PG&E NATIONAL ENERGY GROUP, INC.
TO REORGANIZE UNDER CHAPTER 11 PROTECTION
Action Taken With Support of Major PG&E NEG Creditors
BETHESDA, Md. – As the next step in their ongoing restructuring
efforts, PG&E National Energy Group, Inc. (PG&E NEG), PG&E
Energy Trading Holdings Corporation (PG&E ET) and PG&E ET
subsidiaries today voluntarily filed petitions for protection under
Chapter 11 of the federal bankruptcy code. Separately, USGen New
England, Inc. (USGenNE) filed its own petition for Chapter 11 relief.
Today's filings in the U.S. Bankruptcy Court for the District of
Maryland are in keeping with PG&E NEG's previously announced
intention to maximize cash and reduce liabilities as part of its
ongoing effort to restructure debt obligations.
Other PG&E NEG entities - including PG&E Gas Transmission
Northwest and PG&E Generating, which include several independent
power generation facilities across the country - have not filed
for Chapter 11 protection. Operations are expected to continue as
normal at these facilities and at facilities owned by USGenNE. PG&E
NEG is a subsidiary of PG&E Corporation (NYSE: PCG), which is
not a party in the Chapter 11 proceedings.
With the agreement in principle of major creditors as to its key
terms, PG&E NEG also filed a Plan of Reorganization. This group
includes informal bondholders, as well as agents under certain unsecured
credit facilities, acting in their individual capacities. The plan
anticipates that PG&E Corporation will have no equity interest
in PG&E NEG or any of its subsidiaries after the Chapter 11
reorganization is approved by the court and implemented. Instead,
equity in a reorganized PG&E NEG would be distributed proportionately
to unsecured creditors as a component of a plan distribution package
that would include cash, new debt securities and common stock. However,
PG&E Corporation may continue to provide certain services on
an interim basis, including the administration of employee benefits.
It is anticipated that a Chapter 11 plan for the PG&E ET entities
will be filed at a later date. Similarly, USGenNE's debt will not
be restructured as part of the PG&E NEG plan, but will be dealt
with at a later date.
PG&E NEG also announced today that Joseph Bondi, currently
the company's chief restructuring officer, will assume the role
of chief executive officer, in addition to his current duties, subject
to court approval. PG&E NEG President Thomas B. King has resigned
and will remain with PG&E Corporation.
"For several months, with our creditors, we have made steady
progress toward restructuring PG&E National Energy Group's obligations,"
said Bondi, chief executive officer-designate of PG&E NEG. "While
there is still much work to be done, we believe that today's action
is another step in moving forward and resolving the challenges that
our financial situation and current market conditions present. We
concluded, along with our lenders, that filing Chapter 11 protection
provides the best opportunity to reach a resolution that is in the
long-term interests of our employees, the creditors and our other
PG&E Corporation announced in May that the ongoing restructuring
of PG&E NEG would be implemented through a Chapter 11 bankruptcy
to facilitate an orderly negotiation among creditors, which include
five bank syndicates, with approximately 40 banks and bondholders.
The company estimates that claims asserted against PG&E NEG
may exceed $4 billion.
PG&E NEG is in default under various recourse debt agreements
and guaranteed equity commitments totaling nearly $3 billion. In
addition, other PG&E NEG subsidiaries are in default under various
debt agreements totaling approximately $2.5 billion, but this debt
is non-recourse to PG&E NEG.
As a result of the sustained downturn in the power industry and
like a number of merchant energy businesses, PG&E NEG experienced
a financial downturn. This caused the major credit rating agencies
to downgrade credit ratings to below investment grade. Although
PG&E NEG's operating performance was solid during 2002, the
company took a loss of $3.4 billion for the year, including the
impairment charges related to the planned sale, transfer or abandonment
of investments associated with the merchant power generation operation.
These were steps affirmatively taken to restructure the business.
First Day Motions
In conjunction with the filing today, PG&E NEG will seek approval
from the Bankruptcy Court for a variety of "first day motions"
enabling the company to continue to manage its businesses in the
ordinary course. The first day motions include requests for permission
to continue payments for affected employee payroll and health benefits,
and retain legal, financial and other professionals to assist the
company through the Chapter 11 process.
The company fully expects to continue to meet various employee
payrolls and provide for continued employee health care and other
benefits. Employees' qualified retirement savings plan accounts
are not affected by the filing, as they are held in a trust and
protected by federal law. The company also expects to continue paying
vendors and suppliers in full for goods and services provided after
Due to the company's cash on hand of approximately $114 million
as of May 31, 2003, PG&E NEG does not need to arrange for debtor-in-possession
financing. While the company expects to continue most operations
during bankruptcy, operations and staffing levels will be affected
as the company seeks to minimize costs and conserve cash.
"Our goal is to continue to work constructively with the creditors
to reorganize these businesses, which include valuable assets that
are performing well, in a way that maximizes their value and enables
these operations to emerge from Chapter 11 as viable businesses going
forward." Bondi said.
As previously reported for the past several months, PG&E NEG
has significantly reduced its energy trading operation. Today's
Chapter 11 filing of PG&E ET entities will facilitate the next
major step toward final financial resolution and the wind-down of
the trading subsidiaries.
USGen New England
While USGenNE also has filed Chapter 11 in the Maryland bankruptcy
court, its case is being separately administered. The company estimates
that claims asserted against USGenNE will exceed $1 billion.
PG&E NEG and USGenNE will continue to work with creditors to
address the future of the USGenNE assets which include: Brayton
Point Station, Somerset, Mass.; Salem Harbor Station, Salem, Mass.;
Manchester Street Station, Providence, R.I.; Bear Swamp facility,
Rowe, Mass.; Connecticut River Hydroelectric System in New Hampshire
and Vermont; and Deerfield River Hydroelectric System in Massachusetts
and Vermont. It still remains likely at this time that the company
will sell or transfer USGenNE, as it previously reported.
Restructuring Efforts To Date
Today's filings follow months of aggressive actions by PG&E
NEG and its subsidiaries to abandon, sell and transfer assets and
significantly reduce energy trading operations in an ongoing effort
to raise cash and reduce debt, whether through negotiation with
lenders or otherwise. Efforts to date and as previously reported,
- Sold the 66.6 megawatt Mountain View wind-powered generation
facility in the San Gorgonio Pass near Palm Springs, CA, to Centennial
Power, Inc. for $102.5 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, OR, continues to
be operated and managed by a subsidiary of PG&E NEG.
- Sold the 176-megawatt, natural gas-fired Spencer Station Generating
facility in Denton, TX, and the nearby Lake Lewisville hydroelectric
facility for about $2 million to the City of Garland, TX.
- Sold the Canadian energy trading operation, ET Canada, to Seminole
Canada Gas Company Limited.
- Reduced the aggregate value of the energy trading portfolio
by more than 70 percent. The company has limited its asset trading
and risk management activities to only what is necessary for energy
management services to facilitate the transition of the company's
merchant generation facilities through their sale, transfer or
abandonment. Ultimately, PG&E NEG will reduce and transition
to only retain limited capabilities to ensure fuel procurement
and power logistics for the company's retained independent power
- Agreement in principle to transfer three power plant construction
projects - Athens Generating (Athens, NY), Covert Generating (Covert,
MI), and Harquahala Generating (Tonopah, AZ) - to the respective
lenders or their designees. While the transfers have not yet been
completed, funding has been provided for these projects to be
completed and today's Chapter 11 filings are not expected to have
any affect on those projects.
- Agreement in principle to transfer three power projects - La
Paloma Generating (McKittrick, CA), Millennium Power (Charlton,
MA) and Lake Road Generating (Killingly, CT) - to the respective
lenders or their designees. While these transfers have not yet
been completed, today's Chapter 11 filings are not expected to
have any affect on those agreements or the day-to-day operations
of these facilities.
- Pending sale of the 149-megawatt Ohio power peaking facilities
to AMP-Ohio for approximately $7 million. It is expected to be
completed by August 31, 2003, following necessary regulatory approvals.
About PG&E NEG
Headquartered in Bethesda, MD, PG&E NEG employs approximately
1,800. The company's more than 7,300 megawatts of generation include
a mix of natural gas, coal/oil, hydroelectric, waste coal and wind
power at numerous facilities across the country. With more than
1,350 miles of gas pipelines, the company's Pacific Northwest system
has the ability to transport 2.9 billion cubic feet of natural gas
per day from cost-competitive, abundant supplies in Western Canada
to markets in California, Nevada and the Pacific Northwest. The
company also owns the 80-mile North Baja pipeline in Southern California,
which has capacity to ship 500 million cubic feet of natural gas
from U.S. producing regions to markets in Northern Mexico and Southern
This news release discusses certain matters that may be considered
"forward-looking" statements within the meaning of Section
27A of the Securities Act of 1933, as amended, including statements
regarding the intent, belief or current expectations of PG&E
National Energy Group and its management. Actual future results
could differ materially from those expressed or implied in any forward-looking
statements. PG&E National Energy Group describes in its filings
with the U.S. Securities and Exchange Commission some of the key
factors that could cause actual results to differ materially.