PROVIDE FUNDING FOR PG&E NATIONAL ENERGY GROUP’S CONSTRUCTION
PROJECTS THROUGH COMPLETION
BETHESDA, Md. – PG&E National Energy Group, Inc. announced
in a Current Report on Form 8-K filed with the U.S. Securities and
Exchange Commission on January 16, 2003 that a syndicate of lenders
has agreed to provide funding for the company’s subsidiary,
GenHoldings I LLC, to complete construction of the Athens, Covert
and Harquahala power projects. PG&E National Energy Group is
a wholly owned subsidiary of PG&E Corporation (NYSE: PCG).
The funds also will provide working capital facilities allowing
each project, as well as the operational Millennium Power in Massachusetts,
to pay for its fuel and other operating requirements. This will
allow for each project’s own collateral to support natural
gas pipeline capacity reservations and independent transmission
system operator requirements. Until requested otherwise by the lenders,
subsidiaries of PG&E National Energy Group will continue to
manage the completion of construction at the three sites and will
provide operating and energy services management for all GenHoldings’
In connection with the lenders’ waiver of various defaults
and additional funding commitments, PG&E National Energy Group
has agreed to work with the lenders regarding disposition of the
equity in or assets of any or all of the company’s subsidiaries
holding the Athens, Covert, Harquahala and Millennium projects.
The amended agreement requires that if the four facilities are not
transferred to the lenders or their designees on or before March
31, 2003, a default would occur. This would trigger lender remedies,
including the right to foreclose on the projects.
PG&E National Energy Group has re-affirmed its guarantee of
GenHoldings’ obligation to make equity contributions to these
projects of approximately $355 million. Neither PG&E National
Energy Group nor GenHoldings currently expects to have sufficient
funds to make this payment. The requirement to pay $355 million
will remain an obligation of PG&E National Energy Group that
would survive the transfer of the projects.
The three power plants in construction are all natural gas-fueled
facilities, using state-of-the-art combined-cycle generating technology.
The projects are the following:
- Athens Generating, a 1,080-megawatt plant
in Athens, NY, is expected to be ready for commercial operation
in late summer 2003. Construction work is approximately 80 percent
- Covert Generating, a 1,170-megawatt plant
in Covert, MI, is expected to be ready for commercial operation
in fall 2003. Construction work is approximately 70 percent complete.
- Harquahala Generating, a 1,092-megawatt plant
in Tonopah, AZ, is expected to be ready for commercial operation
in fall 2003. Construction work is approximately 77 percent complete.
The 360-megawatt Millennium Power plant owned by the GenHoldings
subsidiary also is a natural gas fueled combined-cycle generating
facility. Located in Charlton, MA, the plant has more than 20 employees
and entered commercial service in spring 2001.
PG&E National Energy Group is currently in negotiations with
key lenders and bondholders regarding a restructuring of the company’s
debts. During the last two months, the company has:
- Entered into an agreement to sell its 66.6
megawatt Mountain View wind-powered generation facility in the
San Gorgonio Pass, near Palm Springs, Cal. to Centennial Power,
Inc. for $102.5 million. The sale remains subject to receipt of
regulatory approval from the Federal Energy Regulatory Commission
and other conditions contained in the agreement.
- Reached agreement with its lenders to provide
funding for two of the company’s power-plant projects, Lake
Road Generating in Connecticut and La Paloma Generating in California.
The funds are allowing construction to be completed at the La
Paloma plant, provide additional working capital facilities to
enable each project to continue to procure fuel and other services
and support collateral that may be required by suppliers of natural
gas transportation services and others for the completion and
operation of the projects. Subsidiaries of PG&E National Energy
Group will continue to manage the completion of construction of
La Paloma and provide operating and energy management services
to both projects. The agreement requires that failure to transfer
the Lake Road and La Paloma projects to the respective lenders
or their designees by June 9, 2003 will constitute a default under
the agreements. These projects have been financed entirely with
debt. PG&E National Energy Group does not currently expect
to have the funds needed to fulfill its obligation to guarantee
the equity commitments for these projects in the aggregate amount
of $604.5 million.
- Sold one-half of its 50 percent interest
in the Hermiston Generating plant to Sumitomo Corporation and
Sumitomo Corporation of America for a pre-tax gain of approximately
$23 million. The plant, located in Hermiston, Ore., will continue
to be operated and managed by a subsidiary of PG&E National
PG&E National Energy Group also reported that it will take
a charge in the fourth quarter of 2002 of
approximately $248 million for costs related to the termination
of certain interest rate hedge contracts related to
the projects and the termination of certain turbine purchase agreements
related to the company’s Mantua Creek
PG&E National Energy Group is currently in default under various
debt agreements and guaranteed equity commitments totaling approximately
$2.9 billion. The company continues to negotiate with its lenders
regarding these commitments.
As previously reported, PG&E National Energy Group and its
subsidiaries are continuing efforts to abandon, sell and transfer
additional assets, and reducing energy trading operations in an
ongoing effort to raise cash and reduce debt, whether through negotiation
with lenders or otherwise. Such asset transfers, sales or abandonments
will cause substantial charges to earnings in 2002 and 2003.
As previously reported, if the lenders exercise their default remedies
or if the financial commitments are not restructured, PG&E National
Energy Group and certain of its subsidiaries may be compelled to
seek protection under or be forced into a proceeding under Chapter
11 of the U.S. Bankruptcy Code.
For information about other developments please see the Form 8-K.
Headquartered in Bethesda, Md., PG&E National Energy Group
develops, builds, owns and operates electric generating and natural
gas pipeline facilities and provides energy trading, marketing and