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Financing Receivables
 12 Months Ended
Dec. 31, 2012
Financing Receivables
Financing Receivables
PSE&G
PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout its electric service area. The loans are generally paid back with SRECS generated from the installed solar electric system. The following table reflects the outstanding short and long-term loans by class of customer, none of which would be considered “non-performing.”
 
 
 
 
 
 
 
 
Credit Risk Profile Based on Payment Activity
 
 
 
 
As of December 31,
 
 
Consumer Loans
 
2012
 
2011
 
 
 
 
Millions
 
 
Commercial/Industrial
 
$
174

 
$
106

 
 
Residential
 
15

 
10

 
 
 
 
$
189

 
$
116

 
 
 
 
 
 
 
 

Energy Holdings
Energy Holdings had a net investment in domestic energy and real estate assets subject primarily to leveraged lease accounting of $117 million and $165 million as of December 31, 2012 and 2011, respectively (See Note 7. Long-Term Investments).
The corresponding receivables associated with the lease portfolio are reflected below, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings. “Not Rated” counterparties relate to investments in leases of commercial real estate properties.
 
 
 
 
 
 
 
 
  
 
Lease Receivables, Net of
Non-Recourse Debt
 
 
 
 
As of December 31,
 
 
Counterparties’ Credit Rating (S&P) as of December 31, 2012
 
2012
 
2011
 
 
 
 
Millions
 
 
AA
 
$
21

 
$
21

 
 
AA-
 
73

 
110

 
 
BBB+ - BBB-
 
316

 
316

 
 
B
 
166

 
299

 
 
D
 
134

 
—

 
 
Not Rated
 
11

 
17

 
 
 
 
$
721

 
$
763

 
 
 
 
 
 
 
 

The “B” and “D” ratings above represent lease receivables related to coal-fired assets in Illinois and Pennsylvania. As of December 31, 2012, the gross investment in the leases of such assets, net of non-recourse debt, was $559 million ($19 million, net of deferred taxes). A more detailed description of such assets under lease is presented in the following table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset
Location
 
Gross
Investment
 
%
Owned
 
Total
 
Fuel
Type
 
Counterparties’
S&P Credit
Ratings
 
Counterparty
 
 
 
 
 
Millions
 
 
 
MW
 
 
 
 
 
 
 
 
Powerton Station Units 5 and 6
IL
 
$
134

 
64
%
 
1,538

 
Coal
 
D
 
Edison Mission Energy
 
 
Joliet Station Units 7 and 8
IL
 
$
84

 
64
%
 
1,044

 
Coal
 
D
 
Edison Mission Energy
 
 
Keystone Station Units 1 and 2
PA
 
$
116

 
17
%
 
1,711

 
Coal
 
B
 
GenOn REMA, LLC
 
 
Conemaugh Station Units 1 and 2
PA
 
$
116

 
17
%
 
1,711

 
Coal
 
B
 
GenOn REMA, LLC
 
 
Shawville Station Units 1, 2, 3 and 4
PA
 
$
109

 
100
%
 
603

 
Coal
 
B
 
GenOn REMA, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease transactions. These credit enhancement features vary from lease to lease and may include letters of credit or affiliate guarantees. Upon the occurrence of certain defaults, indirect subsidiary companies of Energy Holdings would exercise their rights and attempt to seek recovery of their investment, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital investments and trigger certain material tax obligations. A bankruptcy of a lessee would likely delay any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims. Failure to recover adequate value could ultimately lead to a foreclosure on the lease by the lenders. If foreclosures were to occur, Energy Holdings could potentially record a pre-tax write-off up to its gross investment in these facilities and may also be required to pay significant cash tax liabilities.
Of facilities under lease by indirect subsidiary companies of Energy Holdings to GenOn REMA, LLC (GenOn REMA), a subsidiary of GenOn Energy Inc. (GenOn), which was acquired by NRG Energy, Inc. in December 2012. Keystone has installed flue gas desulfurization control for sulfur dioxide (SO2), selective catalytic reduction (SCR) equipment for nitrogen oxide (NOx) and mercury control to meet current environmental requirements. Conemaugh has flue gas desulfurization control, while SCR and mercury control are scheduled to be installed and operational in the first quarter of 2015. GenOn's plan for the coal-fired units at the Shawville facility is to place them in a “long-term protective layup” by April 2015 while continuing to pay the required rent and maintaining the facility in accordance with the lease terms or terminating the lease for obsolescence in which case the lessee would be required, among other things, to pay the contractual termination value structured to recover Energy Holdings' indirect subsidiaries' lease investment as specified in the lease agreement.
Although all lease payments from the GenOn REMA leases are current, no assurances can be given that future payments in accordance with the lease contracts will continue. Factors which may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel and electricity, overall financial condition of lease counterparties and the quality and condition of assets under lease.
With respect to Edison Mission Energy's (EME) Midwest Generation (MWG) leases on the Powerton and Joliet coal units in Illinois, the lessee, MWG, substantially completed investments in mercury removal (Activated Carbon Injection) and NOx emission controls (low NOx burners and Selective Non-Catalytic Reduction systems), and plans to invest in SO2 emission controls (Dry Sorbent Injection (Trona) systems). EME does not anticipate a material change in this current approach in order to comply with existing federal and Illinois environmental rules. On November 30, 2012, MWG filed a variance request with the Illinois Pollution Control Board seeking two additional years to meet upcoming air emission compliance deadlines under Illinois law. EME and MWG remain in litigation with the U.S. Environmental Protection Agency (EPA) and the State of Illinois regarding certain air emissions. On March 16, 2011, the federal district court dismissed new source review claims in reference to Powerton and Joliet, but certain opacity claims remain pending against MWG. The EPA and the State of Illinois have appealed the dismissal of the new source review claims. On November 11, 2011, the federal district court stayed proceedings in connection with the opacity claims until the appeal by the EPA and the State of Illinois is resolved.
On December 17, 2012, EME and MWG filed for relief under Chapter 11 of the U.S. Bankruptcy Code. Immediately prior to that filing, EME, MWG, Nesbitt Asset Recovery, LLC (which is an indirect, wholly owned subsidiary of Energy Holdings), and Associates Capital Investments, L.L.P., as well as certain affiliated owner lessors and owner participants, entered into a forbearance agreement with holders of a majority of the lease debt that financed the original sale-leaseback transaction. The forbearance agreement, which was approved by the bankruptcy court and limited the ability of the lease indenture trustee to accelerate or exercise other remedies with respect to that nonrecourse debt, expired on February 15, 2013. A new forbearance agreement is currently being negotiated by the parties. MWG has not determined whether to assume or reject those leases. MWG did not make its scheduled rent payments (which related to the prior six month period) totaling approximately $48 million on the Powerton and Joliet leases due on January 2, 2013, most of which is a pre-petition bankruptcy claim. Rental for the utilization of the facilities by MWG during pendency of the bankruptcy will likely be treated as an administrative expense in bankruptcy. In mid-February, pursuant to the terms of the forbearance agreement, a rental payment of approximately $5 million was received covering the period from the date of the petition filing through January 2, 2013.
On December 13, 2011, indirect subsidiary companies of Energy Holdings and Dynegy Incorporated (Dynegy) reached a settlement agreement resolving disputes that had arisen between them with regard to Dynegy Holding’s (DH) rejection of the Dynegy leases. The settlement agreement resolved certain disputes regarding Energy Holdings' Dynegy leases, including claims under Tax Indemnity Agreements that indirect subsidiaries of Energy Holdings have with DH. The original terms of the settlement agreement included a cash payment to Energy Holdings of $7.5 million, which was received on January 4, 2012, and an allowed claim in Bankruptcy Court of $110 million against DH. On December 30, 2011, the effective date of the court order authorizing the Dynegy lease rejections, the leases no longer qualified for leveraged lease accounting treatment under GAAP. As a result, Energy Holdings wrote off the $264 million gross lease investment against the previously recorded reserve. The Energy Holdings' indirect subsidiary companies that are owners/lessors of the two plants ceased leveraged lease accounting and recorded the generation assets and related nonrecourse project debt on their balance sheets at their respective fair values (See Note 17. Fair Value Measurements).
On June 1, 2012, an amended and restated settlement agreement entered into by DH, Dynegy and their creditors (including indirect subsidiary companies of Energy Holdings) was approved by the Bankruptcy Court. The agreement allocated proceeds from the sale of the facilities to pay DH’s creditors, including the lease bondholders, and grants the lease bondholders claims in agreed upon amounts against DH in its bankruptcy proceedings. The settlement agreement also included an exchange of releases by various settling claimants, including parties to the leases with respect to claims arising out of the leases. On October 1, 2012, Dynegy emerged from bankruptcy and distributed cash and stock settlements to the claimants. The total recovery of Energy Holdings' indirect subsidiary companies from the Dynegy leases was approximately $63 million, of which $50 million was recorded in Operating Revenues in the fourth quarter of 2012.
PSE&G [Member]
  
Financing Receivables
Financing Receivables
PSE&G
PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout its electric service area. The loans are generally paid back with SRECS generated from the installed solar electric system. The following table reflects the outstanding short and long-term loans by class of customer, none of which would be considered “non-performing.”
 
 
 
 
 
 
 
 
Credit Risk Profile Based on Payment Activity
 
 
 
 
As of December 31,
 
 
Consumer Loans
 
2012
 
2011
 
 
 
 
Millions
 
 
Commercial/Industrial
 
$
174

 
$
106

 
 
Residential
 
15

 
10

 
 
 
 
$
189

 
$
116

 
 
 
 
 
 
 
 

Energy Holdings
Energy Holdings had a net investment in domestic energy and real estate assets subject primarily to leveraged lease accounting of $117 million and $165 million as of December 31, 2012 and 2011, respectively (See Note 7. Long-Term Investments).
The corresponding receivables associated with the lease portfolio are reflected below, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings. “Not Rated” counterparties relate to investments in leases of commercial real estate properties.
 
 
 
 
 
 
 
 
  
 
Lease Receivables, Net of
Non-Recourse Debt
 
 
 
 
As of December 31,
 
 
Counterparties’ Credit Rating (S&P) as of December 31, 2012
 
2012
 
2011
 
 
 
 
Millions
 
 
AA
 
$
21

 
$
21

 
 
AA-
 
73

 
110

 
 
BBB+ - BBB-
 
316

 
316

 
 
B
 
166

 
299

 
 
D
 
134

 
—

 
 
Not Rated
 
11

 
17

 
 
 
 
$
721

 
$
763

 
 
 
 
 
 
 
 

The “B” and “D” ratings above represent lease receivables related to coal-fired assets in Illinois and Pennsylvania. As of December 31, 2012, the gross investment in the leases of such assets, net of non-recourse debt, was $559 million ($19 million, net of deferred taxes). A more detailed description of such assets under lease is presented in the following table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset
Location
 
Gross
Investment
 
%
Owned
 
Total
 
Fuel
Type
 
Counterparties’
S&P Credit
Ratings
 
Counterparty
 
 
 
 
 
Millions
 
 
 
MW
 
 
 
 
 
 
 
 
Powerton Station Units 5 and 6
IL
 
$
134

 
64
%
 
1,538

 
Coal
 
D
 
Edison Mission Energy
 
 
Joliet Station Units 7 and 8
IL
 
$
84

 
64
%
 
1,044

 
Coal
 
D
 
Edison Mission Energy
 
 
Keystone Station Units 1 and 2
PA
 
$
116

 
17
%
 
1,711

 
Coal
 
B
 
GenOn REMA, LLC
 
 
Conemaugh Station Units 1 and 2
PA
 
$
116

 
17
%
 
1,711

 
Coal
 
B
 
GenOn REMA, LLC
 
 
Shawville Station Units 1, 2, 3 and 4
PA
 
$
109

 
100
%
 
603

 
Coal
 
B
 
GenOn REMA, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease transactions. These credit enhancement features vary from lease to lease and may include letters of credit or affiliate guarantees. Upon the occurrence of certain defaults, indirect subsidiary companies of Energy Holdings would exercise their rights and attempt to seek recovery of their investment, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital investments and trigger certain material tax obligations. A bankruptcy of a lessee would likely delay any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims. Failure to recover adequate value could ultimately lead to a foreclosure on the lease by the lenders. If foreclosures were to occur, Energy Holdings could potentially record a pre-tax write-off up to its gross investment in these facilities and may also be required to pay significant cash tax liabilities.
Of facilities under lease by indirect subsidiary companies of Energy Holdings to GenOn REMA, LLC (GenOn REMA), a subsidiary of GenOn Energy Inc. (GenOn), which was acquired by NRG Energy, Inc. in December 2012. Keystone has installed flue gas desulfurization control for sulfur dioxide (SO2), selective catalytic reduction (SCR) equipment for nitrogen oxide (NOx) and mercury control to meet current environmental requirements. Conemaugh has flue gas desulfurization control, while SCR and mercury control are scheduled to be installed and operational in the first quarter of 2015. GenOn's plan for the coal-fired units at the Shawville facility is to place them in a “long-term protective layup” by April 2015 while continuing to pay the required rent and maintaining the facility in accordance with the lease terms or terminating the lease for obsolescence in which case the lessee would be required, among other things, to pay the contractual termination value structured to recover Energy Holdings' indirect subsidiaries' lease investment as specified in the lease agreement.
Although all lease payments from the GenOn REMA leases are current, no assurances can be given that future payments in accordance with the lease contracts will continue. Factors which may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel and electricity, overall financial condition of lease counterparties and the quality and condition of assets under lease.
With respect to Edison Mission Energy's (EME) Midwest Generation (MWG) leases on the Powerton and Joliet coal units in Illinois, the lessee, MWG, substantially completed investments in mercury removal (Activated Carbon Injection) and NOx emission controls (low NOx burners and Selective Non-Catalytic Reduction systems), and plans to invest in SO2 emission controls (Dry Sorbent Injection (Trona) systems). EME does not anticipate a material change in this current approach in order to comply with existing federal and Illinois environmental rules. On November 30, 2012, MWG filed a variance request with the Illinois Pollution Control Board seeking two additional years to meet upcoming air emission compliance deadlines under Illinois law. EME and MWG remain in litigation with the U.S. Environmental Protection Agency (EPA) and the State of Illinois regarding certain air emissions. On March 16, 2011, the federal district court dismissed new source review claims in reference to Powerton and Joliet, but certain opacity claims remain pending against MWG. The EPA and the State of Illinois have appealed the dismissal of the new source review claims. On November 11, 2011, the federal district court stayed proceedings in connection with the opacity claims until the appeal by the EPA and the State of Illinois is resolved.
On December 17, 2012, EME and MWG filed for relief under Chapter 11 of the U.S. Bankruptcy Code. Immediately prior to that filing, EME, MWG, Nesbitt Asset Recovery, LLC (which is an indirect, wholly owned subsidiary of Energy Holdings), and Associates Capital Investments, L.L.P., as well as certain affiliated owner lessors and owner participants, entered into a forbearance agreement with holders of a majority of the lease debt that financed the original sale-leaseback transaction. The forbearance agreement, which was approved by the bankruptcy court and limited the ability of the lease indenture trustee to accelerate or exercise other remedies with respect to that nonrecourse debt, expired on February 15, 2013. A new forbearance agreement is currently being negotiated by the parties. MWG has not determined whether to assume or reject those leases. MWG did not make its scheduled rent payments (which related to the prior six month period) totaling approximately $48 million on the Powerton and Joliet leases due on January 2, 2013, most of which is a pre-petition bankruptcy claim. Rental for the utilization of the facilities by MWG during pendency of the bankruptcy will likely be treated as an administrative expense in bankruptcy. In mid-February, pursuant to the terms of the forbearance agreement, a rental payment of approximately $5 million was received covering the period from the date of the petition filing through January 2, 2013.
On December 13, 2011, indirect subsidiary companies of Energy Holdings and Dynegy Incorporated (Dynegy) reached a settlement agreement resolving disputes that had arisen between them with regard to Dynegy Holding’s (DH) rejection of the Dynegy leases. The settlement agreement resolved certain disputes regarding Energy Holdings' Dynegy leases, including claims under Tax Indemnity Agreements that indirect subsidiaries of Energy Holdings have with DH. The original terms of the settlement agreement included a cash payment to Energy Holdings of $7.5 million, which was received on January 4, 2012, and an allowed claim in Bankruptcy Court of $110 million against DH. On December 30, 2011, the effective date of the court order authorizing the Dynegy lease rejections, the leases no longer qualified for leveraged lease accounting treatment under GAAP. As a result, Energy Holdings wrote off the $264 million gross lease investment against the previously recorded reserve. The Energy Holdings' indirect subsidiary companies that are owners/lessors of the two plants ceased leveraged lease accounting and recorded the generation assets and related nonrecourse project debt on their balance sheets at their respective fair values (See Note 17. Fair Value Measurements).
On June 1, 2012, an amended and restated settlement agreement entered into by DH, Dynegy and their creditors (including indirect subsidiary companies of Energy Holdings) was approved by the Bankruptcy Court. The agreement allocated proceeds from the sale of the facilities to pay DH’s creditors, including the lease bondholders, and grants the lease bondholders claims in agreed upon amounts against DH in its bankruptcy proceedings. The settlement agreement also included an exchange of releases by various settling claimants, including parties to the leases with respect to claims arising out of the leases. On October 1, 2012, Dynegy emerged from bankruptcy and distributed cash and stock settlements to the claimants. The total recovery of Energy Holdings' indirect subsidiary companies from the Dynegy leases was approximately $63 million, of which $50 million was recorded in Operating Revenues in the fourth quarter of 2012.