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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[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
NRG ENERGY, INC.
(Exact name of Registrant as specified in its charter)
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)
(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.
CLASS OUTSTANDING AT MARCH 15, 2001
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Class A - Common Stock, $0.01 par
value 147,604,500 shares
Common Stock, $0.01 par value 50,858,903 shares
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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NRG ENERGY, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
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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
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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.
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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.
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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
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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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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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- 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:
NAME AGE TITLE
---- --- -----
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.
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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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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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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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
NRG'S
NET PERCENTAGE
CAPACITY OWNERSHIP
NAME AND LOCATION OF FACILITY PURCHASER/POWER MARKET (MW)(2) INTEREST FUEL TYPE
- - ----------------------------- ---------------------- -------- ---------- ---------
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
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NRG'S
NET PERCENTAGE
CAPACITY OWNERSHIP
NAME AND LOCATION OF FACILITY PURCHASER/POWER MARKET (MW)(2) INTEREST FUEL TYPE
- - ----------------------------- ---------------------- -------- ---------- ---------
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
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THERMAL ENERGY PRODUCTION AND TRANSMISSION FACILITIES
AND RESOURCE RECOVERY FACILITIES
NRG'S
PERCENTAGE THERMAL ENERGY
DATE OF OWNERSHIP PURCHASER/MSW
NAME AND LOCATION OF FACILITY ACQUISITION NET EQUITY CAPACITY(1) INTEREST SUPPLIER
----------------------------- ----------- ---------------------- ---------- --------------
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
- - ---------------
(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.
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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
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.
2000 1999
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HIGH LOW HIGH LOW
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