NRG NORTHEAST GENERATING LLC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] Quarterly report pursuant to section 13 or 15(d) of the securities exchange act of 1934

[ ] Transition report pursuant to section 13 or 15(d) of the securities exchange act of 1934


For the Quarter Ended: June 30, 2002		Commission File No. 333-42638

NRG Northeast Generating LLC
(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		41-1937472 (I.R.S. Employer Identification No.)

901 Marquette Avenue, Suite 2300 Minneapolis, Minnesota (Address of principal executive offices)		55402 (Zip Code)

(612) 373-5300
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

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

The Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

TABLE OF CONTENTS


		CONSOLIDATED STATEMENT OF OPERATIONS
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF MEMBER’S EQUITY
		CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2 — MANAGEMENTS DISCUSSION AND ANALYSIS
Part II — OTHER INFORMATION
	ITEM 1 — Legal Proceedings
	ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES

TABLE OF CONTENTS

INDEX


		Page No.
Part I

Item 1	Consolidated Financial Statements and Notes

	Consolidated Statement of Operations	1

	Consolidated Balance Sheet	2

	Consolidated Statement of Member’s Equity	3

	Consolidated Statement of Cash Flows	4

	Notes to Consolidated Financial Statements	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations	9

Item 3	Quantitative and Qualitative Disclosures About Market Risk (Omitted per general instruction H2 (a) and (b) of Form 10-Q)	—

Part II

Item 1	Legal Proceedings	12

Item 6	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	13

	Cautionary Statement Regarding Forward Looking Information	14

SIGNATURES		15

NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS


		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2002			2001			2002			2001

		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

(In thousands)
Operating revenues
	Revenues	$	185,080		$	270,819		$	316,648		$	546,551
Operating costs and expenses
	Operating costs		110,518			221,531			208,553			416,920
	Depreciation		13,840			12,332			26,151			24,315
	General and administrative expenses		7,669			4,927			11,341			9,108

Operating income			53,053			32,029			70,603			96,208
Other income (expense)
	Other income, net		4,811			701			5,034			1,291
	Interest expense		(11,111	)		(15,045	)		(26,744	)		(30,336	)

Net income		$	46,753		$	17,685		$	48,893		$	67,163

See accompanying notes to consolidated financial statements.

NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET


				June 30,		December 31,
				2002		2001

				(Unaudited)

(In thousands)
Assets
Current Assets:
	Cash and cash equivalents			$	—	$	370
	Accounts receivable				78,600		56,025
	Inventory				146,321		172,215
	Prepaid expenses				27,755		20,116

			Total current assets		252,676		248,726

Property, plant & equipment, net of accumulated depreciation of $138,780 and $113,688					1,399,862		1,403,318
Deferred finance costs, net of accumulated amortization of $958 and $750					9,198		9,406
Derivative instruments valuation — at market					114,913		109,017
Other assets, net of accumulated amortization of $2,171 and $1,737					23,829		24,263

			Total assets	$	1,800,478	$	1,794,730

Liabilities and Member’s Equity
Liabilities:
	Current portion of long-term debt			$	71,000	$	107,000
	Accounts payable				272		2,550
	Accounts payable — affiliates				32,307		—
	Accrued fuel and purchased power expense				13,015		27,049
	Accrued interest				3,666		2,302
	Bank overdraft				1,464		—
	Other accrued liabilities				41,143		41,086
	Derivative instruments valuation — at market				35,212		32,504

			Total current liabilities		198,079		212,491
Long-term debt					485,500		503,000
Note payable — affiliate					30,000		—
Other long-term liabilities					24,391		24,655

			Total liabilities		737,970		740,146
Commitments and contingencies
Member’s equity					1,062,508		1,054,584

		Total liabilities and member’s equity		$	1,800,478	$	1,794,730

See accompanying notes to consolidated financial statements.

NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MEMBER’S EQUITY
(Unaudited)


							Accumulated
	Member						Other			Total
	Contributions/			Accumulated			Comprehensive			Member’s
	Distributions			Net Income			Income			Equity

				(In thousands)
Balances at December 31, 2000	$	788,315		$	—			—		$	788,315
Net income		—			67,163			—			67,163
Cumulative effect upon adoption of SFAS No. 133		—			—			14,100			14,100
Impact of SFAS No. 133 for the six months ended June 30, 2001		—			—			107,637			107,637

Comprehensive income											188,900
Distributions to member, net		(68,837	)		(67,163	)		—			(136,000	)

Balances at June 30, 2001	$	719,478		$	—		$	121,737		$	841,215

Balances at December 31, 2001	$	788,315		$	158,528			107,741		$	1,054,584
Net income		—			48,893			—			48,893
Impact of SFAS No. 133 for the six months ended June 30, 2002		—			—			(40,969	)		(40,969	)

Comprehensive income											7,924

Balances at June 30, 2002	$	788,315		$	207,421		$	66,772		$	1,062,508

See accompanying notes to consolidated financial statements.

NRG NORTHEAST GENERATING LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS


				Six Months Ended
				June 30,
				2002			2001

				(Unaudited)			(Unaudited)

(In thousands)
Cash flows from operating activities:
	Net income			$	48,893		$	67,163
	Adjustments to reconcile net income to net cash provided by (used in) operating activities
		Depreciation			26,151			24,315
		Amortization of other assets			434			433
		Amortization of deferred financing costs			208			208
		Unrealized (loss)/gain on energy contracts			(44,157	)		37,739
		Changes in assets and liabilities:
			Accounts receivable		(22,575	)		89,732
			Inventories		25,894			(53,374	)
			Prepaid expenses		(7,639	)		(11,990	)
			Accounts payable		(2,278	)		(2,000	)
			Accounts payable — affiliates		32,307			54,589
			Accrued interest		1,364			11,824
			Accrued fuel and purchased power expense		(14,034	)		7,189
			Other accrued liabilities		57			(10,560	)
			Other liabilities		(264	)		(322	)

Net cash provided by operating activities					44,361			214,946

Cash flows from investing activities:
	Proceeds from fixed asset dispositions				972			—
	Capital expenditures				(23,667	)		(11,467	)

Net cash used in investing activities					(22,695	)		(11,467	)

Cash flows from financing activities:
	Distribution to member				—			(136,000	)
	Deferred financing costs				—			(198	)
	Proceeds from note payable — affiliate				30,000			—
	Bank overdraft				1,464			—
	Principal payments on long-term debt				(53,500	)		(45,000	)

Net cash used in financing activities					(22,036	)		(181,198	)

Net increase in cash and cash equivalents					(370	)		22,281
Cash and cash equivalents at beginning of period					370			2,444

Cash and cash equivalents at end of period				$	—		$	24,725

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NRG Northeast Generating LLC (the Company or NRG Northeast), a wholly-owned indirect subsidiary of NRG Energy, Inc. (NRG), owns electric power generation plants in the northeastern region of the United States. The Company was formed for the purpose of financing, acquiring, owning, operating and maintaining, through its subsidiaries and affiliates; facilities owned by Arthur Kill Power LLC, Astoria Gas Turbine Power LLC, Connecticut Jet Power LLC, Devon Power LLC, Dunkirk Power LLC, Huntley Power LLC, Middletown Power LLC, Montville Power LLC, Norwalk Harbor Power LLC, Oswego Harbor Power LLC and Somerset Power LLC.

Additional information regarding the Company can be found in NRG Energy’s Form 10-K for the year ended December 31, 2001.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the SEC regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accounting policies followed by the Company are set forth in Item 8 — Note 2 to the Company’s financial statements in its annual report on Form 10-K for the year ended December 31, 2001 (Form 10-K). The following notes should be read in conjunction with such policies and other disclosures in the Form 10-K. Interim results are not necessarily indicative of results for a full year.

In the opinion of management, the accompanying unaudited interim financial statements contain all material adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, 2002 and December 31, 2001, the results of its operations for the three and six months ended June 30, 2002 and 2001, and its cash flows and member’s equity for the six months ended June 30, 2002 and 2001.

Certain prior-year amounts have been reclassified for comparative purposes. These reclassifications had no effect on net income or total member’s equity as previously reported.

1. LONG-TERM DEBT

On February 22, 2000, the Company issued $750 million of senior secured bonds to refinance short-term project borrowings and for certain other purposes. The bond offering included three tranches: $320 million with an interest rate of 8.065% due in 2004; $130 million with an interest rate of 8.842% due in 2015; and $300 million with an interest rate of 9.292% due in 2024. Principal payments are made semi-annually with $107 million due in 2002, $35 million due in 2003, $38 million due in 2004, and no payments due in 2005 and 2006. The remaining $430 million is due between June 15, 2007 and December 15, 2024. The bonds are jointly and severally guaranteed by each of NRG Northeast’s existing and future subsidiaries. The bonds are secured by a security interest in NRG Northeast’s membership or other ownership interests in the guarantors and its rights under all intercompany notes between NRG Northeast and the guarantors. At June 30, 2002, there remain $556.5 million of outstanding bonds.

On August 7, 2002, NRG Energy, Inc. senior unsecured debt was downgraded by Standard & Poor’s Rating Services to B-plus. As a consequence, NRG is required under the Indenture to replace the corporate guarantee supporting the six month debt service reserve account with a letter of credit or cash collateral by August 25, 2002 to avoid an event of default. If NRG Fails to meet this collateral requirement by August 25, 2002, NRG will have 30 days to either cure the default or actively work to cure the default, after which the bondholders will have the right to accelerate the bonds. If 60 days after August 25, 2002 NRG still has not collateralized the debt service reserve the account, the bondholders will have the right to accelerate the bonds.

On August 8, 2002, NRG met with several banks and committed not to collateralize any debt service reserve accounts, including NRG Northeast Generating, without the prior consent of NRG's lenders. At this time NRG management believes that its lenders will ultimately consent to the provision of collateral for NRG Northeast Generating in advance of any potential acceleration of the bonds.

On July 29, 2002, Moody’s Investor Service lowered the senior unsecured debt rating of NRG from Baa3 to B1 and assigned a Senior Implied rating of Ba3 to NRG. NRG subsidiaries, including NRG Northeast Generating, NRG South Central Generating LLC and LSP Energy Limited Partnership, were placed under review for possible downgrade.

Due to the debt rating downgrade, NRG is no longer eligible to guarantee the Company’s senior secured bonds. The indenture for the senior secured bonds requires, as a result, that the Company fund the next six months’ debt service requirements of $78.2 million. The Company and the lenders are in discussion, but if this requirement is not waived or deferred, and the Company cannot fund the debt service requirement, the Company will be in default and the lenders can exercise their rights under the indenture agreement.

On June 15, 2002, NRG loaned the Company $30 million to fund capital expenditures. The debt bears interest at the 3 month London Interbank Offered Rate plus 0.5%. The debt is subordinate to the other long-term debt of the Company and is subject to the terms and conditions of the senior secured bonds’ indenture.

2 — Inventory

Inventory consists of spare parts, coal, fuel oil and kerosene and is stated at the lower of weighted average cost or market.

Inventory consisted of:


(In thousands)		June 30, 2002		December 31, 2001

Fuel oil		$	64,148	$	83,857
Spare parts			59,490		57,901
Coal			22,062		29,179
Kerosene			609		1,268
Other			12		10

	Total	$	146,321	$	172,215

3 — Property, Plant and Equipment, net

Property, plant and equipment are stated at cost. Depreciation is computed on a straight-line basis over the following estimated useful lives:


Facilities, machinery and equipment		25 to 30 years
Office furnishings and equipment		3 to 10 years

Property, plant and equipment consisted of:


(In thousands)	June 30, 2002			December 31, 2001

Facilities, machinery and equipment	$	1,447,613		$	1,441,428
Land		51,920			51,920
Construction in progress		37,650			22,206
Office furnishings and equipment		1,459			1,452
Accumulated depreciation		(138,780	)

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