as defined in such Board's
Regulation D (or in respect of any other category of liabilities that
includes deposits by reference to which the interest rate is determined
or any category of extensions of credit or other assets that include
loans by non-United States offices of any Bank to United States
residents), subject to any amendments of such reserve requirement by
such Board or its successor, taking into account any transitional
adjustments thereto. For purposes of this definition, the Eurocurrency
Loans shall be deemed to be "eurocurrency liabilities" as defined in
Regulation D without benefit or credit for any prorations, exemptions
or offsets under Regulation D.
(c) Rate Determinations. The Agent shall determine each interest
rate applicable to Obligations, and a determination thereof by the
Agent shall be conclusive and binding except in the case of manifest
error.
Section 2.4 Minimum Borrowing Amounts. Each Borrowing of Base Rate
Loans and Eurocurrency Loans denominated in U.S. Dollars shall be in an amount
not less than $1,000,000 and in integral multiples of $1,000,000.
Section 2.5 Manner of Borrowing Loans and Designating Interest Rates
Applicable to Loans.
(a) Notice to the Agent. The Borrower shall give written notice to
the Agent by no later than 10:00 a.m. (Chicago time) (i) at least three
(3) Business Days before the date on which the Borrower requests the
Banks to advance a Borrowing of Eurocurrency Loans and (ii) on the date
the Borrower requests the Banks to advance a Borrowing of Base Rate
Loans. The Loans included in each Borrowing shall bear interest
initially at the type of rate specified in such notice of a new
Borrowing. Thereafter, the Borrower may
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from time to time elect to change or continue the type of interest rate
borne by each Borrowing or, subject to Section 2.4's minimum amount
requirement for each outstanding Borrowing, a portion thereof, as
follows: (i) if such Borrowing is of Eurocurrency Loans, on the last
day of the Interest Period applicable thereto, the Borrower may
continue part or all of such Borrowing as Eurocurrency Loans for an
Interest Period or Interest Periods specified by the Borrower or
convert part or all of such Borrowing into Base Rate Loans, (ii) if
such Borrowing is of Base Rate Loans, on any Business Day, the Borrower
may convert all or part of such Borrowing into Eurocurrency Loans for
an Interest Period or Interest Periods specified by the Borrower. The
Borrower shall give all such notices requesting the advance,
continuation, or conversion of a Borrowing to the Agent by telephone or
telecopy (which notice shall be irrevocable once given and, if by
telephone, shall be promptly confirmed in writing). Notices of the
continuation of a Borrowing of Eurocurrency Loans for an additional
Interest Period or of the conversion of part or all of a Borrowing of
Eurocurrency Loans into Base Rate Loans or of Base Rate Loans into
Eurocurrency Loans must be given by no later than 10:00 a.m. (Chicago
time) at least three (3) Business Days before the date of the requested
continuation or conversion. All such notices concerning the advance,
continuation, or conversion of a Borrowing shall specify the date of
the requested advance, continuation or conversion of a Borrowing (which
shall be a Business Day), the amount of the requested Borrowing to be
advanced, continued, or converted, the type of Loans to comprise such
new, continued or converted Borrowing and, if such Borrowing is to be
comprised of Eurocurrency Loans, the Interest Period applicable
thereto. The Borrower agrees that the Agent may rely on any such
telephonic or telecopy notice given by any person it in good faith
believes is an Authorized Representative without the necessity of
independent investigation, and in the event any such notice by
telephone conflicts with any written confirmation, such telephonic
notice shall govern if the Agent has acted in reliance thereon. There
may be no more than five different Interest Periods in effect at any
one time.
(b) Notice to the Banks. The Agent shall give prompt telephonic or
telecopy notice to each Bank of any notice from the Borrower received
pursuant to Section 2.5(a) above. The Agent shall give notice to the
Borrower and each Bank by like means of the interest rate applicable to
each Borrowing of Eurocurrency Loans and the amount thereof.
(c) Borrower's Failure to Notify. Any outstanding Borrowing of
Base Rate Loans shall, subject to Section 6.2 hereof, automatically be
continued for an additional Interest Period on the last day of its then
current Interest Period unless the Borrower has notified the Agent
within the period required by Section 2.5(a) that it intends to convert
such Borrowing into a Borrowing of Eurocurrency Loans or notifies the
Agent within the period required by Section 2.8(a) that it intends to
prepay such Borrowing. If the Borrower fails to give notice pursuant to
Section 2.5(a) above of the continuation or conversion of any
outstanding principal amount of a Borrowing of Eurocurrency Loans
before the last day of its then current Interest Period within the
period required by Section 2.5(a) and has not notified the Agent within
the period required by Section 2.8(a) that it
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intends to prepay such Borrowing, such Borrowing shall automatically be
converted into a Borrowing of Base Rate Loans, subject to Section 6.2
hereof.
(d) Disbursement of Loans. Not later than 11:00 a.m. (Chicago
time) on the date of any requested advance of a new Borrowing of
Eurocurrency Loans, and not later than 12:00 noon (Chicago time) on the
date of any requested advance of a new Borrowing of Base Rate Loans,
subject to Section 6 hereof, each Bank shall make available its Loan
comprising part of such Borrowing in funds immediately available at the
principal office of the Agent in Chicago, Illinois. The Agent shall
make available to the Borrower Loans at the Agent's principal office in
Chicago, Illinois or such other office as the Agent has previously
agreed to, in writing, with the Borrower.
(e) Agent Reliance on Bank Funding. Unless the Agent shall have
been notified by a Bank before the date on which such Bank is scheduled
to make payment to the Agent of the proceeds of a Loan (which notice
shall be effective upon receipt) that such Bank does not intend to make
such payment, the Agent may assume that such Bank has made such payment
when due and the Agent may in reliance upon such assumption (but shall
not be required to) make available to the Borrower the proceeds of the
Loan to be made by such Bank and, if any Bank has not in fact made such
payment to the Agent, such Bank shall, on demand, pay to the Agent the
amount made available to the Borrower attributable to such Bank
together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to the Borrower
and ending on (but excluding) the date such Bank pays such amount to
the Agent at a rate per annum equal to the Federal Funds Rate. If such
amount is not received from such Bank by the Agent immediately upon
demand, the Borrower will, on demand, repay to the Agent the proceeds
of the Loan attributable to such Bank with interest thereon at a rate
per annum equal to the interest rate applicable to the relevant Loan.
Section 2.6 Interest Periods. As provided in Section 2.5(a) hereof, at
the time of each request to advance, continue, or create by conversion a
Borrowing of Eurocurrency Loans, the Borrower shall select an Interest Period
applicable to such Loans from among the available options. The term "Interest
Period" means the period commencing on the date a Borrowing of Loans is
advanced, continued, or created by conversion and ending: (a) in the case of
Base Rate Loans, on the last Business Day of the calendar quarter in which such
Borrowing is advanced, continued, or created by conversion (or on the last day
of the following calendar quarter if such Loan is advanced, continued or created
by conversion on the last Business Day of a calendar quarter), and (b) in the
case of Eurocurrency Loans, 1, 2, 3, or 6 months thereafter; provided, however,
that:
(a) any Interest Period for a Borrowing of Base Rate Loans that
otherwise would end after the Termination Date shall end on the
Termination Date;
(b) for any Borrowing of Eurocurrency Loans, the Borrower may not
select an Interest Period that extends beyond the Termination Date;
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(c) whenever the last day of any Interest Period would otherwise
be a day that is not a Business Day, the last day of such Interest
Period shall be extended to the next succeeding Business Day, provided
that, if such extension would cause the last day of an Interest Period
for a Borrowing of Eurocurrency Loans to occur in the following
calendar month, the last day of such Interest Period shall be the
immediately preceding Business Day; and
(d) for purposes of determining an Interest Period for a Borrowing
of Eurocurrency Loans, a month means a period starting on one day in a
calendar month and ending on the numerically corresponding day in the
next calendar month; provided, however, that if there is no numerically
corresponding day in the month in which such an Interest Period is to
end or if such an Interest Period begins on the last Business Day of a
calendar month, then such Interest Period shall end on the last
Business Day of the calendar month in which such Interest Period is to
end.
Section 2.7 Maturity of Loans. Unless an earlier maturity is provided
for hereunder (whether by acceleration or otherwise), each Loan shall mature and
become due and payable by the Borrower on the Termination Date.
Section 2.8 Prepayments.
(a) The Borrower may prepay without premium or penalty and in
whole or in part (but, if in part, then: (i) if such Borrowing is of
Base Rate Loans, in an amount not less than $1,000,000, (ii) if such
Borrowing is of Eurocurrency Loans in an amount not less than
$1,000,000, and (iii) in an amount such that the minimum amount
required for a Borrowing pursuant to Section 2.4 hereof remains
outstanding) any Borrowing of Eurocurrency Loans upon three Business
Days prior notice to the Agent or, in the case of a Borrowing of Base
Rate Loans, notice delivered to the Agent no later than 10:00 a.m.
(Chicago time) on the date of prepayment, such prepayment to be made by
the payment of the principal amount to be prepaid and accrued interest
thereon to the date fixed for prepayment. In the case of Eurocurrency
Loans, such prepayment may only be made on the last day of the Interest
Period then applicable to such Loans. The Agent will promptly advise
each Bank of any such prepayment notice it receives from the Borrower.
Any amount paid or prepaid before the Termination Date may, subject to
the terms and conditions of this Agreement, be borrowed, repaid and
borrowed again.
(b) If the aggregate principal amount of outstanding Loans shall
at any time for any reason exceed the Revolving Credit Commitments then
in effect, the Borrower shall, immediately and without notice or
demand, pay the amount of such excess to the Agent for the ratable
benefit of the Banks as a prepayment of the Loans. Immediately upon
determining the need to make any such prepayment the Borrower shall
notify the Agent of such required prepayment.
(c) Each such prepayment shall be accompanied by a payment of all
accrued and unpaid interest on the Loans prepaid and shall be subject
to Section 2.11.
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Section 2.9 Default Rate. If any payment of any Obligation is not made
when due (whether by acceleration or otherwise), such Obligation shall bear
interest, computed on the basis of a year of 360 days and actual days elapsed
(except for Base Rate Loans bearing interest based on the rate described in
clause (i) of the definition of Base Rate, in which case such Loan shall bear
interest computed on the basis of a year of 365 or 366 days, as applicable, and
the actual number of days elapsed) from the date such payment was due until paid
in full, payable on demand, at a rate per annum equal to:
(a) for any Obligation other than a Eurocurrency Loan, the sum of
two percent (2%) plus the Base Rate Margin plus the Base Rate from time
to time in effect; and
(b) for any Eurocurrency Loan, the sum of two percent (2%) plus
the rate of interest in effect thereon at the time of such default
until the end of the Interest Period applicable thereto and,
thereafter, at a rate per annum equal to the sum of two percent (2%)
plus the Base Rate Margin plus the Base Rate from time to time in
effect.
Section 2.10 The Notes.
(a) The Loans made to the Borrower by a Bank shall be evidenced by
a single promissory note of the Borrower issued to such Bank in the
form of Exhibit A hereto. Each such promissory note is hereinafter
referred to as a "Note" and collectively such promissory notes are
referred to as the "Notes."
(b) Each Bank shall record on its books and records or on a
schedule to its Note the amount of each Loan advanced, continued, or
converted by it, all payments of principal and interest and the
principal balance from time to time outstanding thereon, the type of
such Loan, and, for any Eurocurrency Loan, the Interest Period and the
interest rate applicable thereto. The record thereof, whether shown on
such books and records of a Bank or on a schedule to any Note, shall be
prima facie evidence as to all such matters; provided, however, that
the failure of any Bank to record any of the foregoing or any error in
any such record shall not limit or otherwise affect the obligation of
the Borrower to repay all Loans made to it hereunder together with
accrued interest thereon. At the request of any Bank and upon such Bank
tendering to the Borrower the Note to be replaced, the Borrower shall
furnish a new Note to such Bank to replace any outstanding Note, and at
such time the first notation appearing on a schedule on the reverse
side of, or attached to, such Note shall set forth the aggregate unpaid
principal amount of all Loans, if any, then outstanding thereon.
Section 2.11 Funding Indemnity. If any Bank shall incur any loss, cost
or expense (including, without limitation, any loss of profit, and any loss,
cost or expense incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by such Bank to fund or maintain any
Eurocurrency Loan or the relending or reinvesting of such deposits or amounts
paid or prepaid to such Bank) as a result of:
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(a) any payment (whether by acceleration or otherwise), prepayment
or conversion of a Eurocurrency Loan on a date other than the last day
of its Interest Period,
(b) any failure (because of a failure to meet the conditions of
Section 6 or otherwise) by the Borrower to borrow or continue a
Eurocurrency Loan, or to convert a Base Rate Loan into a Eurocurrency
Loan, on the date specified in a notice given pursuant to Section
2.5(a) or established pursuant to Section 2.5(c) hereof,
(c) any failure by the Borrower to make any payment of principal
on any Eurocurrency Loan (x) when due (whether by acceleration or
otherwise), or (y) on the date specified in a notice of prepayment, or
(d) any acceleration of the maturity of a Eurocurrency Loan as a
result of the occurrence of any Event of Default hereunder,
then, upon the demand of such Bank, the Borrower shall pay to such Bank
such amount as will reimburse such Bank for such loss, cost or expense. If any
Bank makes such a claim for compensation, it shall provide to the Borrower, with
a copy to the Agent, a certificate executed by an officer of such Bank setting
forth the amount of such loss, cost or expense in reasonable detail (including
an explanation of the basis for and the computation of such loss, cost or
expense) and the amounts shown on such certificate if reasonably calculated
shall be conclusive absent manifest error.
Section 2.12 Commitment Terminations. The Borrower shall have the right
at any time and from time to time, upon five (5) Business Days prior written
notice to the Agent, to terminate the Revolving Credit Commitments without
premium or penalty, in whole or in part, any partial termination to be (i) in an
amount not less than $5,000,000, and (ii) allocated ratably among the Banks in
proportion to their respective Percentages, provided that the Revolving Credit
Commitments may not be reduced to an amount less than the amount of all Loans
then outstanding. The Agent shall give prompt notice to each Bank of any such
termination of Commitments. Any termination of Revolving Credit Commitments
pursuant to this Section 2.12 may not be reinstated.
SECTION 3. FEES.
Section 3.1 Fees.
(a) Certain Fees. The Borrower shall pay, or cause to be paid, to
the Agent certain fees set forth in the Fee Letter at the time
specified in the Fee Letter for payment of such amounts.
(b) Facility Fee. For the period from the Effective Date to and
including the Termination Date, the Borrower shall pay to the Agent for
the ratable account of the Banks in accordance with their Percentages a
facility fee accruing at a rate per annum equal to the Facility Fee
Rate on the average daily amount of the Commitments (whether
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used or unused), or if the Commitments have expired or terminated, on
the principal amount of Loans. Such facility fee is payable in arrears
on the last Business Day of each calendar quarter and on the
Termination Date, unless the Revolving Credit Commitments are
terminated in whole on an earlier date, in which event the fee for the
period to but not including the date of such termination shall be paid
in whole on the date of such termination.
(c) Closing Fees. On the Effective Date the Borrower shall pay to
the Agent for the account of each Bank a closing fee of 0.05% on the
amount of such Bank's Revolving Credit Commitment in effect on the
Effective Date.
(d) Fee Calculations. All fees payable under this Agreement shall
be payable in U.S. Dollars and shall be computed on the basis of a year
of 360 days, for the actual number of days elapsed. All determinations
of the amount of fees owing hereunder (and the components thereof)
shall be made by the Agent and shall be conclusive absent manifest
error.
SECTION 4. PLACE AND APPLICATION OF PAYMENTS.
Section 4.1 Place and Application of Payments. All payments of
principal of and interest on the Loans, and of all other amounts payable by the
Borrower under this Agreement, shall be made by the Borrower to the Agent by no
later than 12:00 Noon (Chicago time) on the due date thereof at the principal
office of the Agent in Chicago, Illinois (or such other location in the United
States as the Agent may designate to the Borrower). Any payments received after
such time shall be deemed to have been received by the Agent on the next
Business Day. All such payments shall be made free and clear of, and without
deduction for, any set-off, counterclaim, levy, withholding or any other
deduction of any kind in U.S. Dollars, in immediately available funds at the
place of payment. The Agent will promptly thereafter cause to be distributed
like funds relating to the payment of principal or interest on Loans or
applicable fees ratably to the Banks and like funds relating to the payment of
any other amount payable to any Person to such Person, in each case to be
applied in accordance with the terms of this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to each Bank as to itself
and, where the following representations and warranties apply to Subsidiaries,
as to each of its Subsidiaries, as follows:
Section 5.1 Corporate Organization and Authority. The Borrower and each
of its Subsidiaries is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, except where such failure to
be in good standing would not, individually or in the aggregate, have a Material
Adverse Effect. Each is duly qualified to transact business in each jurisdiction
in which such qualification is required, whether by reason of ownership or
leasing of property or the conduct of business or otherwise, except where
failure
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to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. Each has the power and authority required to own, lease
and operate its properties and to conduct its business as currently conducted,
except where failure to have such power and authority would not, individually or
in the aggregate, have a Material Adverse Effect.
Section 5.2 Subsidiaries. Schedule 5.2 (as updated quarterly pursuant
to Section 7.6(b) hereof or otherwise from time to time in writing by the
Borrower) hereto identifies each Subsidiary and the jurisdiction of its
incorporation. All of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and outstanding and fully paid and nonassessable
except as set forth on Schedule 5.2 hereto. All such shares owned by the
Borrower are owned beneficially, and of record, and, except in the case of (i)
Liens granted in connection with the FinCo Revolving Loan Facility, and (ii) any
Project Finance Subsidiary, free of any Lien.
Section 5.3 Corporate Authority and Validity of Obligations. The
Borrower has full right and authority to enter into this Agreement and the other
Credit Documents to which it is a party, to make the borrowings herein provided
for, to issue its Notes in evidence thereof, and to perform all of its
obligations under the Credit Documents to which it is a party. Each Credit
Document to which it is a party has been duly authorized, executed and delivered
by the Borrower and constitutes valid and binding obligations of the Borrower
enforceable in accordance with its terms. No Credit Document, nor the
performance or observance by the Borrower of any of the matters or things
therein provided for, contravenes any provision of law or any charter or by-law
provision of the Borrower or any material Contractual Obligation of or affecting
the Borrower or any of its Properties or results in or requires the creation or
imposition of any Lien on any of the Properties or revenues of the Borrower.
Section 5.4 Financial Statements. All financial statements heretofore
delivered to the Banks showing historical performance of the Borrower for each
of the Borrower's fiscal years ending on or before December 31, 1999, and for
the Borrower's quarter ended September 30, 2000 have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent,
except as otherwise noted therein, with that of the previous fiscal year. Each
of such financial statements fairly presents on a consolidated basis the
financial condition of the Borrower as of the dates thereof and the results of
operations for the periods covered thereby. The Borrower and its Subsidiaries
have no material contingent liabilities other than those disclosed in such
financial statements referred to in this Section 5.4 or in comments or footnotes
thereto, or in any report supplementary thereto, heretofore furnished to the
Banks. Since December 31, 1999, there has been no material adverse change in the
business, operations, Property or financial or other condition, or business
prospects, of the Borrower or any of its Subsidiaries.
Section 5.5 No Litigation; No Labor Controversies.
(a) Except as set forth on Schedule 5.5 (as updated quarterly
pursuant to Section 7.6(b) hereof or otherwise from time to time in
writing by the Borrower), there is no litigation or governmental
proceeding pending, or to the knowledge of the Borrower,
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threatened, against the Borrower or any Subsidiary which, if adversely
determined, could (individually or in the aggregate) have a Material
Adverse Effect.
(b) Except as set forth on Schedule 5.5 (as updated quarterly
pursuant to Section 7.6(b) hereof or otherwise from time to time in
writing by the Borrower), there are no labor controversies pending or,
to the best knowledge of the Borrower, threatened against the Borrower
or any Subsidiary which could have a Material Adverse Effect.
Section 5.6 Taxes. The Borrower and its Subsidiaries have filed all
United States federal tax returns, and all other tax returns, required to be
filed and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Subsidiary, except such taxes, if
any, as are being contested in good faith and for which adequate reserves have
been provided. No notices of tax liens have been filed and no claims are being
asserted concerning any such taxes, which liens or claims are material to the
financial condition of the Borrower or any of its Subsidiaries (individually or
in the aggregate). The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries for any taxes or other governmental charges are
adequate.
Section 5.7 Approvals. Except as contemplated by Section 7.14, no
authorization, consent, license, exemption, filing or registration with any
court or governmental department, agency or instrumentality, nor any approval or
consent of the stockholders of the Borrower or any Subsidiary or from any other
Person, is necessary to the valid execution, delivery or performance by the
Borrower or any Subsidiary of any Credit Document to which it is a party.
Section 5.8 Validity of Notes. When executed, authenticated and
delivered pursuant to the provisions of this Agreement against payment of the
consideration therefor, the Notes will be duly issued and will constitute legal,
valid and binding obligations of the Borrower, enforceable in accordance with
their terms, except for the effect of bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting the rights of
creditors generally, and will rank pari passu with all other outstanding
unsecured indebtedness of the Borrower.
Section 5.9 ERISA. With respect to each Plan, the Borrower and each
other member of the Controlled Group has fulfilled its obligations under the
minimum funding standards of and is in compliance in all material respects with
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
with the Code to the extent applicable to it and has not incurred any liability
to the Pension Benefit Guaranty Corporation ("PBGC") or a Plan under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA. The Borrower does not have any contingent liabilities for any
post-retirement benefits under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Title I of ERISA.
Section 5.10 Government Regulation. Neither the Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
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Section 5.11 Margin Stock; Use of Proceeds. Neither the Borrower nor
any Subsidiary is engaged principally, or as one of its primary activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock ("margin stock" to have the same meaning herein as in Regulation U
of the Board of Governors of the Federal Reserve System). The proceeds of the
Loans are to be used solely for the purposes set forth in and permitted by
Section 7.10. The Borrower will not use the proceeds of any Loan in a manner
that violates any provision of Regulation U or X of the Board of Governors of
the Federal Reserve System.
Section 5.12 Licenses and Authorizations; Compliance Laws. The Borrower
and each of its Subsidiaries has all necessary licenses, permits and
governmental authorizations to own and operate its Properties and to carry on
its business as currently conducted and contemplated. The Borrower and each of
its Subsidiaries is in compliance with all applicable laws, regulations,
ordinances and orders of any governmental or judicial authorities except for any
such law, regulation, ordinance or order which, the failure to comply therewith,
could not reasonably be expected to have a Material Adverse Effect.
Section 5.13 Ownership of Property Liens. The Borrower and each
Subsidiary has good title to or valid leasehold interests in all its Property.
None of the Borrower's Property is subject to any Lien, except as permitted in
Section 7.9.
Section 5.14 No Burdensome Restrictions; Compliance with Agreements.
Neither the Borrower nor any Subsidiary is (a) party or subject to any law,
regulation, rule or order, or any Contractual Obligation that (individually or
in the aggregate) could have a Material Adverse Effect or (b) in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in, nor has any event occurred (and is continuing) that
constitutes or would (whether or not with the giving of notice and/or with the
passage of time and/or the fulfillment of any other requirement) constitute, to
the knowledge of the Borrower, a default or any breach or failure to perform by
the Borrower under any indenture, mortgage, loan agreement, lease or other
agreement or instrument to which it is a party, which default could have a
Material Adverse Effect.
Section 5.15 Full Disclosure. All information heretofore furnished by
the Borrower to the Agent or any Bank for purposes of or in connection with the
Credit Documents or any transaction contemplated thereby is, and all such
information hereafter furnished by the Borrower to the Agent or any Bank will
be, true and accurate in all material respects and not misleading on the date as
of which such information is stated or certified.
Section 5.16 Year 2000 Problem. On the basis of a comprehensive review
and assessment of the Borrower's and its Subsidiaries' systems and equipment and
inquiry made of the Borrower's and its Subsidiaries' material suppliers, vendors
and customers, and based on its operations since January 1, 2000, the Borrower
has no reason to believe that the Year 2000 Problem, including costs of
remediation, has resulted or will result in a Material Adverse Effect. As used
herein, "Year 2000 Problem" means any significant risk that computer hardware,
software or equipment containing embedded microchips essential to the businesses
or operations of the Borrower and its Subsidiaries will not, in the case of
dates or time periods occurring after
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December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.
SECTION 6. CONDITIONS PRECEDENT.
The obligation of each Bank to advance, continue, or convert any Loan
shall be subject to the following conditions precedent:
Section 6.1 Initial Credit Event. Before or concurrently with the
initial Credit Event:
(a) The Agent shall have received for each Bank (i) the favorable
written opinion of counsel to the Borrower in form and substance
satisfactory to the Agent and its counsel, and (ii) the closing fee
referred to in Section 3.1(c) hereof;
(b) The Agent shall have received for each Bank copies of (i) the
Articles of Incorporation, together with all amendments, and a
certificate of good standing, for the Borrower, both certified as of a
date not earlier than 20 days prior to the date hereof by the
appropriate governmental officer of the Borrower's jurisdiction of
incorporation and (ii) the Borrower's bylaws (or comparable constituent
documents) and any amendments thereto, certified in each instance by
its Secretary or an Assistant Secretary;
(c) The Agent shall have received for each Bank copies of
resolutions of the Borrower's Board of Directors authorizing the
execution and delivery of the Credit Documents and the consummation of
the transactions contemplated thereby together with specimen signatures
of the persons authorized to execute such documents on the Borrower's
behalf, all certified in each instance by its Secretary or Assistant
Secretary;
(d) The Agent shall have received for each Bank such Bank's duly
executed Note of the Borrower dated the date hereof and otherwise in
compliance with the provisions of Section 2.10(a) hereof;
(e) The Agent shall have received for each Bank a list of the
Borrower's Authorized Representatives and such other documents as any
Bank may reasonably request;
(f) All legal matters incident to the execution and delivery of
the Credit Documents shall be satisfactory to the Banks;
(g) The Existing Credit Agreement shall have terminated and the
Borrower shall have no further obligations thereunder (except
obligations which by their terms survive the termination of the
Existing Credit Agreement).
(h) The Agent shall have received a certificate by the chief
financial officer, treasurer, vice president of finance or corporate
controller of the Borrower, stating that on the date of such initial
Credit Event no Default or Event of Default has occurred and is
continuing.
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Section 6.2 All Credit Events. As of the time of each Credit Event
hereunder (including the initial Credit Event):
(a) The Agent shall have received the notice required by Section
2.5 hereof;
(b) Each of the representations and warranties set forth in
Section 5 hereof shall be and remain true and correct in all material
respects as of said time, taking into account any amendments to such
Section (including, without limitation, any amendments to the Schedules
referenced therein) made after the date of this Agreement in accordance
with its provisions, except that if any such representation or warranty
relates solely to an earlier date it need only remain true as of such
date, provided that solely for purposes of this Section 6.2(b) the
representations relating to the Borrower's Subsidiaries set forth in
Section 5.2 hereof shall be deemed representations relating only to the
Borrower's Material Subsidiaries;
(c) The Borrower shall be in full compliance with all of the terms
and conditions hereof, and no Default or Event of Default shall have
occurred and be continuing or would occur as a result of such Credit
Event;
(d) No event of default by the Borrower has been declared and is
continuing under any existing debt agreements; and
(e) Such Credit Event shall not violate any order, judgment or
decree of any court or other authority or any provision of law or
regulation applicable to any Bank (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System).
Each request for a Borrowing hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of such Credit Event as
to the facts specified in paragraphs (b) and (c) of this Section 6.2, provided,
that solely in the case of a Credit Event which is a continuation of a previous
Borrowing, the Borrower shall not be deemed to have made any representation or
warranty with regard to the matters set forth in Section 5.5(a) and (b) hereof.
SECTION 7. COVENANTS.
The Borrower covenants and agrees that, so long as any Loan is
outstanding hereunder, or any Commitment is available to or in use by the
Borrower hereunder, except to the extent compliance in any case is waived in
writing by the Required Banks:
Section 7.1 Corporate Existence; Subsidiaries. The Borrower shall, and
shall cause each of its Subsidiaries to, preserve and maintain its corporate
existence, subject to the provisions of Section 7.11 hereof.
Section 7.2 Maintenance. The Borrower will maintain, preserve and keep
its plants, Properties and equipment necessary to the proper conduct of its
business in reasonably good repair, working order and condition and will from
time to time make all reasonably necessary
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repairs, renewals, replacements, additions and betterments thereto so that at
all times such plants, Properties and equipment shall be reasonably preserved
and maintained, and the Borrower will cause each of its Subsidiaries to do so in
respect of Property owned or used by it; provided, however, that nothing in this
Section 7.2 shall prevent the Borrower or a Subsidiary from discontinuing the
operation or maintenance of any such Properties if such discontinuance is not
disadvantageous to the Banks or the holders of the Notes, and is, in the
judgment of the Borrower, desirable in the conduct of its business or the
business of its Subsidiary.
Section 7.3 Taxes. The Borrower will duly pay and discharge, and will
cause each of its Subsidiaries duly to pay and discharge, all taxes, rates,
assessments, fees and governmental charges upon or against it or against its
Properties, in each case before the same becomes delinquent and before penalties
accrue thereon, unless and to the extent that the same is being contested in
good faith by appropriate proceedings and reserves in conformity with GAAP have
been provided therefor on the books of the Borrower.
Section 7.4 ERISA. The Borrower will promptly pay and discharge all
obligations and liabilities arising under ERISA of a character which if unpaid
or unperformed might result in the imposition of a Lien against any of its
properties or assets and will promptly notify the Agent of (i) the occurrence of
any reportable event (as defined in ERISA) affecting a Plan, other than any such
event of which the PBGC has waived notice by regulation, (ii) receipt of any
notice from PBGC of its intention to seek termination of any Plan or appointment
of a trustee therefor, (iii) its intention to terminate or withdraw from any
Plan, and (iv) the occurrence of any event affecting any Plan which could result
in the incurrence by the Borrower of any material liability, fine or penalty, or
any material increase in the contingent liability of the Borrower under any
post-retirement Welfare Plan benefit. The Agent will promptly distribute to each
Bank any notice it receives from the Borrower pursuant to this Section 7.4.
Section 7.5 Insurance. The Borrower will insure, and keep insured, and
will cause each of its Subsidiaries to insure, and keep insured, with good and
responsible insurance companies, all insurable Property owned by it of a
character usually insured by companies similarly situated and operating like
Property. To the extent usually insured (subject to self-insured retentions) by
companies similarly situated and conducting similar businesses, the Borrower
will also insure, and cause each of its Subsidiaries to insure, employers' and
public and product liability risks with good and responsible insurance
companies. The Borrower will upon request of the Agent furnish to the Agent a
summary setting forth the nature and extent of the insurance maintained pursuant
to this Section 7.5.
Section 7.6 Financial Reports and Other Information.
(a) The Borrower will maintain a system of accounting in
accordance with GAAP and will furnish to the Banks and their respective
duly authorized representatives such information respecting the
business and financial condition of the Borrower and its subsidiaries
as any Bank may reasonably request; and without any request, the
Borrower will furnish each of the following to each Bank:
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(i) within 120 days after the end of each fiscal year of the
Borrower, (A) a copy of the Borrower's audited financial
statements for such fiscal year, including the consolidated
balance sheet of the Borrower for such year and the related
statement of income and statement of cash flow, as certified by
independent public accountants of recognized national standing
selected by the Borrower in accordance with GAAP with such
accountants unqualified opinion to the effect that the financial
statements have been prepared in accordance with GAAP and present
fairly in all material respects in accordance with GAAP the
consolidated financial position of the Borrower and its
subsidiaries as of the close of such fiscal year and the results
of their operations and cash flows for the fiscal year then ended
and that an examination of such accounts in connection with such
financial statements has been made in accordance with generally
accepted auditing standards and accordingly, such examination
included such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances; (B) a copy of the Borrower's unaudited
consolidating financials for such fiscal year, including a
consolidating unaudited balance sheet of the Borrower, and the
related statement of income and shall use its best efforts to
provide a statement of cash flow in a format acceptable to the
Agent; all of the foregoing prepared by the Borrower in reasonable
detail in accordance with GAAP and certified by the Borrower's
chief financial officer, treasurer, vice president of finance or
corporate controller as fairly presenting the financial condition
as at the dates thereof and the results of operations for the
periods covered thereby;
(ii) within 60 days after the end of each of the first three
quarterly fiscal periods of the Borrower, a condensed consolidated
unaudited balance sheet of the Borrower, and the related statement
of income and statement of cash flow, as of the close of such
period, all of the foregoing prepared by the Borrower in
reasonable detail in accordance with GAAP and certified by the
Borrower's chief financial officer, treasurer, vice president of
finance or corporate controller as fairly presenting the financial
condition as at the dates thereof and the results of operations
for the periods covered thereby (subject to year end adjustments):
(iii) within the period provided in subsection (i) above, the
written statement of the accountants who certified the audit
report thereby required that in the course of their audit they
have obtained no knowledge of any Default or Event of Default, or,
if such accountants have obtained knowledge of any such Default or
Event of Default, they shall disclose in such statement the nature
and period of the existence thereof;
(iv) promptly after the sending or filing thereof, copies of
all proxy statements, financial statements and reports the
Borrower sends to its shareholders, and copies of all other
regular, periodic and special reports and all registration
statements the Borrower files with the SEC or any successor
thereto, or with any national securities exchanges.
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(b) Each financial statement furnished to the Banks pursuant to
subsection (i) or (ii) of Section 7.6(a) shall be accompanied by (A) a
written certificate signed by the Borrower's chief financial officer,
vice president of finance, corporate controller or treasurer (i) to the
effect that no Default or Event of Default has occurred during the
period covered by such statements or, if any such Default or Event of
Default has occurred during such period, setting forth a description of
such Default or Event of Default and specifying the action, if any,
taken by the Borrower to remedy the same, (ii) to the effect that the
representations and warranties contained in Section 5 hereof are true
and correct in all material respects as though made on the date of such
certificate (other than those made solely as of an earlier date, which
need only remain true as of such date), taking into account any
amendments to such Section (including, without limitation, any
amendments to the Schedules referenced therein) made after the date of
this Agreement in accordance with its provisions and except as
otherwise described therein, (iii) notifying the Banks (x) of any
litigation or governmental proceeding of the type described in Section
5.5 hereof or (y) of any change in the information set forth on the
Schedules hereto and (B) a Compliance Certificate in the form of
Exhibit B hereto showing the Borrower's compliance with the covenants
set forth in Sections 7.9, 7.11, 7.12 and 7.13 hereof.
(c) The Borrower will (i) promptly (and in any event within three
Business Days after an officer of the Borrower has knowledge thereof)
give notice to the Agent and each Bank (x) of the occurrence of any
Default or Event of Default or (y) of any payment default or payment
event of default aggregating $50,000,000 or more under any Contractual
Obligation of the Borrower and (ii) promptly (and in any event within
ten Business Days after an officer of the Borrower has knowledge
thereof) give notice to the Agent and each Bank of any material adverse
change in the business, operations, Property or financial or other
condition of the Borrower and its Subsidiaries (individually or in the
aggregate).
Section 7.7 Bank Inspection Rights. Upon reasonable notice from any
Bank, the Borrower will, at the Borrower's expense (such expenses to be
reasonably incurred), permit such Bank (and such Persons as any Bank may
designate) during normal business hours to visit and inspect, under the
Borrower's guidance, any of the properties of the Borrower or any of its
Subsidiaries, to examine all of their books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and with their independent public accountants (and by this provision
the Borrower authorizes such accountants to discuss with the Banks (and such
Persons as any Bank may designate subject to confidentiality agreements
reasonably acceptable to the Borrower) the finances and affairs of the Borrower
and its Subsidiaries) all at such reasonable times and as often as may be
reasonably requested; provided, however, that except upon the occurrence and
during the continuation of any Default or Event of Default, not more than one
such set of visits and inspections may be conducted each calendar quarter.
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Section 7.8 Conduct of Business. The Borrower will not engage in any
line of business other than business associated with or related to energy
generation, transmission, marketing and distribution or other infrastructure
lines of business.
Section 7.9 Liens. The Borrower shall cause the Obligations to at all
times rank at least pari passu with all other senior unsecured obligations of
the Borrower. The Borrower will not create, incur, permit to exist or to be
incurred any Lien of any kind on any Property owned by the Borrower; provided,
however, that this Section 7.9 shall not apply to nor operate to prevent:
(a) Liens upon any Property acquired by the Borrower to secure any
Indebtedness (which for purposes of this Section 7.9(a) shall include
non-recourse obligations) of the Borrower incurred to finance or
refinance the purchase price of such Property (including Property which
was initially purchased with equity), provided that any such Lien shall
apply only to the Property that was so acquired and the aggregate
principal amount of Indebtedness secured by such Liens shall not exceed
the cost or value of the acquired Property;
(b) Other Liens not to exceed 10% of Consolidated Net Tangible
Assets;
(c) Liens on the stock or other equity interests (i) granted in
connection with the FinCo Revolving Loan Facility and (ii) of Project
Finance Subsidiaries; and
(d) Any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any Lien
referred to in the foregoing paragraphs (a) through (c), inclusive.
Section 7.10 Use of Proceeds; Regulation U. The proceeds of each
Borrowing will be used by the Borrower to repay indebtedness outstanding under
the Existing Credit Agreement, and for working capital and general corporate
purposes. The Borrower will not use any part of the proceeds of any of the
Borrowings directly or indirectly to purchase or carry any margin stock (as
defined in Section 5.11 hereof) or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
Section 7.11 Mergers, Consolidations and Sales of Assets.
(a) The Borrower will not consolidate with or merge into any other
Person or sell, convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and the Borrower shall not
permit any Person to consolidate with or merge into the Borrower,
unless: (i) immediately prior to and immediately following such
consolidation, merger, sale or lease, and after giving effect thereto,
no Default or Event of Default shall have occurred and be continuing;
and (ii) the Borrower is the surviving or continuing corporation, or
the surviving or continuing corporation that acquires by sale,
conveyance, transfer or lease (a) has a Rating equal to or better than
the Rating of the Borrower in effect prior to such consolidation or
merger and (y) is incorporated in the
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United States and expressly assumes the payment and performance of all
Obligations of the Borrower under the Credit Documents pursuant to
documentation in form and substance satisfactory to the Required Banks.
(b) Except for the sale of the properties and assets of the
Borrower substantially as an entirety pursuant to subsection (a) above,
and other than assets required to be sold to conform with governmental
regulations, the Borrower shall not sell or otherwise dispose of any
assets (other than short-term, readily marketable investments purchased
for cash management purposes with funds not representing the proceeds
of other asset sales) if on a pro forma basis, the aggregate net book
value of all such sales during the most recent 12-month period would
exceed ten percent (10%) of Consolidated Net Tangible Assets computed
as of the end of the most recent fiscal quarter preceding such sale;
provided, however, that any such sales -------- ------- shall be
disregarded for purposes of this ten percent (10%) limitation if the
proceeds are invested in assets in similar or related lines of business
of the Borrower and, provided further, that the Borrower may sell or
otherwise dispose of assets in excess of such ten percent (10%) if the
proceeds from such sales or dispositions, which are not reinvested as
provided above, are retained by the Borrower as cash or cash
equivalents at all times until invested in assets in similar or related
lines of business of the Borrower.
Section 7.12 Consolidated Net Worth. The Borrower will at all times
cause its Consolidated Net Worth to be equal to or greater than the Minimum
Consolidated Net Worth.
Section 7.13 Indebtedness to Consolidated Capitalization. The Borrower
will at the end of each of its fiscal quarters maintain a ratio of its
Indebtedness to Consolidated Capitalization of not more than 0.68 to 1.00,
provided that for not more than two consecutive months in any six month period
(any such two month period being referred to herein as a "Non-Conforming
Period"), the ratio of the Borrower's Indebtedness to Consolidated
Capitalization may increase to not more than 0.72 to 1.00 so long as the
Borrower delivers to the Agent within 30 days after the end of any such
Non-Conforming Period written affirmation from Moody's Investors Service, Inc.
and Standard and Poor's Ratings Service, Inc. that the respective Ratings which
were in effect prior to such Non-Conforming Period remains in effect and that
the Borrower has not been placed in any "credit-watch with negative
implications" or similar type of category. For purposes of this covenant, only
fifty percent (50%) of any Indebtedness of the Borrower constituting Performance
Guarantees of obligations of the Borrower's Affiliates shall be deemed
Indebtedness, provided that if any demand has been made on such guarantee, the
full amount of such guarantee shall be included in calculating Indebtedness.
Section 7.14 Compliance with Laws. Without limiting any of the other
covenants of the Borrower in this Section 7, the Borrower will conduct its
business, and otherwise be, in compliance with all applicable laws, regulations,
ordinances, writs, judgments, injunctions, decrees, awards and orders of any
governmental or judicial authorities; provided, however, that the Borrower shall
not be required to comply with any such law, rule, regulation, ordinance, writ,
judgments, injunction, decree, award or order if the failure to comply therewith
could not reasonably be expected to have a Material Adverse Effect.
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Section 7.15 PUHCA. The Borrower has obtained, and will maintain in
full force and effect, all necessary approvals, if any, under the Public Utility
Holding Company Act of 1935, as amended, in connection with the Borrower's
performance under the Credit Documents.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1 Events of Default. Any one or more of the following shall
constitute an Event of Default:
(a) The Borrower shall (i) fail to make when due any payment of
principal on the Notes, or (ii) fail to make when due, and continuance
of such failure for three or more Business Days, payment of interest on
the Notes or any fee or other amount required to be made to the Agent
pursuant to the Credit Documents;
(b) Any representation or warranty made or deemed to have been
made by or on behalf of the Borrower in the Credit Documents or on
behalf of the Borrower in any certificate, statement, report or other
writing furnished by or on behalf of the Borrower to the Agent pursuant
to the Credit Documents or any other instrument, document or agreement
shall prove to have been false or misleading in any material respect on
the date as of which the facts set forth are stated or certified or
deemed to have been stated or certified;
(c) The Borrower shall fail to comply with Section 7 hereof and
such failure to comply shall continue for 30 calendar days after the
earlier to occur of (i) notice thereof to the Borrower by the Agent and
(ii) first actual knowledge thereof by an officer of the Borrower;
(d) The Borrower shall fail to comply with any agreement,
covenant, condition, provision or term contained in the Credit
Documents (and such failure shall not constitute an Event of Default
under any of the other provisions of this Section 8) and such failure
to comply shall continue for 30 calendar days after the earlier to
occur of (i) notice thereof to the Borrower by the Agent and (ii) first
actual knowledge thereof by an officer of the Borrower;
(e) The Borrower shall become insolvent or shall generally not pay
its debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of the
Borrower or for a substantial part of the property thereof or, in the
absence of such application, consent or acquiescence, a custodian,
trustee or receiver shall be appointed for the Borrower or for a
substantial part of the property thereof and shall not be discharged
within 90 days;
(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted
by or against the Borrower, and, if instituted against the Borrower,
shall have
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been consented to or acquiesced in by the Borrower, or shall remain
undismissed for 90 days, or an order for relief shall have been entered
against the Borrower, or the Borrower shall take any corporate action
to approve institution of, or acquiescence in, such a proceeding;
(g) Any dissolution or liquidation proceeding shall be instituted
by or against the Borrower and, if instituted against the Borrower,
shall be consented to or acquiesced in by the Borrower or shall remain
for 90 days undismissed, or the Borrower shall take any corporate
action to approve institution of, or acquiescence in, such a
proceeding;
(h) A judgment or judgments, decrees or orders of any court,
tribunal, arbitrator, administrative or other governmental body or
entity for the payment of money in excess of the sum of $50,000,000 in
the aggregate shall be rendered against the Borrower (excluding the
amount thereof covered by insurance) or any of the Borrower's
properties and such judgment, decree or order shall remain unvacated
and undischarged and unstayed for 90 consecutive days, except while
being contested in good faith by appropriate proceedings;
(i) The institution by the Borrower of steps to terminate any Plan
if in order to effectuate such termination, the Borrower would be
required to make a contribution to such Plan, or would incur a
liability or obligation to such Plan, in excess of $50,000,000, or the
institution by the PBGC of steps to terminate any Plan;
(j) Either (A) a default shall occur under that certain Credit
Agreement dated as of November 30, 1999 among NRG Energy, Inc., the
banks party thereto and Australia and New Zealand Banking Group
Limited, as Administrative Agent, as such agreement may from time to
time be restated, amended or otherwise modified or any substitute or
replacement credit agreement with respect thereto (the "LC Agreement"),
and as a result of such default is (x) the termination of the
commitments under the LC Agreement, (y) the Borrower is required to
provide cash collateral pursuant to the LC Agreement, or (z) the bank
and/or the agent under the LC Agreement exercise any right or remedy
thereunder, or (B) (i) a default in payment of any principal of or any
interest aggregating $50,000,000 or more on any bond, debenture, note
or other evidence of indebtedness of the Borrower or under any
indenture or other instrument under which any such evidence of
indebtedness has been issued or (ii) a default shall occur under any
bond, debenture, note or other evidence of indebtedness of the Borrower
or under any indenture or other instrument under which any such
evidence of indebtedness has been issued and such default shall
continue for a period of time sufficient to permit the holder or
beneficiary of such indebtedness or a trustee therefor to cause the
acceleration of the maturity of any such indebtedness of principal of
or any interest aggregating $50,000,000 or more or any mandatory
unscheduled prepayment, purchase or funding thereof; or
(k) if at any time both (i) Xcel Energy Inc., a Minnesota
corporation, or its successors, ceases to own a majority of the
outstanding Voting Stock of the Borrower and (ii) the Borrower does not
have an Investment Grade Rating.
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Section 8.2 Non-Bankruptcy Defaults. When any Event of Default other
than those described in subsections (e), (f) or (g) of Section 8.1 hereof has
occurred and is continuing, the Agent shall, by written notice to the Borrower:
(a) if so directed by the Required Banks, terminate the remaining Commitments
and all other obligations of the Banks hereunder on the date stated in such
notice (which may be the date thereof); and (b) if so directed by the Required
Banks, declare the principal of and the accrued interest on all outstanding
Notes to be forthwith due and payable and thereupon all outstanding Notes,
including both principal and interest thereon, shall be and become immediately
due and payable together with all other amounts payable under the Credit
Documents without further demand, presentment, protest or notice of any kind.
The Agent, after giving notice to the Borrower pursuant to Section 8.1(c),
8.1(d) or this Section 8.2, shall also promptly send a copy of such notice to
the other Banks, but the failure to do so shall not impair or annul the effect
of such notice.
Section 8.3 Bankruptcy Defaults. When any Event of Default described in
subsections (e), (f) or (g) of Section 8.1 hereof has occurred and is
continuing, then all outstanding Notes shall immediately and automatically
become due and payable together with all other amounts payable under the Credit
Documents without presentment, demand, protest or notice of any kind and the
obligation of the Banks to extend further credit pursuant to any of the terms
hereof shall immediately and automatically terminate.
Section 8.4 [Intentionally Omitted]
Section 8.5 Notice of Default. The Agent shall give notice to the
Borrower under Section 8.1(c) or 8.1(d) hereof promptly upon being requested to
do so by any Bank and shall thereupon notify all the Banks thereof.
Section 8.6 Expenses. The Borrower agrees to pay to the Agent and each
Bank, and any other holder of any Note outstanding hereunder, all reasonable
costs and expenses incurred or paid by the Agent or such Bank or any such
holder, including attorneys' fees and court costs, in connection with any
Default or Event of Default by the Borrower hereunder or in connection with the
enforcement of any of the Credit Documents.
SECTION 9. CHANGE IN CIRCUMSTANCES.
Section 9.1 Change of Law. Notwithstanding any other provisions of this
Agreement or any Note if at any time after the date hereof any change in
applicable law or regulation or in the interpretation thereof makes it unlawful
for any Bank to make or continue to maintain Eurocurrency Loans or to perform
its obligations as contemplated hereby, such Bank shall promptly give notice
thereof to the Borrower and such Bank's obligations to make or maintain
Eurocurrency Loans under this Agreement shall terminate until it is no longer
unlawful for such Bank to make or maintain Eurocurrency Loans. The Borrower
shall prepay on demand the outstanding principal amount of any such affected
Eurocurrency Loans, together with all interest accrued thereon at a rate per
annum equal to the interest rate applicable to such Loan; provided, however,
subject to all of the terms and conditions of this Agreement, the Borrower may
then elect to borrow the principal amount of the affected Eurocurrency Loans
from such Bank by
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means of Base Rate Loans from such Bank, which Base Rate Loans shall
not be made ratably by the Banks but only from such affected Bank.
Section 9.2 Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period for
any Borrowing of Loans:
(a) the Agent determines that deposits in U.S. Dollars (in the
applicable amounts) are not being offered to it in the federal funds or
eurocurrency interbank market, as applicable, for such Interest Period,
or that by reason of circumstances affecting the federal funds or
interbank eurocurrency market, as applicable, adequate and reasonable
means do not exist for ascertaining the applicable Federal Funds Rate
or LIBOR; or
(b) Banks having 25% or more of the aggregate amount of the
Revolving Credit Commitments reasonably determine and so advise the
Agent that the Federal Funds Rate or LIBOR, as applicable, as
reasonably determined by the Agent will not adequately and fairly
reflect the cost to such Banks or Bank of funding their or its Loans or
Loan for such Interest Period;
then the Agent shall forthwith give notice thereof to the Borrower and the
Banks, whereupon until the Agent notifies the Borrower that the circumstances
giving rise to such suspension no longer exist, the obligations of the Banks or
of the relevant Bank to make Base Rate Loans bearing interest at the Federal
Funds Rate or Eurocurrency Loans in the currency so affected, as applicable,
shall be suspended.
Section 9.3 Increased Cost and Reduced Return.
(a) If, on or after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any
change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Bank
(or its Lending Office) with any request or directive (whether or not
having the force of law but, if not having the force of law, compliance
with which is customary in the relevant jurisdiction) of any such
authority, central bank or comparable agency:
(i) shall subject any Bank (or its Lending Office) to any
tax, duty or other charge with respect to its Eurocurrency Loans,
its Notes, or its obligation to make Eurocurrency Loans, or shall
change the basis of taxation of payments to any Bank (or its
Lending Office) of the principal of or interest on its
Eurocurrency Loans, or any other amounts due under this Agreement
in respect of its Eurocurrency Loans or its obligation to make
Eurocurrency Loans (except for changes in the rate of tax on the
overall net income or profits of such Bank or its Lending Office
imposed by the jurisdiction in which such Bank or its lending
office is incorporated in which such Bank's principal executive
office or Lending Office is located); or
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(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without
limitation, any such requirement imposed by the Board of Governors
of the Federal Reserve System, but excluding with respect to any
Eurocurrency Loans any such requirement included in an applicable
Eurocurrency Reserve Percentage) against assets of, deposits with
or for the account of, or credit extended by, any Bank (or its
Lending Office) or shall impose on any Bank (or its Lending
Office) or on the interbank market any other condition affecting
its Eurocurrency Loans, its Notes, or its obligation to make
Eurocurrency Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Eurocurrency Loan, or to reduce
the amount of any sum received or receivable by such Bank (or its Lending
Office) under this Agreement or under its Notes with respect thereto, by an
amount deemed by such Bank to be material, then, within fifteen (15) days after
demand by such Bank (with a copy to the Agent), the Borrower shall be obligated
to pay to such Bank such additional amount or amounts as will compensate such
Bank for such increased cost or reduction. In the event any law, rule,
regulation or interpretation described above is revoked, declared invalid or
inapplicable or is otherwise rescinded, and as a result thereof a Bank is
determined to be entitled to a refund from the applicable authority for any
amount or amounts which were paid or reimbursed by Borrower to such Bank
hereunder, such Bank shall, so long as no Event of Default has occurred and is
then continuing, refund such amount or amounts to Borrower without interest.
(b) If, after the date hereof, any Bank or the Agent shall have
determined that the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein (including, without
limitation, any revision in the Final Risk-Based Capital Guidelines of
the Board of Governors of the Federal Reserve System (12 CFR Part 208,
Appendix A; 12 CFR Part 225, Appendix A) or of the Office of the
Comptroller of the Currency (12 CFR Part 3, Appendix A), or in any
other applicable capital rules heretofore adopted and issued by any
governmental authority), or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any
request or directive regarding capital adequacy (whether or not having
the force of law but, if not having the force of law, compliance with
which is customary in the applicable jurisdiction) of any such
authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital, or on the
capital of any corporation controlling such Bank, as a consequence of
its obligations hereunder to a level below that which such Bank could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by
an amount deemed by such Bank to be material, then from time to time,
within fifteen (15) days after demand by such Bank (with a copy to the
Agent), the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
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(c) Each Bank that determines to seek compensation under this
Section 9.3 shall notify the Borrower and the Agent of the
circumstances that entitle the Bank to such compensation pursuant to
this Section 9.3 and will designate a different Lending Office if such
designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole judgment of such Bank, be
otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section 9.3 and setting forth the
additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such
amount, such Bank may use any reasonable averaging and attribution
methods.
(d) If any Bank (other than ABN AMRO Bank N.V.) has demanded
compensation or given notice of its intention to demand compensation
under this Section 9.3 or the Borrower is required to pay any
additional amount to any Bank under Section 9.3, the Borrower shall
have the right, with the assistance of the Agent, to seek a substitute
Bank or Banks reasonably satisfactory to the Agent (which may be one or
more of the Banks) to replace such Bank under this Agreement and on the
date of replacement, the Borrower shall pay all accrued interest and
fees to the Bank being replaced. The Bank to be so replaced shall
cooperate with the Borrower and substitute Bank to accomplish such
substitution, provided that all of such Bank's Loan Commitment is
replaced.
Section 9.4 Lending Offices. Each Bank may, at its option, elect to
make its Loans hereunder at the branch, office or affiliate specified on the
appropriate signature page hereof or in the assignment agreement which any
assignee bank executes pursuant to Section 11.12 hereof (each a "Lending
Office") for each type of Loan available hereunder or at such other of its
branches, offices or affiliates as it may from time to time elect and designate
in a written notice to the Borrower and the Agent.
Section 9.5 Discretion of Bank as to Manner of Funding. Notwithstanding
any other provision of this Agreement, each Bank shall be entitled to fund and
maintain its funding of all or any part of its Loans in any manner it sees fit,
it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if each Bank had actually funded and
maintained each Eurocurrency Loan through the purchase of deposits of U.S.
Dollars in the eurocurrency interbank market having a maturity corresponding to
such Loan's Interest Period and bearing an interest rate equal to LIBOR for such
Interest Period.
SECTION 10. THE AGENT.
Section 10.1 Appointment and Authorization of Agent. Each Bank hereby
appoints ABN AMRO Bank N.V. as the Agent under the Credit Documents and hereby
authorizes the agent to take such action as Agent on its behalf and to exercise
such powers under the Credit Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no duties or responsibilities except those expressly set
forth in this
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Agreement and the Credit Documents. The duties of the Agent shall be mechanical
and administrative in nature; the Agent shall not have by reason of this
Agreement or any other Credit Document a fiduciary relationship in respect of
any Bank, the holder of any Note or any other Person; and nothing in this
Agreement or any other Credit Document, expressed or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations in respect of
this Agreement or any other Credit Document except as expressly set forth herein
or therein.
Section 10.2 Agent and its Affiliates. The Agent shall have the same
rights and powers under this Agreement and the other Credit Documents as any
other Bank and may exercise or refrain from exercising the same as though it
were not the Agent, and the Agent and its affiliates may accept deposits from,
lend money to, and generally engage in any kind of business with the Borrower or
any Affiliate of the Borrower as if it were not the Agent under the Credit
Documents. The term "Bank" as used herein and in all other Credit Documents,
unless the context otherwise clearly requires, includes the Agent in its
individual capacity as a Bank. References in Section 2 hereof to the Agent's
Loans, or to the amount owing to the Agent for which an interest rate is being
determined, refer to the Agent in its individual capacity as a Bank.
Section 10.3 Action by Agent. If the Agent receives from the Borrower a
written notice of an Event of Default pursuant to Section 7.6(c)(i) hereof, the
Agent shall promptly give each of the Banks written notice thereof. The
obligations of the Agent under the Credit Documents are only those expressly set
forth therein. Without limiting the generality of the foregoing, the Agent shall
not be required to take any action hereunder with respect to any Default or
Event of Default, except as expressly provided in Sections 8.2 and 8.5. In no
event, however, shall the Agent be required to take any action in violation of
applicable law or of any provision of any Credit Document, and the Agent shall
in all cases be fully justified in failing or refusing to act hereunder or under
any other Credit Document unless it shall be first indemnified to its reasonable
satisfaction by the Banks against any and all costs, expense, and liability
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall be entitled to assume that no Default or Event of
Default exists unless notified to the contrary by a Bank or the Borrower. In all
cases in which this Agreement and the other Credit Documents do not require the
Agent to take certain actions, the Agent shall be fully justified in using its
discretion in failing to take or in taking any action hereunder and thereunder.
Section 10.4 Consultation with Experts. The Agent may consult with
legal counsel, independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.
Section 10.5 Liability of Agent; Credit Decision. Neither the Agent nor
any of its directors, officers, agents, or employees shall be liable for any
action taken or not taken by it in connection with the Credit Documents (i) with
the consent or at the request of the Required Banks or (ii) in the absence of
its own gross negligence or willful misconduct. Neither the Agent nor any of its
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify: (i) any statement, warranty or
representation made in connection with this Agreement, any other Credit Document
or any Credit Event; (ii) the performance or observance of any of the covenants
or agreements of the Borrower or any other party contained
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herein or in any other Credit Document; (iii) the satisfaction of any condition
specified in Section 6 hereof, except receipt of items required to be delivered
to the Agent; or (iv) the validity, effectiveness, genuineness, enforceability,
perfection, value, worth or collectability hereof or of any other Credit
Document or of any other documents or writing furnished in connection with any
Credit Document; and the Agent makes no representation of any kind or character
with respect to any such matter mentioned in this sentence. The Agent may
execute any of its duties under any of the Credit Documents by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Banks, the Borrower, or any other Person for the default or misconduct of any
such agents or attorneys-in-fact selected with reasonable care. The Agent shall
not incur any liability by acting in reliance upon any notice, consent,
certificate, other document or statement (whether written or oral) believed by
it to be genuine or to be sent by the proper party or parties. In particular and
without limiting any of the foregoing, the Agent shall have no responsibility
for confirming the accuracy of any Compliance Certificate or other document or
instrument received by it under the Credit Documents. The Agent may treat the
payee of any Note as the holder thereof until written notice of transfer shall
have been filed with the Agent signed by such payee in form satisfactory to the
Agent. Each Bank acknowledges that it has independently and without reliance on
the Agent or any other Bank, and based upon such information, investigations and
inquiries as it deems appropriate, made its own credit analysis and decision to
extend credit to the Borrower in the manner set forth in the Credit Documents.
It shall be the responsibility of each Bank to keep itself informed as to the
creditworthiness of the Borrower and any other relevant Person, and the Agent
shall have no liability to any Bank with respect thereto.
Section 10.6 Indemnity. The Banks shall ratably, in accordance with
their respective Percentages, indemnify and hold the Agent, and its directors,
officers, employees, agents and representatives harmless from and against any
liabilities, losses, costs or expenses suffered or incurred by it under any
Credit Document or in connection with the transactions contemplated thereby,
regardless of when asserted or arising, except to the extent they are promptly
reimbursed for the same by the Borrower and except to the extent that any event
giving rise to a claim was caused by the gross negligence or willful misconduct
of the party seeking to be indemnified. The obligations of the Banks under this
Section 10.6 shall survive termination of this Agreement.
Section 10.7 Resignation of Agent and Successor Agent. The Agent may
resign at any time by giving written notice thereof to the Banks and the
Borrower. Upon any such resignation of the Agent, the Required Banks shall have
the right to appoint a successor Agent with the consent of the Borrower,
provided, that at any time an Event of Default has occurred and is continuing,
no such consent shall be required. If no successor Agent shall have been so
appointed by the Required Banks, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then the retiring Agent may, on behalf of the Banks, with the
consent of the Borrower, appoint a successor Agent, which shall be any Bank
hereunder or any commercial bank organized under the laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $200,000,000. Upon the acceptance of its appointment as the Agent
hereunder, such successor Agent shall thereupon succeed to and become vested
with all the rights and duties of the retiring or removed Agent under the Credit
Documents, and the retiring Agent shall be discharged from
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its duties and obligations thereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 10 and all protective
provisions of the other Credit Documents shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
SECTION 11. MISCELLANEOUS.
Section 11.1 Withholding Taxes.
(a) Payments Free of Withholding. Subject to Section 11.1(b)
hereof, each payment by the Borrower under this Agreement or the other
Credit Documents shall be made without withholding for or on account of
any present or future taxes (other than overall net income taxes on the
recipient). If any such withholding is so required, the Borrower shall
make the withholding, pay the amount withheld to the appropriate
governmental authority before penalties attach thereto or interest
accrues thereon and forthwith pay such additional amount as may be
necessary to ensure that the net amount actually received by each Bank
and the Agent free and clear of such taxes (including such taxes on
such additional amount) is equal to the amount which that Bank or the
Agent (as the case may be) would have received had such withholding not
been made. If the Agent or any Bank pays any amount in respect of any
such taxes, penalties or interest the Borrower shall reimburse the
Agent or that Bank for that payment on demand in the currency in which
such payment was made. If the Borrower pays any such taxes, penalties
or interest, it shall deliver official tax receipts evidencing that
payment or certified copies thereof to the Bank or Agent on whose
account such withholding was made (with a copy to the Agent if not the
recipient of the original) on or before the thirtieth day after
payment. If any Bank or the Agent determines it has received or been
granted a credit against or relief or remission for, or repayment of,
any taxes paid or payable by it because of any taxes, penalties or
interest paid by the Borrower and evidenced by such a tax receipt, such
Bank or Agent shall, to the extent it can do so without prejudice to
the retention of the amount of such credit, relief, remission or
repayment, pay to the Borrower such amount as such Bank or Agent
determines is attributable to such deduction or withholding and which
will leave such Bank or Agent (after such payment) in no better or
worse position than it would have been in if the Borrower had not been
required to make such deduction or withholding. Nothing in this
Agreement shall interfere with the right of each Bank and the Agent to
arrange its tax affairs in whatever manner it thinks fit nor oblige any
Bank or the Agent to disclose any information relating to its tax
affairs or any computations in connection with such taxes.
(b) U.S. Withholding Tax Exemptions. Each Bank that is not a
United States person (as such term is defined in Section 7701(a)(30) of
the Code) shall submit to the Borrower and the Agent on or before the
earlier of the date the initial Borrowing is made hereunder and thirty
(30) days after the date hereof, two duly completed and signed copies
of either Form W8BEN (relating to such Bank and entitling it to a
complete exemption from withholding under the Code on all amounts to be
received by such Bank, including fees, pursuant to the
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Credit Documents and the Loans) or Form W8ECI (relating to all amounts
to be received by such Bank, including fees, pursuant to the Credit
Documents and the Loans) of the United States Internal Revenue Service.
Thereafter and from time to time, each Bank shall submit to the
Borrower and the Agent such additional duly completed and signed copies
of one or the other of such Forms (or such successor forms as shall be
adopted from time to time by the relevant United States taxing
authorities) as may be (i) requested by the Borrower in a written
notice, directly or through the Agent, to such Bank and (ii) required
under then-current United States law or regulations to avoid or reduce
United States withholding taxes on payments in respect of all amounts
to be received by such Bank, including fees, pursuant to the Credit
Documents or the Loans.
(c) Inability of Bank to Submit Forms. If any Bank determines, as
a result of any change in applicable law, regulation or treaty, or in
any official application or interpretation thereof, that it is unable
to submit to the Borrower or Agent any form or certificate that such
Bank is obligated to submit pursuant to subsection (b) of this Section
11.1 or that such Bank is required to withdraw or cancel any such form
or certificate previously submitted or any such form or certificate
otherwise becomes ineffective or inaccurate, such Bank shall promptly
notify the Borrower and Agent of such fact and the Bank shall to that
extent not be obligated to provide any such form or certificate and
will be entitled to withdraw or cancel any affected form or
certificate, as applicable.
Section 11.2 No Waiver of Rights. No delay or failure on the part of
the Agent or any Bank or on the part of the holder or holders of any Note in the
exercise of any power or right under any Credit Document shall operate as a
waiver thereof, nor as an acquiescence in any default, nor shall any single or
partial exercise thereof preclude any other or further exercise of any other
power or right, and the rights and remedies hereunder of the Agent, the Banks
and the holder or holders of any Notes are cumulative to, and not exclusive of,
any rights or remedies which any of them would otherwise have.
Section 11.3 Non-Business Day. If any payment of principal or interest
on any Loan or of any other Obligation shall fall due on a day which is not a
Business Day, interest or fees (as applicable) at the rate, if any, such Loan or
other Obligation bears for the period prior to maturity shall continue to accrue
on such Obligation from the stated due date thereof to and including the next
succeeding Business Day, on which the same shall be payable.
Section 11.4 Documentary Taxes. The Borrower agrees that it will pay
any documentary, stamp or similar taxes payable in respect to any Credit
Document, including interest and penalties, in the event any such taxes are
assessed, irrespective of when such assessment is made and whether or not any
credit is then in use or available hereunder.
Section 11.5 Survival of Representations. All representations and
warranties made herein or in certificates given pursuant hereto shall survive
the execution and delivery of this Agreement and the other Credit Documents, and
shall continue in full force and effect with respect to the date as of which
they were made as long as any credit is in use or available hereunder.
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Section 11.6 Survival of Indemnities. All indemnities and all other
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield of the Banks with respect to the Loans, including, but not
limited to, Section 2.11, Section 9.3 and Section 11.15 hereof, shall survive
the termination of this Agreement and the other Credit Documents and the payment
of the Loans and all other Obligations.
Section 11.7 Set-Off.
(a) In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon
the occurrence of any Event of Default, each Bank, each Affiliate of a
Bank, and each subsequent holder of any Note is hereby authorized by
the Borrower at any time or from time to time, without notice to the
Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits
(general or special, including, but not limited to, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured, and
in whatever currency denominated) and any other Indebtedness at any
time held or owing by that Bank, its Affiliate or that subsequent
holder to or for the credit or the account of the Borrower, whether or
not matured, against and on account of the obligations and liabilities
of the Borrower to that Bank, its Affiliate or that subsequent holder
under the Credit Documents, including, but not limited to, all claims
of any nature or description arising out of or connected with the
Credit Documents, irrespective of whether or not (a) that Bank, its
Affiliate or that subsequent holder shall have made any demand
hereunder or (b) the principal of or the interest on the Loans or Notes
and other amounts due hereunder shall have become due and payable
pursuant to Section 8 and although said obligations and liabilities, or
any of them, may be contingent or unmatured.
(b) Each Bank agrees with each other Bank a party hereto that if
such Bank shall receive and retain any payment, whether by set-off or
application of deposit balances or otherwise, on any of the Loans in
excess of its ratable share of payments on all such obligations then
outstanding to the Banks, then such Bank shall purchase for cash at
face value, but without recourse, ratably from each of the other Banks
such amount of the Loans, or participations therein, held by each such
other Bank (or interest therein) as shall be necessary to cause such
Bank to share such excess payment ratably with all the other Banks;
provided, however, that if any such purchase is made by any Bank, and
if such excess payment or part thereof is thereafter recovered from
such purchasing Bank, the related purchases from the other Banks shall
be rescinded ratably and the purchase price restored as to the portion
of such excess payment so recovered, but without interest unless the
purchasing Bank is required to pay interest thereon, in which case each
Bank returning funds to such purchasing Bank shall pay its pro rata
share of such interest.
Section 11.8 Notices. Except as otherwise specified herein, all notices
under the Credit Documents shall be in writing (including telecopy or other
electronic communication) and shall be given to a party hereunder at its address
or telecopier number set forth below or such other address or telecopier number
as such party may hereafter specify by notice to the Agent and the Borrower,
given by courier, by United States certified or registered mail, or by other
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telecommunication device capable of creating a written record of such notice and
its receipt. Notices under the Credit Documents to the Banks shall be addressed
to their respective addresses, telecopier or telephone numbers set forth on the
signature pages hereof or in the assignment agreement which any assignee bank
executes pursuant to Section 11.12 hereof, and to the Borrower and to the Agent
to:
If to the Borrower:
NRG Energy, Inc.
1221 Nicollet Mall
Suite 700
Minneapolis, MN 55403-2445
Attention: Treasurer
Facsimile: (612) 373-5341
Telephone: (612) 373-5306
If to the Agent:
ABN AMRO Bank
Agency Services
1325 Avenue of the Americas
9th Floor
New York, New York 10019
Attention: Linda Boardman
Facsimile: (212) 314-1712
Telephone: (212) 314-1724
With copies to:
ABN AMRO Bank N.V.
135 South LaSalle Street
Suite 710
Chicago, Illinois 60603
Attention: David B. Bryant
Facsimile: (312) 904-1466
Telephone: (312) 904-2799
ABN AMRO Bank N.V.
208 South LaSalle Street
Suite 1500
Chicago, Illinois 60604-1003
Attention: Ken Keck
Facsimile: (312) 992-5111
Telephone: (312) 992-5134
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Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 11.8 or on the signature pages hereof and a
confirmation of receipt of such telecopy has been received by the sender, (ii)
if given by courier, when delivered, (iii) if given by mail, three business days
after such communication is deposited in the mail, registered with return
receipt requested, addressed as aforesaid or (iv) if given by any other means,
when delivered at the addresses specified in this Section 11.8; provided that
any notice given pursuant to Section 2 hereof shall be effective only upon
receipt.
Section 11.9 Counterparts. This Agreement may be executed in any number
of counterpart signature pages, and by the different parties on different
counterparts, each of which when executed shall be deemed an original but all
such counterparts taken together shall constitute one and the same instrument.
Section 11.10 Successors and Assigns. This Agreement shall be binding
upon the Borrower and its successors and assigns, and shall inure to the benefit
of each of the Banks and the benefit of their respective successors and assigns,
including any subsequent holder of any Note. The Borrower may not assign any of
its rights or obligations under any Credit Document without the written consent
of all of the Banks.
Section 11.11 Participants and Note Assignees. Each Bank shall have the
right at its own cost to grant participations (to be evidenced by one or more
agreements or certificates of participation) in the Loans made and/or Revolving
Credit Commitments held by such Bank at any time and from time to time, and to
assign its rights under such Loans or the Note evidencing such Loans to a
federal reserve bank; provided that (i) no such participation or assignment
shall relieve any Bank of any of its obligations under this Agreement, (ii) no
such assignee or participant shall have any rights under this Agreement except
as provided in this Section 11.11, and (iii) the Agent shall have no obligation
or responsibility to such participant or assignee, except that nothing herein is
intended to affect the rights of an assignee of a Note to enforce the Note
assigned. Any party to which such a participation or assignment has been granted
shall have the benefits of Section 2.11 and Section 9.3, but shall not be
entitled to receive any greater payment under either such Section than the Bank
granting such participation would have been entitled to receive in connection
with the rights transferred. Any agreement pursuant to which any Bank may grant
such a participating interest shall provide that such Bank shall retain the sole
right and responsibility to enforce the obligations of the Borrower hereunder,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement; provided that such participation
agreement may provide that such Bank will not agree to any modification,
amendment or waiver of this Agreement that would (A) increase any Revolving
Credit Commitment of such Bank if such increase would also increase the
participant's obligations, (B) forgive any amount of or postpone the date for
payment of any principal of or interest on any Loan or of any fee payable
hereunder in which such participant has an interest or (C) reduce the stated
rate at which interest or fees in which such participant has an interest accrue
hereunder.
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Section 11.12 Assignment of Commitments by Banks. Each Bank shall have
the right at any time, with the written consent (except in the case of an
assignment to (i) an Affiliate of such Bank, or (ii) another Bank) of the
Borrower and Agent (which consent shall not be unreasonably withheld), to assign
all or any part of its Revolving Credit Commitment (including the same
percentage of its Note and outstanding Loans) to one or more other Persons;
provided that such assignment is in an amount of at least $10,000,000 or the
entire Revolving Credit Commitment of such Bank, and if such assignment is not
for such Bank's entire Revolving Credit Commitment then such Bank's Revolving
Credit Commitment after giving effect to such assignment shall not be less than
$10,000,000; and provided further that neither the consent of the Borrower nor
of the Agent shall be required for any Bank to assign all or part of its
Revolving Credit Commitment to any Affiliate of the assigning Bank. Each such
assignment shall set forth the assignee's address for notices to be given under
Section 11.8 hereof hereunder and its designated Lending Office pursuant to
Section 9.4 hereof. Upon any such assignment, delivery to the Agent of an
executed copy of such assignment agreement and the forms referred to in Section
11.1 hereof, if applicable, and, except in the case of an assignment to an
Affiliate of the assigning Bank, the payment of a $3,500 recordation fee to the
Agent, the assignee shall become a Bank hereunder, all Loans and the Revolving
Credit Commitment it thereby holds shall be governed by all the terms and
conditions hereof and the Bank granting such assignment shall have its Revolving
Credit Commitment, and its obligations and rights in connection therewith,
reduced by the amount of such assignment; provided, however, in the event a Bank
assigns all of its Revolving Credit Commitment to an Affiliate or at the request
of the Borrower, pursuant to Section 11.13(iii), no recordation fee shall be
required hereunder. Notwithstanding any other provision set forth in this
Agreement, any Bank may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Note held by it) in favor of any Federal Reserve Bank
in accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
Section 11.13 Amendments. Any provision of the Credit Documents may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by (a) the Borrower, (b) the Required Banks, and (c) if the rights or
duties of the Agent are affected thereby, the Agent; provided that:
(i) no amendment or waiver pursuant to this Section 11.13
shall (A) increase any Commitment of any Bank without the consent
of such Bank or (B) reduce the stated rate at which interest or
fees accrue or reduce the amount of or postpone any fixed date for
payment of any principal of or interest on any Loan or of any fee
payable hereunder without the consent of each Bank; and
(ii) no amendment or waiver pursuant to this Section 11.13
shall, unless signed by each Bank, change this Section 11.13, or
the definition of Required Banks, or affect the number of Banks
required to take any action under the Credit Documents.
If the Borrower requests an amendment to this Agreement which requires
the approval of all of the Banks and one of the Banks (a "Replaceable Bank")
does not approve it, the Borrower
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may propose that another bank which is reasonably acceptable to the Agent (a
"Replacement Bank") be substituted for and replace the Replaceable Bank for
purposes of this Agreement. If a Replacement Bank is so substituted for the
Replaceable Bank, the Replaceable Bank shall enter into an assignment agreement
with the Replacement Bank, the Borrower and the Agent to assign and transfer to
the Replacement Bank, the Replaceable Bank's Commitment hereunder, which shall
provide, among other things, for the payment of all Obligations owing to the
Replaceable Bank; provided, however, if a Replacement Bank cannot be found, then
the Borrower may elect to take out the Replaceable Bank and reduce the facility
accordingly by making a prepayment in the amount of such Replaceable Bank's
outstanding Loans plus all accrued and unpaid interest thereon and all fees and
all other Obligations due and owing to the Replaceable Bank on the date of
replacement. Notwithstanding anything to the contrary contained herein, in no
event shall the Agent be a Replaceable Bank.
Section 11.14 Headings. Section headings used in this Agreement are for
reference only and shall not affect the construction of this Agreement.
Section 11.15 Legal Fees, Other Costs and Indemnification. The Borrower
agrees to pay all reasonable costs and expenses of the Agent in connection with
the preparation and negotiation of the Credit Documents, including, without
limitation, the reasonable fees and disbursements of counsel to the Agent, in
connection with the preparation and execution of the Credit Documents and any
amendment, waiver or consent related hereto, whether or not the transactions
contemplated herein are consummated. The Borrower further agrees to indemnify
each Bank, the Agent, and their respective Affiliates, directors, agents,
officers and employees, against all losses, claims, damages, penalties,
judgments, liabilities and expenses (including, without limitation, all expenses
of litigation or preparation therefor, whether or not the indemnified Person is
a party thereto) which any of them may incur or reasonably pay arising out of or
relating to any Credit Document or any of the transactions contemplated thereby
or the direct or indirect application or proposed application of the proceeds of
any Loan other than those which arise from the gross negligence or willful
misconduct of the party claiming indemnification. The Borrower, upon demand by
the Agent or a Bank at any time, shall reimburse the Agent or Bank for any
reasonable legal or other expenses incurred in connection with investigating or
defending against any of the foregoing except if the same is directly due to the
gross negligence or willful misconduct of the party to be indemnified.
Section 11.16 Entire Agreement. The Credit Documents constitute the
entire understanding of the parties thereto with respect to the subject matter
thereof and any prior or contemporaneous agreements, whether written or oral,
with respect thereto are superseded thereby.
Section 11.17 Construction. The parties hereto acknowledge and agree
that neither this Agreement nor the other Credit Documents shall be construed
more favorably in favor of one than the other based upon which party drafted the
same, it being acknowledged that all parties hereto contributed substantially to
the negotiation of this Agreement and the other Credit Documents.
43
<PAGE> 48
Section 11.18 Governing Law. This Agreement and the other Credit
Documents, and the rights and duties of the parties hereto, shall be construed
and determined in accordance with the internal laws of the State of New York.
Section 11.19 Submission to Jurisdiction; Waiver of Jury Trial. EACH OF
THE BORROWER, EACH BANK AND THE AGENT HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
EACH OF THE BORROWER, EACH BANK AND THE AGENT IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE BORROWER, EACH BANK AND THE AGENT HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED THEREBY.
[SIGNATURE PAGE FOLLOWS]
44
<PAGE> 49
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed and delivered in New York, New York by their duly authorized
officers as of the day and year first above written.
NRG ENERGY, INC.
By: ______________________
Name: Brian B. Bird
Title: Vice President & Treasurer
45
<PAGE> 50
Commitment: $20,000,000.00 ABN AMRO BANK N.V., in its individual
capacity as a Bank and as Agent
By: ___________________________
Name: David B. Bryant
Title: Senior Vice President
By: ___________________________
Name: Saad B. Qais
Title: Assistant Vice President
Address for notices:
ABN AMRO Bank N.V.
135 South LaSalle Street
Suite 710
Chicago, Illinois 60603
Attention: David B. Bryant
Facsimile: (312) 904-1466
Telephone: (312) 904-2799
With copy to:
CREDIT ADMINISTRATION
ABN AMRO Bank N.V.
208 South LaSalle Street
Suite 1500
Chicago, Illinois 60604
Attention: Ken Keck
Facsimile: (312) 992-5111
Telephone: (312) 992-5134
Lending Offices:
Base Rate Loans:
208 South LaSalle Street
Suite 1500
Chicago, Illinois 60604
Attention: Loan Administration
Eurocurrency Loans:
Same as for Base Rate Loans
<PAGE> 51
EXHIBIT A
NOTE
March 9, 2001
For Value Received, the undersigned, NRG Energy, Inc., a Delaware
corporation (the "Borrower"), promises to pay to the order of
_______________________________(the "Bank") on the Termination Date of the
hereinafter defined Credit Agreement, at the principal office of ABN AMRO Bank
N.V., Chicago Branch, in Chicago, Illinois, in U.S. Dollars, the aggregate
unpaid principal amount of all Loans made by the Bank to the Borrower pursuant
to the Credit Agreement, together with interest on the principal amount of each
Loan from time to time outstanding hereunder at the rates, and payable in the
manner and on the dates, specified in the Credit Agreement.
The Bank shall record on its books or records or on a schedule attached
to this Note, which is a part hereof, each Loan made by it pursuant to the
Credit Agreement, together with all payments of principal and interest and the
principal balances from time to time outstanding hereon, whether the Loan is a
Base Rate Loan or a Eurocurrency Loan, the interest rate and Interest Period
applicable thereto, provided that prior to the transfer of this Note all such
amounts shall be recorded on a schedule attached to this Note. The record
thereof, whether shown on such books or records or on a schedule to this Note,
shall be prima facie evidence of the same, provided, however, that the failure
of the Bank to record any of the foregoing or any error in any such record shall
not limit or otherwise affect the obligation of the Borrower to repay all Loans
made to it pursuant to the Credit Agreement together with accrued interest
thereon.
This Note is one of the Notes referred to in the 364-Day Revolving
Credit Agreement dated as of March 9, 2001, among the Borrower, ABN AMRO Bank
N.V., as Agent, and the Banks party thereto (the "Credit Agreement"), and this
Note and the holder hereof are entitled to all the benefits provided for thereby
or referred to therein, to which Credit Agreement reference is hereby made for a
statement thereof. All defined terms used in this Note, except terms otherwise
defined herein, shall have the same meaning as in the Credit Agreement. This
Note shall be governed by and construed in accordance with the internal laws of
the State of New York.
Prepayments may be made hereon and this Note may be declared due prior
to the expressed maturity hereof, all in the events, on the terms and in the
manner as provided for in the Credit Agreement.
The Borrower hereby waives demand, presentment, protest or notice of
any kind hereunder.
NRG ENERGY, INC.
By: ______________________
Name: Brian B. Bird
Title: Vice President & Treasurer
A-1
<PAGE> 52
EXHIBIT B
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to ABN AMRO Bank N.V., as
Agent pursuant to the 364-Day Revolving Credit Agreement (the "Credit
Agreement") dated as of March 9, 2001, by and among NRG Energy, Inc., the
financial institutions from time to time party thereto and ABN AMRO Bank N.V.,
as Agent. Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Credit Agreement.
The undersigned hereby certifies that:
1. I am the duly elected or appointed __________ of NRG Energy, Inc.;
2. I have reviewed the terms of the Credit Agreement and I have made,
or have caused to be made under my supervision, a detailed review
of the transactions and conditions of NRG Energy, Inc. and its
Subsidiaries during the accounting period covered by the attached
financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event
which constitutes a Default or an Event of Default during or at
the end of the accounting period covered by the attached financial
statements or as of the date of this Compliance Certificate,
except as set forth below; and
4. Schedule B-1 attached hereto sets forth financial data and
computations evidencing compliance with certain covenants of the
Credit Agreement, all of which data and computations are true,
complete and correct. All computations are made in accordance with
the terms of the Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
The foregoing certifications, together with the computations set forth
in Schedule 1 hereto and the financial statements delivered with this Compliance
Certificate in support hereof
are made and delivered this ___________day of ____________, ______.
-------------------------------
B-1
<PAGE> 53
COMPLIANCE CERTIFICATE
SCHEDULE B-1
COMPLIANCE CALCULATIONS FOR CREDIT AGREEMENT
CALCULATION AS OF __________, 20_____
A. Liens (Section 7.9)
1. Total Liens $_______
(Line A1 not to exceed 10% of Consolidated Net Tangible Assets)
B. Sale of Assets (Section 7.11)
1. Net book value of assets sold
during this fiscal year $_______
(Line B1 not to exceed 10% of Consolidated Net Tangible Assets)
C. Consolidated Net Worth (Section 7.12)
1. Consolidated stockholders equity $_______
2. Effect of currency translation account on consolidated
stockholders equity $_______
3. Effect of application FASB's Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities on consolidated stockholders equity $_______
4. Consolidated Net Worth
(Line C1 adjusted by Lines C2 and C3) $_______
D. Consolidated Capitalization
1. Consolidated Net Worth (Line C4) $_______
2. Indebtedness of the Borrower (excluding performance guarantees
under which demand has not been made) $_______
3. 50% of Indebtedness of Borrower consisting of performance
guarantees under which demand has not been made $_______________
B-2
<PAGE> 54
4. Adjusted Indebtedness of Borrower (line D2-D3) $_______________
5. Consolidated Capitalization
(Sum of line D1 and D4) $_______
E. Indebtedness to Consolidated Capitalization
1. Adjusted Indebtedness of the Borrower (line D4)
$__________________
2. Consolidated Capitalization (line D5) $_________________
3. Ratio of Adjusted Indebtedness of Consolidated Capitalization __
to __
(Line E1 to E2) (ratio not to exceed 0.68 to 1.00 unless a
Non-Conforming Period, in which case ratio can not exceed 0.72 to
1.00)
B-3
<PAGE> 55
SCHEDULE 1
PRICING GRID
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Level If the Borrower's The If the If the If the If the If the If the
Moody's/S&P Annual Utilization Utilization is Utilization Utilization Utilization Utilization
Rating Is: Facility is equal to greater than is greater is equal is greater is greater
Fee is: or less than 33% but less than 66%, to or less than 33% but than 66%,
33%, the than or equal the than 33%, less than or the Base
Eurocurrency to 66%, the Eurocurrency the Base equal to 66%, Rate Margin
Margin is: Eurocurrency Margin is: Rate the Base Rate is:
Margin is: Margin is: Margin is:
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I Greater than or 0.10% 0.400% 0.475% 0.525% 0.000% 0.075% 0.125%
equal to A3/A-
- - -----------------------------------------------------------------------------------------------------------------------------------
II Below Level I, 0.125% 0.500% 0.575% 0.625% 0.000% 0.075% 0.125%
but greater than
or equal to
Baa1/BBB+
- - -----------------------------------------------------------------------------------------------------------------------------------
III Below Level II, 0.150% 0.600% 0.725% 0.850% 0.000% 0.125% 0.250%
but greater than
or equal to
Baa2/BBB
- - -----------------------------------------------------------------------------------------------------------------------------------
IV Below Level III, 0.175% 0.825% 0.950% 1.075% 0.000% 0.125% 0.250%
but greater than
or equal to
Baa3/BBB-
- - -----------------------------------------------------------------------------------------------------------------------------------
V Below Level IV 0.375% 1.375% 1.500% 1.625% 0.000% 0.125% 0.250%
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
provided, that (A) the Facility Fee shall be increased by 0.075% over the
Facility Fee set forth in the above grid during any Non-Conforming Period and
(B) the Eurocurrency Margins and the Base Rate Margins shall be increased by
0.175% over the Eurocurrency Margins and the Base Rate Margins set forth in the
above grid during any Non-Conforming Period.
Any change in the Borrower's Moody's Rating or S&P Rating (and in any
fees or interest payable hereunder based on such Ratings) shall be effective as
of the date on which Moody's or S&P, as the case may be, announces the
applicable change in such Rating. Any change in the Utilization shall be
effective as of the date of such change. In the event of a split Rating (i.e.
the Moody's Rating and the S&P Rating fall into different Levels in the above
grid), the lower Rating shall prevail. In the event neither a Moody's Rating nor
a S&P Rating is in effect, Level V pricing shall prevail unless otherwise agreed
by the Required Banks.
<PAGE> 56
SCHEDULE 5.2
SUBSIDIARIES
- - -------------------------------------------------------------------------------
SUBSIDIARY NAME STATE OF INCORPORATION/
FORMATION
- - -------------------------------------------------------------------------------
1. NRG Connecticut Ancillary Assets LLC Delaware
- - -------------------------------------------------------------------------------
2. Cobee Holdings Inc. Delaware
- - -------------------------------------------------------------------------------
3. Elk River Resource Recovery, Inc. Minnesota
- - -------------------------------------------------------------------------------
4. Graystone Corporation Minnesota
- - -------------------------------------------------------------------------------
5. Meriden Gas Turbines LLC Delaware
- - -------------------------------------------------------------------------------
6. MidAtlantic Generation Holding LLC Delaware
- - -------------------------------------------------------------------------------
7. NEO Corporation Minnesota
- - -------------------------------------------------------------------------------
8. NRG Connecticut Power Assets LLC Delaware
- - -------------------------------------------------------------------------------
9. Northeast Generation Holding LLC Delaware
- - -------------------------------------------------------------------------------
10. NRG Affiliate Services Inc. Delaware
- - -------------------------------------------------------------------------------
11. NRG Asia-Pacific, Ltd. Delaware
- - -------------------------------------------------------------------------------
12. NRG Cadillac Inc. Delaware
- - -------------------------------------------------------------------------------
13. NRG Central U.S. LLC Delaware
- - -------------------------------------------------------------------------------
14. NRG ComLease LLC Delaware
- - -------------------------------------------------------------------------------
15. NRG Connecticut Affiliate Services Inc. Delaware
- - -------------------------------------------------------------------------------
16. NRG del Coronado Inc. Delaware
- - -------------------------------------------------------------------------------
17. NRG Eastern LLC Delaware
- - -------------------------------------------------------------------------------
18. NRG El Segundo Inc. Delaware
- - -------------------------------------------------------------------------------
19. NRG Energy Center, Inc. Minnesota
- - -------------------------------------------------------------------------------
20. NRG Energy Jackson Valley I, Inc. California
- - -------------------------------------------------------------------------------
21. NRG Energy Jackson Valley II, Inc. California
- - -------------------------------------------------------------------------------
22. NRG Granite Acquisition LLC Delaware
- - -------------------------------------------------------------------------------
23. NRG International Services Company Delaware
- - -------------------------------------------------------------------------------
24. NRG International Development Inc. Delaware
- - -------------------------------------------------------------------------------
25. NRG International, Inc. Delaware
- - -------------------------------------------------------------------------------
26. NRG Kaufm