-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H2XdAggIrL7W5juQv/9ukBxXoRsRpeRFcYstYuPS+Dmo/BmAlLcbd0WXfetVGUiL Nu/RGuhckm8ReuBQtMCbLA== 0000934665-99-000002.txt : 19990331 0000934665-99-000002.hdr.sgml : 19990331 ACCESSION NUMBER: 0000934665-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESI TRACTEBEL FUNDING CORP CENTRAL INDEX KEY: 0000934665 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 043255377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-87902 FILM NUMBER: 99577549 BUSINESS ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 BUSINESS PHONE: 5616917171 MAIL ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 FORMER COMPANY: FORMER CONFORMED NAME: IEC FUNDING CORP DATE OF NAME CHANGE: 19941227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH JERSEY ENERGY ASSOCIATES CENTRAL INDEX KEY: 0000934666 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 042955646 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-87902-01 FILM NUMBER: 99577550 BUSINESS ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 BUSINESS PHONE: 5616917171 MAIL ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST ENERGY ASSOCIATES CENTRAL INDEX KEY: 0000934667 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 042955642 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-87902-02 FILM NUMBER: 99577551 BUSINESS ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 BUSINESS PHONE: 5616917171 MAIL ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST ENERGY LP CENTRAL INDEX KEY: 0001059025 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 650811248 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-52397-01 FILM NUMBER: 99577552 BUSINESS ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 BUSINESS PHONE: 5616917171 MAIL ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESI TRACTEBEL ACQUISITION CORP CENTRAL INDEX KEY: 0001059027 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 650827005 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-52397 FILM NUMBER: 99577553 BUSINESS ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 BUSINESS PHONE: 5616917171 MAIL ADDRESS: STREET 1: C/O FPL ENERGY INC STREET 2: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408-2683 10-K 1 ESI TRACT FUND NEA NJEA ESI TRACT ACQ NE LP 12/31/98 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Exact name of Registrants as specified in their charters, State of Incorporation, IRS Employer Commission address of principal executive offices and Identification File Number Registrants' telephone number Number - ----------- ------------------------------------------ -------------- 33-87902 ESI Tractebel Funding Corp. 04-3255377 (a Delaware corporation) 33-87902-02 Northeast Energy Associates, 04-2955642 A Limited Partnership (a Massachusetts limited partnership) 33-87902-01 North Jersey Energy Associates, 04-2955646 A Limited Partnership (a New Jersey limited partnership) 333-52397 ESI Tractebel Acquisition Corp. 65-0827005 (a Delaware corporation) 333-52397-01 Northeast Energy, LP 65-0811248 (a Delaware limited partnership) ------------------------------------------ c/o FPL Energy, Inc. 700 Universe Boulevard Juno Beach, Florida 33408-2683 (561) 691-7171 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: 8.43% Senior Secured Notes due 2000, Series A 9.16% Senior Secured Notes due 2002, Series A 9.32% Senior Secured Bonds due 2007, Series A 9.77% Senior Secured Bonds due 2010, Series A 7.99% Secured Bonds due 2011, Series B Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have 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 no contained herein, and will not be contained, to the best of registrants' 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 ---------------------------------- This combined Form 10-K represents separate filings by ESI Tractebel Funding Corp., Northeast Energy Associates, A Limited Partnership, North Jersey Energy Associates, A Limited Partnership, ESI Tractebel Acquisition Corp. and Northeast Energy, LP. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes representations only as to itself and makes no other representations whatsoever as to any other registrant. DEFINITIONS Acronyms and defined terms used in the text include the following:
Term Meaning Acquisition Corp. ESI Tractebel Acquisition Corp. Act Securities Act of 1933, as amended avoided cost the incremental cost to an electric utility of electric energy and/or capacity that, but for the purchase from a qualifying facility, such utility would generate itself or purchase from another source Boston Edison Boston Edison Company Broad Street Broad Street Contract Services, Inc. Btu British thermal units, a unit of energy Cogeneration Power production technology that provides for the sequential generation of two or more useful forms of energy from a single primary fuel source Commonwealth Commonwealth Electric Company ESI Energy ESI Energy, Inc. ESI GP ESI Northeast Energy GP, Inc. ESI LP ESI Northeast Energy LP, Inc. ESI Northeast Acquisition ESI Northeast Energy Acquisition Funding, Inc. ESI Northeast Funding ESI Northeast Energy Funding, Inc. ESI Northeast Fuel ESI Northeast Fuel Management, Inc. ETURC ESI Tractebel Urban Renewal Corporation, previously IEC Urban Renewal Corporation FERC Federal Energy Regulatory Commission FPL Florida Power & Light Company FPL Energy FPL Energy, Inc. FPL Group FPL Group, Inc. FPL Group Capital FPL Group Capital Inc FPLE Operating Services FPL Energy Operating Services, Inc., previously ESI Operating Services, Inc. Funding Corp. ESI Tractebel Funding Corp., previously IEC Funding Corp. IEC Intercontinental Energy Corporation, a Massachusetts corporation JCP&L Jersey Central Power & Light kwh kilowatt-hour Management's Discussion Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Montaup Montaup Electric Company MMBtu millions of Btu mw megawatt(s) NE LLC Northeast Energy, LLC NE LP Northeast Energy, LP NEA Northeast Energy Associates, A Limited Partnership NJEA North Jersey Energy Associates, A Limited Partnership NEPOOL New England Power Pool O&M operations and maintenance Partners ESI GP and ESI LP together with Tractebel GP and Tractebel LP Partnerships NEA together with NJEA PJM Pennsylvania-New Jersey-Maryland power pool ProGas ProGas Limited of Alberta, Canada PSE&G Public Service Electric & Gas of Newark, New Jersey PURPA Public Utility Regulatory Policies Act of 1978, as amended qualifying facilities Non-utility power production facilities meeting the requirements of a qualifying facility under PURPA Reform Act Private Securities Litigation Reform Act of 1995 Rule 144A Rule 144A promulgated under the Act Sanwa Sanwa Bank Limited, New York Branch Tractebel Tractebel, Inc. Tractebel GP Tractebel Northeast Generation GP, Inc. Tractebel LP Tractebel Associates Northeast LP, Inc. Tractebel Power Tractebel Power, Inc. Trustee State Street Bank and Trust Company, a Massachusetts banking corporation Westinghouse Siemens Westinghouse Operating Services Company Westinghouse Power Siemens Westinghouse Power Corporation
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 In connection with the safe harbor provisions of the Reform Act, the Funding Corp., the Partnerships, the Acquisition Corp. and NE LP (all five entities collectively, the Registrants) are hereby filing cautionary statements identifying important factors that could cause the Registrants' actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) of the Registrants made by or on behalf of the Registrants which are made in this combined Form 10-K, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause the Registrants' actual results to differ materially from those contained in forward-looking statement made by or on behalf of the Registrants. Any forward-looking statement speaks only as of the date on which such statement is made, and the Registrants undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Some important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include changing governmental policies and regulatory actions with respect to the Public Utility Regulatory Policies Act of 1978, as amended, acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of fuel and purchased power costs, and present or prospective competition. The business and profitability of the Registrants are also influenced by economic and geographic factors including political and economic risks, changes in and compliance with environmental and safety laws and policies, weather conditions, population growth rates and demographic patterns, competition for retail and wholesale customers, pricing and transportation of commodities, market demand for energy from plants or facilities, changes in tax rates or policies or in rates of inflation, unanticipated development project delays or changes in project costs, unanticipated changes in operating expenses and capital expenditures, capital market conditions, competition for new energy development opportunities, legal and administrative proceedings (whether civil, such as environmental, or criminal) and settlements, and any unanticipated impact of the year 2000, including delays or changes in costs of year 2000 compliance, or the failure of major suppliers, customers and others with whom the Registrants do business to resolve their own year 2000 issues on a timely basis. All such factors are difficult to predict, contain uncertainties which may materially affect actual results, and are beyond the control of the Registrants. PART I Item 1. Business General. NE LP, a Delaware limited partnership, was formed on November 21, 1997 for the purpose of acquiring ownership interests in two partnerships, NEA and NJEA, each of which owns an electric power generation station in the northeastern United States. NE LP is jointly owned by ESI GP and ESI LP (indirect wholly-owned subsidiaries of FPL Energy, which is an indirect wholly-owned subsidiary of FPL Group, a company listed on the New York Stock Exchange) and Tractebel GP and Tractebel LP (indirect wholly-owned subsidiaries of Tractebel S.A., a Belgian energy and environmental services business). NE LP also formed a wholly-owned entity, NE LLC, to assist in such acquisitions. On January 14, 1998, NE LP and NE LLC acquired all of the interests in the Partnerships from IEC and from certain individuals. The Partnerships were formed in 1986 to develop, construct, own, operate and manage the cogeneration facilities. NEA's facility commenced commercial operation in September 1991 and is located in Bellingham, Massachusetts. NJEA's facility commenced commercial operation in August 1991 and is located in Sayreville, New Jersey. In connection with the acquisition of the Partnerships' interests, the Funding Corp. was acquired by a subsidiary of ESI Energy, Tractebel Power and Broad Street from IEC. This entity was established in 1994 solely for the purpose of issuing debt. This debt was privately issued under Rule 144A to acquire outstanding bank debt and to loan funds to the Partnerships and was subsequently exchanged for public debt under the Act. On January 12, 1998, the Acquisition Corp. was formed. The Acquisition Corp.'s common stock is jointly owned by a subsidiary of ESI Energy and a subsidiary of Tractebel Power. On February 12, 1998, the Acquisition Corp. issued $220 million of debt under Rule 144A which was also subsequently exchanged for public debt under the Act. The proceeds were loaned to NE LP and then distributed to direct subsidiaries of FPL Energy and Tractebel Power. Repayment of the debt is expected from distributions from the Partnerships. None of the Registrants or the Partners have any employees. See Item 12. Security Ownership of Certain Beneficial Owners and Management for interests of ownership. Partnerships' Operations. The Partnerships operate in the independent power industry. In the United States, regulated electric utilities have been the dominant producers and suppliers of electric energy since the early 1900s. In 1978, PURPA removed regulatory constraints relating to the production and sale of electric energy by certain non-utility power producers and required electric utilities to buy electricity from certain types of non-utility power producers under certain conditions, thereby encouraging companies other than electric utilities to enter the electric power production market. The Partnerships were created as a result of the PURPA legislation. Each of the Partnerships owns a nominal 300 mw natural gas-fired combined- cycle cogeneration facility. The facilities were constructed by Westinghouse Power and use natural gas to produce electrical energy and thermal energy in the form of steam. The Partnerships were developed and are operated as qualifying facilities under PURPA and the regulations promulgated thereunder by the FERC. The Partnerships must satisfy certain annual operating and efficiency standards and ownership requirements to maintain qualifying facility status, which exempts the Partnerships from certain federal and state regulations. The Partnerships are, however, not exempt from state regulatory commission general supervisory powers relating to environmental and safety matters. NEA and NJEA sell substantially all of their output to regulated utilities under power purchase agreements as follows: % of Power Purchase Power Purchaser MW Capacity Agreement Expiration NEA: Boston Edison 135 45% September 15, 2016 Boston Edison 84 28 September 15, 2011 Commonwealth 25 8 September 15, 2016 Commonwealth 21 7 September 15, 2016 Montaup 25 8 September 15, 2021 NEA Total 290 96% NJEA: JCP&L 250 83% August 13, 2011 The remainder of the net electrical energy produced by NJEA is sold to the marketplace either directly to third parties or via FPL's Energy Marketing & Trading Division. The power purchase agreements provide for substantially continuous delivery of base load power. Certain of the power purchase agreements require the establishment of energy banks to record cumulative payments made by the utilities in excess of avoided cost rates scheduled or specified in such agreements. Some of the energy banks bear interest at various rates specified in the agreements. Upon termination of the agreements, remaining amounts recorded in the energy banks will be required to be repaid. Energy bank balances are partially secured by letters of credit. To meet the FERC regulations for a qualifying facility, both NEA and NJEA sell at least 5% of the steam produced to unrelated third parties. NEA sells its steam to a third party which leases a carbon dioxide facility owned by NEA and located on NEA's property. Approximately 80% of the natural gas that fuels the Partnerships' facilities is supplied pursuant to long-term gas supply agreements with ProGas and, in the case of NJEA, also pursuant to a long-term gas supply agreement with PSE&G. Gas is transported to, or stored for later use by, the Partnerships pursuant to long-term gas transportation and storage agreements. The remainder of the daily fuel requirements is satisfied by open-market purchases. Price escalators under the long-term gas agreements are intended to correlate to the price escalators under the power purchase agreements, thereby reducing the risk associated with increases in the price of natural gas. ESI Northeast Fuel, an indirect wholly-owned subsidiary of FPL Energy, is the fuel manager for the Partnerships and provides fuel management and administrative services by contracting with FPL's Energy Marketing & Trading Division. This division buys and sells wholesale energy commodities, such as natural gas and electric power. Operations and maintenance of the Partnerships was provided by Westinghouse, a subsidiary of Westinghouse Power, through December 31, 1998. Effective December 31, 1998, the O&M contracts between Westinghouse Power and the Partnerships were terminated by mutual consent of both parties and the payment of $10 million to Westinghouse. FPLE Operating Services, a wholly-owned indirect subsidiary of FPL Energy, became the new provider of O&M services for the Partnerships on January 1, 1999. See Management's Discussion - Results of Operations. Seasonality. The performance of the Partnerships is dependent on ambient conditions (principally air temperature, air pressure and humidity), which affect the efficiency and capacity of the combined-cycle facilities. Payments due to NJEA under the JCP&L power purchase agreement during winter and summer season are substantially higher than those in spring and fall. Otherwise, the business of the Partnerships is not materially subject to seasonal factors. Competition. Recent regulatory change has created additional competition in the form of wholesale power marketers that engage in purchase and resale transactions between power producers and power distributors. This increased competition has reduced the price regulated utilities are willing to pay to independent power producers for electrical capacity and energy. Although substantially all of the Partnerships' output is committed under the power purchase agreements described above, these factors may adversely affect energy prices under certain power purchase agreements that are tied to the actual costs of the purchasing utility, as well as the price NJEA could obtain in the open market for excess power sales. Deregulation. Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. By allowing customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production. Similar initiatives are also being pursued on the federal level. Although the legislation varies by state, common areas of focus include when market-based pricing will be available for wholesale and retail customers, what existing above market costs will be recoverable and the mechanism for the recovery of such costs. The Partnerships operate under two voluntary power pool associations that control the transmission of electricity. NEA operates under NEPOOL and NJEA operates under PJM. While legislators and state regulatory commissions will decide what impact, if any, competitive forces will have on retail transactions, the FERC has jurisdiction over potential changes which could affect competition in wholesale transactions. The FERC has approved various filings submitted by NEPOOL and PJM that further electric industry deregulation initiatives. NE LP and the Partnerships do not expect electric utility industry restructuring to result in any material adverse change to prices under the Partnerships' power purchase agreements. However, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain. Item 2. Properties As of December 31, 1998, the Partnerships had the following properties: Facility Type Location Principal Use NEA cogeneration facility (1) Bellingham, MA Power production NEA carbon dioxide plant (2) Bellingham, MA Carbon dioxide production NEA residential properties (3) Bellingham, MA Private residences NJEA cogeneration facility (2) Sayreville, NJ Power production (1) Subject to the liens of a first and second mortgage. (2) Subject to the lien of a first mortgage. (3) NEA owns 12 properties, most with single-family dwellings, located on land immediately adjacent to the facility site. These properties are subject to the lien of a mortgage. Item 3. Legal Proceedings None of the Registrants are involved in any material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for the Registrants' Common Equity and Related Stockholder Matters This item is not applicable for the Registrants. Item 6. Selected Financial Data
Years Ended December 31, 1998 1997 1996 1995 1994 (Thousands of Dollars) SELECTED DATA OF NE LP Operating revenues ...................................... $ 302,693 $ - n/a n/a n/a Net income .............................................. $ 14,098 $ - n/a n/a n/a Total assets ............................................ $1,410,343 $ - n/a n/a n/a Long-term debt, excluding current maturities ............ $ 665,213 $ - n/a n/a n/a Amounts due utilities for energy bank balances .......... $ 173,356 $ - n/a n/a n/a SELECTED DATA OF THE PARTNERSHIPS (a) Operating revenues ...................................... $ (b) $312,154 $272,262 $280,549 $238,712 Net income (loss) ....................................... $ (b) $ 36,673 $ 9,924 $ 26,857 $(16,916) Total assets ............................................ $1,403,045 $541,545 $566,534 $617,034 $650,027 Long-term debt, excluding current maturities ............ $ 445,213 $468,724 $490,287 $514,362 $539,566 Amounts due utilities for energy bank balances .......... $ 173,356 $230,565 $220,922 $188,053 $155,496 SELECTED DATA OF THE FUNDING CORP. Operating revenues ...................................... $ - $ - $ - $ - $ - Net income .............................................. $ - $ - $ - $ - $ - Total assets ............................................ $ 468,725 $490,288 $514,363 $539,567 $560,145 Long-term debt, excluding current maturities ............ $ 445,213 $468,724 $490,287 $514,362 $539,566 SELECTED DATA OF THE ACQUISITION CORP. Operating revenues ...................................... $ - n/a n/a n/a n/a Net income .............................................. $ 8 n/a n/a n/a n/a Total assets ............................................ $ 220,152 n/a n/a n/a n/a Long-term debt, excluding current maturities ............ $ 220,000 n/a n/a n/a n/a (a) On January 14, 1998, NE LP and NE LLC acquired all of the interests in the Partnerships from IEC resulting in a new basis of accounting by the Partnerships. (See Note 2 - Summary of Significant Accounting Policies - Acquisitions) (b) Split period 1/1 to 1/13 1/14 to 12/31 Operating revenues ................................. $13,109 $302,693 Net income ........................................ $ 2,909 $ 30,000 n/a - not applicable because entities were not in existence.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations NE LP, a Delaware limited partnership, was formed on November 21, 1997 for the purpose of acquiring ownership interests in two partnerships, NEA and NJEA, each of which owns an electric power generation station in the northeastern United States. On January 14, 1998, NE LP acquired all of the interests in the Partnerships and the Funding Corp. for approximately $545 million, including approximately $10 million of acquisition costs. The acquisition of the Partnerships was accounted for using the purchase method of accounting and was subject to pushdown accounting, which gave rise to a new basis of accounting by the Partnerships. During 1998, the Acquisition Corp. issued $220,000,000 of 7.99% Secured Bonds Due 2011 to qualified institutional buyers as defined in Rule 144A for the purpose of reimbursing certain partners of NE LP for a portion of their equity contributions used to acquire the Partnerships and the Funding Corp. Operations and maintenance of the Partnerships was provided by Westinghouse through December 31, 1998. Effective December 31, 1998, the O&M contracts between Westinghouse Power and the Partnerships were terminated by mutual consent of both parties and the payment of $10 million to Westinghouse. The Partnerships recorded a net gain of $4.2 million, the effect of which is reflected in the statement of operations for the period ended December 31, 1998. Additionally, the Partnerships agreed to pay Westinghouse a total of $15.6 million for spare parts to be purchased in 1999 and 2000. FPLE Operating Services became the new provider of O&M services for the Partnerships on January 1, 1999. NE LP for the year ended December 31, 1998 - NE LP's operations for the year ended December 31, 1998 primarily reflect the operations of the Partnerships subsequent to the acquisitions on January 14, 1998 and the related allocation of the purchase price. Revenues year to date totaled $302.7 million and were comprised of $298.2 million of power sales to utilities and $4.5 million of steam sales. Power sales to utilities reflect changes in utility energy bank balances of $15.6 million (which increased reported revenues) that are determined in accordance with scheduled or specified rates under certain power purchase agreements. Fuel expense of $121.4 million includes $141.5 million of fuel purchased for the Partnerships and the fixed and variable costs associated with the delivery and use of the fuel for operations. These fuel costs are offset by $20.1 million of deferred credit amortization for fuel contracts as a result of the purchase price allocation of the acquisitions. O&M expenses of $14.0 million are comprised of O&M provider fees and site expenses of $22.7 million offset by $4.5 million of deferred credit amortization for O&M contracts as a result of the purchase price allocation of the acquisitions and offset by a $4.2 million net gain recorded from the early termination of the O&M contracts between Westinghouse Power and the Partnerships. Included in O&M expenses is the major maintenance accrual described in Note 2 of NE LP. Depreciation and amortization of $69.5 million is comprised of depreciation for the cogeneration and carbon dioxide facilities of $21.0 million and $48.5 million of amortization of the power purchase agreements as a result of the purchase price allocation of the acquisitions. General and administrative expenses of $9.8 million are comprised primarily of management and professional fees and site expenses. Interest expense of $76.3 million is comprised primarily of interest on notes payable to the Funding Corp. ($43.7 million), interest on energy bank balances ($17.4 million) and interest on the Acquisition Corp. notes ($15.2 million). Interest income reflects cash balances earning investment income and reflects the impact of the release and distribution of debt service reserve cash and energy bank collateral restricted cash during 1998. The Partnerships for the period from January 14, 1998 to December 31, 1998 (post-acquisition) - Subsequent to January 13, 1998, the basis of presentation of the results of operations for the Partnerships reflects the new basis of accounting discussed in Note 1 and Note 2 of the Partnerships. Revenues period to date totaled $302.7 million and were comprised of $298.2 million of power sales to utilities and $4.5 million of steam sales. Power sales to utilities reflect changes in utility energy bank balances of $15.6 million (which increased reported revenues) that are determined in accordance with scheduled or specified rates under certain power purchase agreements. Fuel expense of $121.4 million includes $141.5 million of fuel purchased for the Partnerships and the fixed and variable costs associated with the delivery and use of the fuel for operations. These fuel costs are offset by $20.1 million of deferred credit amortization for fuel contracts as a result of the purchase price allocation of the acquisitions. O&M expenses of $14.0 million are comprised of O&M provider fees and site expenses of $22.7 million offset by $4.5 million of deferred credit amortization for O&M contracts as a result of the purchase price allocation of the acquisitions and offset by a $4.2 million net gain recorded from the early termination of the O&M contracts between Westinghouse Power and the Partnerships. Included in O&M expenses is the major maintenance accrual described in Note 2 of the Partnerships. Depreciation and amortization of $69.5 million is comprised of depreciation for the cogeneration and carbon dioxide facilities of $21.0 million and $48.5 million of amortization of the power purchase agreements as a result of the purchase price allocation of the acquisitions. General and administrative expenses of $9.5 million are comprised primarily of management and professional fees and site expenses. Interest expense of $61.2 million is comprised primarily of interest on notes payable to the Funding Corp. ($43.7 million) and interest on energy bank balances ($17.4 million). Interest income reflects cash balances earning investment income and reflects the impact of the release and distribution of debt service reserve cash and energy bank collateral restricted cash during 1998. The Partnerships for the period from January 1, 1998 to January 13, 1998 (pre-acquisition) - Revenues for the thirteen-day period totaled $13.1 million and were comprised of $12.9 million of power sales to utilities and $200 thousand of steam sales. Power sales to utilities reflect changes in utility energy bank balances which are determined in accordance with scheduled or specified rates under certain power purchase agreements. Fuel expense of $5.8 million includes fuel purchased for the Partnerships and the fixed and variable costs associated with the delivery and use of the fuel for operations. O&M expenses of $974,000 are comprised of O&M provider fees and site utility expenses. Depreciation and amortization of $894,000 is comprised of depreciation for the cogeneration and carbon dioxide facilities. General and administrative expenses of $538,000 are comprised primarily of management fees. Interest expense is comprised primarily of interest on notes payable to the Funding Corp. ($1.7 million) and interest on energy bank balances ($630,000). Interest income reflects cash balances earning investment income. The Partnerships for calendar year 1997 compared to calendar year 1996 - Revenues for the year ended December 31, 1997 were $312.2 million compared to $272.3 million for the year ended December 31, 1996. The increase in revenues is primarily due to increased power sales to utilities and reflects changes in utility energy bank balances which are determined in accordance with scheduled or specified rates under certain power purchase agreements. Fuel expense for the year ended December 31, 1997 was $151.5 million compared to $138.7 million for the year ended December 31, 1996. The increase in fuel is primarily due to increased fuel needs purchased for the Partnerships and fixed and variable costs associated with delivery and use of the fuel for operations. O&M expenses for the year ended December 31, 1997 were $25.7 compared to $22.9 million for the year ended December 31, 1996. The increase in O&M expenses is primarily due to increased O&M provider fees and site utility expenses, as well as performance bonuses and heat rate bonuses payable under the O&M agreements. Depreciation and amortization for the years ended December 31, 1997 and 1996 was $25.0 million and is primarily comprised of depreciation for the cogeneration and carbon dioxide facilities. General and administrative expenses for the year ended December 31, 1997 were $16.0 million compared to $14.4 million for the year ended December 31, 1996 and are comprised primarily of management and professional fees. Interest expense for the year ended December 31, 1997 is comprised primarily of interest on notes payable to the Funding Corp. ($47.3 million) and interest on energy bank balances ($17.4 million). Interest expense for the year ended December 31, 1996 is comprised primarily of interest on notes payable to the Funding Corp. ($49.4 million) and interest on energy bank balances ($19.7 million). Interest income for the year ended December 31, 1997 was $9.9 million as compared to $10.5 million for the year ended December 31, 1996. The decrease in interest income reflects lower cash balances earning investment income. The Funding Corp. - Debt principal payments were $21.6 million, $24.1 million and $25.2 million for the years ended December 31, 1998, 1997 and 1996, respectively. Debt interest payments were $45.3 million, $47.3 million and $49.4 million for the years ended December 31, 1998, 1997 and 1996, respectively. The Acquisition Corp. - Debt interest payments of $15.2 million were made by the Acquisition Corp. during 1998. Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. By allowing customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production. Similar initiatives are also being pursued on the federal level. Although the legislation varies by state, common areas of focus include when market-based pricing will be available for wholesale and retail customers, what existing above market costs will be recoverable and the mechanism for the recovery of such costs. NE LP and the Partnerships do not expect electric utility industry restructuring to result in any material adverse change to the Partnerships' power purchase agreements. However, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain. The Registrants are continuing to work to resolve the potential impact of the year 2000 on the processing of information by their computer systems. A multi-phase plan has been developed consisting of inventorying potential problems, assessing what will be required to address each potential problem, taking the necessary action to fix each problem, testing to see that the action taken did result in year 2000 readiness and implementing the required solution. The inventory and assessment of the information technology infrastructure, computer applications and computerized processes embedded in operating equipment has been completed. The Registrants' efforts to assess the year 2000 readiness of third parties include surveying important suppliers. Meetings are being conducted with suppliers. Results of our supplier readiness assessment are being considered in the development of our contingency plans to help ensure that critical supplies are not interrupted, that large power purchasers are able to receive power and that transactions with or processed by financial institutions will occur as intended. The Registrants are on schedule with their multi-phase plan and all phases are expected to be completed by mid-1999, except for work at NJEA which will be completed during a scheduled outage in October 1999. The cost of addressing year 2000 issues is estimated to be approximately $500,000, of which approximately 20% had been spent through December 31, 1998. At this time, the Registrants believe that the most reasonably likely worst case scenarios relating to the year 2000 could include a temporary disruption of service to customers, caused by a potential disruption in fuel supply, water supply and telecommunications. The Registrants' year 2000 contingency planning is currently underway to address risk scenarios at the operating level (such as generation, transmission and distribution), as well as at the business level (such as procurement and accounting). These plans are intended to mitigate both internal risks and potential risks in the Registrants' supply chain. Contingency plans are expected to be completed by mid-1999, allowing the second half of 1999 for communication and training. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. (FAS) 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Registrants are currently assessing the effect, if any, on their financial statements of implementing FAS 133. The Registrants will be required to adopt the standard in 2000. Liquidity and Capital Resources The Funding Corp. and the Partnerships - Cash flow generated by the Partnerships during 1998 was sufficient to fund operating expenses as well as fund the debt service requirements of the Funding Corp. Debt maturities of the Funding Corp. will require cash outflows of approximately $313.4 million in principal and interest through 2003, including $67.0 million in 1999. It is anticipated that cash requirements for principal and interest payments in 1999 will be satisfied with operational cash flow. For the year ended December 31, 1998, there were $159.6 million in distributions to partners, $69.2 million of which resulted from the release of restricted cash collateral. The Acquisition Corp. and NE LP - Cash flow generated by NE LP during 1998 was sufficient to fund operating expenses as well as fund the debt service requirements of the Acquisition Corp. and the Funding Corp. Debt maturities of the Acquisition Corp. and the Funding Corp. will require cash outflows of approximately $417.8 million in principal and interest through 2003, including $84.6 million in 1999. It is anticipated that cash requirements for principal and interest payments in 1999 will be satisfied with operational cash flow. For the year ended December 31, 1998, there were $545.4 million of contributions from partners and $347.2 million in distributions to partners. During the year ended December 31, 1998, NE LP expended net cash of $482.2 million for acquisition of the Partnerships, received $69.2 million from release of restricted cash collateral and received $215.2 million of cash proceeds from the loan from the Acquisition Corp. Item 7A. Quantitative and Qualitative Disclosures About Market Risk All financial instruments and positions held by NE LP and the Partnerships described below are held for purposes other than trading. Interest rate risk - The fair value of NE LP's and the Partnerships' long- term debt is affected by changes in interest rates. The following presents the sensitivity of the fair value of debt and interest rate swap agreements to a hypothetical 10% decrease in interest rates:
1998 Hypo- thetical Increase Carrying Fair in Fair Value Value Value(a) (Thousands of Dollars) Long-term debt of NE LP/Acquisition Corp. ......................................... $220,000 $ 250,000(b) $ 12,000 Long-term debt of Partnerships/Funding Corp. ...................................... $468,724 $ 574,000(b) $ 21,000 Interest rate swap agreements of NE LP/the Partnerships ........................... $ 191 $ 191(c) $ - (a) Calculated based on the change in discounted cash flow. (b) Based on the borrowing rate currently available for debt instruments with similar terms and average maturities. (c) Based on estimated cost to terminate the agreements.
While a decrease in interest rates would increase the fair value of debt, it is unlikely that events that would result in a realized loss will occur. Commodity price risk - The prices received by the Partnerships for power sales under their long-term contracts do not move precisely in tandem with the prices paid by the Partnerships for natural gas. To mitigate the price risk associated with purchases of natural gas, the Partnerships may, from time to time, enter into certain transactions either through public exchanges or by means of over-the-counter transactions with specific counterparties. The Partnerships mitigate their risk through purchases of natural gas through the use of natural gas call options, natural gas purchase swap agreements that require the Partnerships to pay a fixed price (absolutely or within a specified range) in return for a variable price on specified notional quantities of natural gas, and forward purchases of natural gas. The following presents the sensitivity of the fair value of gas purchase swap agreements to a hypothetical 10% decrease in natural gas prices:
1998 Hypo- thetical Increase Carrying Fair in Fair Value Value Value(a) (Thousands of Dollars) Gas purchase swap agreements of NE LP/the Partnerships ............................ $ - $ 788(b) $ 2,681 (a) Calculated based on the change in natural gas prices. (b) Based on estimated cost to terminate the agreements.
Item 8. Financial Statements and Supplementary Data INDEPENDENT AUDITORS' REPORT NORTHEAST ENERGY, LP NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP: We have audited the consolidated financial statements of Northeast Energy, LP, as of December 31, 1998 and 1997 and for the year ended December 31, 1998, and the combined financial statements of Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership, as of December 31, 1998 and for the periods from January 1, 1998 to January 13, 1998, and from January 14, 1998 to December 31, 1998, listed in the accompanying index at Item 14(a)1 of this Annual Report (Form 10-K) to the Securities and Exchange Commission for the year ended December 31, 1998. These financial statements are the responsibility of the respective Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Northeast Energy, LP, and the combined financial position of Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership, and the results of their operations and their cash flows for the above-stated periods in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants West Palm Beach, Florida March 19, 1999 INDEPENDENT AUDITORS' REPORT NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP, AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP: In our opinion, the combined balance sheet and the related combined statements of operations, of cash flows and of partners' equity as of and for each of the two years in the period ended December 31, 1997 (appearing on pages 17 through 27 of this Form 10-K Annual Report) present fairly, in all material respects, the financial position, results of operations and cash flows of Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership (the "Partnerships") as of and for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnerships' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the combined financial statements of the Partnerships for any period subsequent to December 31, 1997. PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts March 24, 1998 NORTHEAST ENERGY, LP CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
December 31, 1998 1997 ASSETS Current assets: Cash and cash equivalents ........................................................ $ 36,038 $ - Accounts receivable .............................................................. 29,746 - Fuel inventories ................................................................. 4,935 - Prepaid expenses and other current assets ........................................ 406 - Total current assets ........................................................... 71,125 - Non-current assets: Deferred debt issuance costs (net of accumulated amortization of $548) ........... 6,412 - Cogeneration facilities and carbon dioxide facility (net of accumulated depreciation of $20,987) ....................................................... 492,566 - Power purchase contracts (net of accumulated amortization of $48,545) ............ 840,211 - Other assets ..................................................................... 29 - Total non-current assets ....................................................... 1,339,218 - TOTAL ASSETS ....................................................................... $1,410,343 $ - LIABILITIES AND PARTNERS' EQUITY Current liabilities: Current portion of notes payable - the Funding Corp. ............................. $ 23,511 $ - Accounts payable ................................................................. 12,338 - Due to related parties ........................................................... 800 - Other accrued expenses ........................................................... 9,384 - Total current liabilities ...................................................... 46,033 - Non-current liabilities: Deferred credit - fuel contracts ................................................. 313,427 - Notes payable - the Funding Corp. ................................................ 445,213 - Note payable - the Acquisition Corp. ............................................. 220,000 - Amounts due utilities for energy bank balances ................................... 173,356 - Total non-current liabilities .................................................. 1,151,996 - Partners' equity: General partners ................................................................. 4,246 - Limited partners ................................................................. 208,068 - Total partners' equity ......................................................... 212,314 - COMMITMENTS AND CONTINGENCIES TOTAL LIABILITIES AND PARTNERS' EQUITY ............................................. $1,410,343 $ -
The accompanying notes are an integral part of these consolidated financial statements. NORTHEAST ENERGY, LP CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands of Dollars)
Period from November 21, Year Ended 1997 to December 31, December 31, 1998 1997 REVENUES ............................................................................. $302,693 $ - COSTS AND EXPENSES: Fuel ............................................................................... 121,438 - Operations and maintenance ......................................................... 13,956 - Depreciation and amortization ...................................................... 69,543 - General and administrative ......................................................... 9,794 - Total costs and expenses ......................................................... 214,731 - OPERATING INCOME ..................................................................... 87,962 - OTHER EXPENSE (INCOME): Amortization of debt issuance costs ................................................ 548 - Interest expense ................................................................... 76,336 - Interest income .................................................................... (3,020) - Total other expense - net ........................................................ 73,864 - NET INCOME............................................................................ $ 14,098 $ -
The accompanying notes are an integral part of these consolidated financial statements. NORTHEAST ENERGY, LP CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Period from November 21, Year Ended 1997 to December 31, December 31, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................................................... $ 14,098 $ - Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................................... 70,091 - Amortization of fuel and O&M contracts .......................................... (24,632) - Other ........................................................................... 273 - Decrease in accounts receivable ................................................. 14,295 - Decrease in other current assets ................................................ 2,086 - Decrease in accounts payable and accrued expenses ............................... (18,965) - Increase in amounts due utilities for energy bank balances ...................... 1,427 - Decrease in due to related parties .............................................. (1,479) - Net cash provided by operating activities ......................................... 57,194 - CASH FLOWS FROM INVESTING ACTIVITIES: Release of restricted cash collateral ............................................... 69,156 Acquisition purchase price, net of $62,635 cash acquired ............................ (482,167) - Net cash used in investing activities ............................................. (413,011) - CASH FLOWS FROM FINANCING ACTIVITIES: Contributions from partners ......................................................... 545,412 - Principal payments on the Funding Corp. notes ...................................... (21,563) - Net proceeds from loan by the Acquisition Corp. ..................................... 215,202 - Distributions to partners ........................................................... (347,196) - Net cash provided by financing activities ......................................... 391,855 - Net increase in cash and cash equivalents ............................................. 36,038 Cash and cash equivalents at beginning of period ...................................... - - Cash and cash equivalents at end of period ............................................ $ 36,038 $ - Supplemental disclosure of cash flow information: Cash paid for interest .............................................................. $ 61,227 $ -
The accompanying notes are an integral part of these consolidated financial statements. NORTHEAST ENERGY, LP CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (Thousands of Dollars)
General Limited Partners' Partners Partners Equity Balances, December 31, 1997 ............................................ $ - $ - $ - Contributions from partners .......................................... 10,908 534,504 545,412 Net income ........................................................... 282 13,816 14,098 Distributions to partners ............................................ (6,944) (340,252) (347,196) Balances, December 31, 1998 ............................................ $ 4,246 $ 208,068 $ 212,314
The accompanying notes are an integral part of these consolidated financial statements. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED BALANCE SHEETS (Thousands of Dollars)
December 31, 1997 1998 (Prior Basis) ASSETS Current assets: Cash and cash equivalents ......................................................... $ 35,152 $ 61,203 Accounts receivable ............................................................... 29,746 34,036 Due from related party ............................................................ - 114 Fuel inventories .................................................................. 4,935 4,752 Prepaid expenses and other current assets ......................................... 406 3,052 Total current assets ............................................................ 70,239 103,157 Non-current assets: Cogeneration facilities and carbon dioxide facility (net of accumulated depreciation of $20,987 and $153,963, respectively) ............................. 492,566 349,365 Power purchase contracts (net of accumulated amortization of $48,545) ............. 840,211 - Unamortized financing costs ....................................................... - 15,674 Other assets ...................................................................... 29 4,193 Restricted cash ................................................................... - 69,156 Total non-current assets ........................................................ 1,332,806 438,388 TOTAL ASSETS ........................................................................ $1,403,045 $ 541,545 LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Current liabilities: Current portion of notes payable - the Funding Corp. .............................. $ 23,511 $ 21,563 Accounts payable .................................................................. 12,338 15,450 Due to related parties ............................................................ 663 71 Other accrued expenses ............................................................ 9,384 2,358 Total current liabilities ....................................................... 45,896 39,442 Non-current liabilities: Deferred credit - fuel contracts .................................................. 313,427 - Notes payable - the Funding Corp. ................................................. 445,213 468,724 Amounts due utilities for energy bank balances .................................... 173,356 230,565 Total non-current liabilities ................................................... 931,996 699,289 Partners' equity (deficit): General partner ................................................................... 4,252 (4,714) Limited partners .................................................................. 420,901 (192,472) Total partners' equity (deficit) ................................................ 425,153 (197,186) COMMITMENTS AND CONTINGENCIES TOTAL LIABILITIES AND PARTNERS' EQUITY .............................................. $1,403,045 $ 541,545
The accompanying notes are an integral part of these combined financial statements. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED STATEMENTS OF OPERATIONS (Thousands of Dollars)
Years Ended December 31, Period from Period from January 1, January 14, 1998 to 1998 to January 13, December 31, 1998 1997 1996 1998 (Prior Basis) (Prior Basis) (Prior Basis) REVENUES ......................................... $302,693 $ 13,109 $312,154 $272,262 COSTS AND EXPENSES: Fuel ........................................... 121,438 5,774 151,476 138,727 Operations and maintenance ..................... 13,956 974 25,689 22,854 Depreciation and amortization .................. 69,543 894 24,992 24,978 General and administrative ..................... 9,512 538 15,984 14,424 Total costs and expenses ..................... 214,449 8,180 218,141 200,983 OPERATING INCOME ................................. 88,244 4,929 94,013 71,279 OTHER EXPENSE (INCOME): Interest expense ............................... 61,154 2,422 67,271 71,889 Interest income ................................ (2,910) (402) (9,931) (10,534) Total other expense - net .................... 58,244 2,020 57,340 61,355 NET INCOME ....................................... $ 30,000 $ 2,909 $ 36,673 $ 9,924
The accompanying notes are an integral part of these combined financial statements. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Years Ended December 31, Period from Period from January 1, January 14, 1998 to 1998 to January 13, December 31, 1998 1997 1996 1998 (Prior Basis) (Prior Basis) (Prior Basis) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ......................................... $ 30,000 $ 2,909 $ 36,673 $ 9,924 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 69,543 894 27,155 27,351 Amortization of fuel and O&M contracts.......... (24,632) - - - Decrease in due from related party ............. - 114 - - (Increase) decrease in accounts receivable ..... 14,295 (10,005) 9,635 7,794 (Increase) decrease in other current assets .... 2,086 426 (34) (1,342) Increase (decrease) in accounts payable and accrued expenses.............................. (18,809) 7,217 (996) (1,317) Increase (decrease) in amounts due utilities for energy bank balances...................... 1,427 (52) 9,643 32,869 Increase (decrease) in due to related parties... 663 (71) 99 (253) Net cash provided by operating activities ........ 74,573 1,432 82,175 75,026 CASH FLOWS FROM INVESTING ACTIVITIES: Release of restricted cash collateral .............. 69,156 - - 9,412 Capital expenditures ............................... - - (378) (824) Net cash provided by (used in) investing activities ..................................... 69,156 - (378) 8,588 CASH FLOWS FROM FINANCING ACTIVITIES: Contributions from partners ........................ 10,000 - - - Principal payments on notes ........................ (21,563) - (24,075) (25,204) Distributions to partners .......................... (159,649) - (46,380) (66,826) Net cash used in financing activities ............ (171,212) - (70,455) (92,030) Net increase (decrease) in cash and cash equivalents . (27,483) 1,432 11,342 (8,416) Cash and cash equivalents at beginning of period ..... 62,635 61,203 49,861 58,277 Cash and cash equivalents at end of period ........... $ 35,152 $ 62,635 $ 61,203 $ 49,861 Supplemental disclosure of cash flow information: Cash paid for interest ............................. $ 46,045 $ - $ 48,794 $ 51,435 Supplemental schedule of noncash investing and financing activities: Accrued capitalized facility costs ................. $ - $ - $ 240 $ 165 See Note 1 and Note 2 - Basis of Presentation concerning new basis of accounting subsequent to January 13, 1998
The accompanying notes are an integral part of these combined financial statements. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED STATEMENTS OF PARTNERS' EQUITY (Thousands of Dollars)
General Limited Partners' Partner Partners Equity Prior Basis Balances, December 31, 1995 ............................................ $(4,047) $(126,530) $(130,577) Net income............................................................ 99 9,825 9,924 Distributions to partners ............................................ (668) (66,158) (66,826) Balances, December 31, 1996 ............................................ (4,616) (182,863) (187,479) Net income............................................................ 366 36,307 36,673 Distributions to partners ............................................ (464) (45,916) (46,380) Balances, December 31, 1997 ............................................ (4,714) (192,472) (197,186) Net income from January 1 to January 13, 1998 ........................ 29 2,880 2,909 Balances, January 13, 1998.............................................. (4,685) (189,592) (194,277) New Basis Adjustment of balance due to adoption of new basis.................... 10,133 728,946 739,079 Capital contributions from partners................................... 100 9,900 10,000 Net income............................................................ 300 29,700 30,000 Distributions to partners ............................................ (1,596) (158,053) (159,649) Balances, December 31, 1998 ............................................ $ 4,252 $ 420,901 $ 425,153
The accompanying notes are an integral part of these combined financial statements. NORTHEAST ENERGY, LP NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Period Ended December 31, 1998 Period From January 1, 1998 to January 13, 1998 Years Ended December 31, 1997 and 1996 1. Nature of Business Northeast Energy, LP (NE LP), a Delaware limited partnership, was formed on November 21, 1997 for the purpose of acquiring ownership interests in two partnerships, each of which owns an electric power generation station in the northeastern United States (Northeast Energy Associates, A Limited Partnership (NEA) and North Jersey Energy Associates, A Limited Partnership (NJEA), collectively the Partnerships) and is jointly owned by subsidiaries of ESI Energy, Inc. (ESI Energy) and Tractebel Power, Inc. (Tractebel Power). ESI Energy is wholly-owned by FPL Energy, Inc. (FPL Energy), which is an indirect wholly-owned subsidiary of FPL Group, Inc., a company listed on the New York Stock Exchange. Tractebel Power is a direct wholly-owned subsidiary of Tractebel, Inc., which is a direct wholly-owned subsidiary of Tractebel, S.A., a Belgian energy and environmental services business. NE LP also formed a wholly-owned entity, Northeast Energy, LLC (NE LLC) to assist in such acquisitions. NE LP had no financial activity prior to January 1, 1998. On January 14, 1998, NE LP and NE LLC acquired all of the interests in the Partnerships from Intercontinental Energy Corporation (IEC), a Massachusetts corporation. NE LP holds a one percent (1%) general partner and ninety-eight percent (98%) limited partner interest in the Partnerships; NE LLC holds the remaining one percent (1%) limited partner interest. See Note 2 - Acquisitions for additional information relating to the acquisitions. The Partnerships were formed in 1986 to develop, construct, own, operate and manage two separate 300 megawatt (MW) natural gas-fired combined-cycle cogeneration facilities. NEA's facility is located in Bellingham, Massachusetts and NJEA's facility is located in Sayreville, New Jersey. NEA commenced commercial operation in September 1991 and NJEA commenced commercial operation in August 1991. The Partnerships operate in the independent power industry and have been granted permission by the Federal Energy Regulatory Commission to operate as qualifying facilities defined in the Public Utility Regulatory Policies Act of 1978, as amended and as defined in federal regulations. In connection with the acquisitions of the Partnerships' interests, an existing special purpose funding corporation was acquired by an entity related to FPL Energy and Tractebel Power. The funding corporation's name was changed from IEC Funding Corp. to ESI Tractebel Funding Corp (Funding Corp.). Additionally, as a means of funding portions of the purchase price of the acquisitions of the Partnerships, ESI Tractebel Acquisition Corp. (Acquisition Corp.) was formed. On February 12, 1998, the Acquisition Corp. issued new debt which was registered with the Securities and Exchange Commission in an exchange offer. The proceeds were distributed to ESI Energy and Tractebel Power. Repayment of the new debt is expected from distributions from the Partnerships and is guaranteed by all interests in the Partnerships. See Note 4 for additional information. The partners share profits and losses and have interests in assets and liabilities and cash flows in proportion to their tax basis capital accounts. Distributions to the partners may be made only after all funding requirements of the Partnerships have been met, as described in the trust indenture. 2. Summary of Significant Accounting Policies Basis of Presentation - The accompanying consolidated financial statements include the accounts of the Partnerships subsequent to the acquisitions, as they are indirectly wholly-owned by NE LP. All material intercompany transactions have been eliminated in consolidation. The accompanying combined financial statements include the accounts of the Partnerships for all periods and are combined based on common ownership. All material intercompany transactions have been eliminated in the combination. Acquisitions - On January 14, 1998, NE LP and NE LLC acquired all of the interests in the Partnerships for approximately $545 million, including approximately $10 million of acquisition costs (the Acquisitions). The Acquisitions were accounted for using the purchase method of accounting and was subject to pushdown accounting, which gave rise to a new basis of accounting by the Partnerships. The purchase price has been allocated to the assets and liabilities acquired based on their fair values. The following is a summary of the Partnerships' assets acquired and liabilities assumed in the Acquisitions (thousands of dollars): Assets: Current assets ........................................ $114,286 Restricted cash ....................................... $ 69,156 Cogeneration facilities and carbon dioxide facility.... $513,523 Power purchase agreements ............................. $888,756 Other assets .......................................... $ 36 Liabilities: Current liabilities ................................... $ 48,404 Operations and maintenance (O&M) contracts ............ $ 18,749 Fuel contracts ........................................ $333,544 Energy bank balances .................................. $171,530 Notes payable ......................................... $468,724 Carrying values of current assets, restricted cash and current liabilities were considered to closely approximate fair value and were not adjusted. Power purchase agreements were assigned a value based on the estimated amount to be received over the contract period in excess of an independent appraiser's assessment of market rates for power, discounted to the date of acquisition. The cogeneration facilities and carbon dioxide facility were initially assigned value based on an assessment of current replacement cost for similar capacity, without the acquired power purchase agreements. In accordance with Accounting Principles Board Opinion No. 16, the values assigned to these long-lived assets were reduced by the net excess of the fair values of all assets acquired over the purchase price. O&M and fuel contract obligations were determined based on expected cash flows during contract periods compared to estimated cash flows for similar services if contracted for currently, discounted to the date of acquisition. Notes payable include the previously existing debt of the Partnerships that was considered to approximate market value. Energy bank balances were assigned a value representing the estimated present value of future payments to utilities in connection with certain existing power purchase agreements. The following unaudited pro forma information has been prepared assuming that the Acquisitions and the issuance of the New Securities described in Note 1 had occurred at the beginning of the periods presented (thousands of dollars):
NE LP Partnerships Year Ended Years Ended December 31, December 31, 1998 1998 1997 Revenues ........................................... $315,802 $315,802 $312,154 Operating income ................................... $ 92,249 $ 92,522 $ 79,004 Net income ......................................... $ 13,596 $ 32,071 $ 16,431
Cash and Cash Equivalents - Investments purchased with an original maturity of three months or less are considered cash equivalents. Excess cash is invested in high-grade money market accounts and commercial paper and is subject to minimal credit and market risk. At December 31, 1998 and 1997, the recorded amount of cash approximates its fair value. Restricted cash at December 31, 1997 represents cash reserved as collateral for letters of credit related to energy bank balances. Subsequent to the acquisition on January 14, 1998, the cash collateral requirement related to energy bank balances was terminated and the cash was distributed to the partners. See Note 7 for additional information. Accounts Receivable and Revenue - Accounts receivable primarily consist of receivables from three Massachusetts utilities and one New Jersey utility for electricity delivered and sold under six power purchase agreements. Prices are based on initial floor prices per kilowatt hour (kwh), subject to adjustment based on actual volumes of electricity purchased, escalation factors and other conditions. Revenue is recognized in accordance with the Emerging Issues Task Force Issue No. 91-6, Revenue Recognition of Long-Term Power Sales Contracts. Revenue is recognized based on power delivered at rates stipulated in the power purchase agreements, except that revenue is deferred to the extent that stipulated rates are in excess of amounts, either scheduled or specified, in the agreements to the extent the Partnerships have an obligation to repay such excess. The amount deferred is reflected as amounts due utilities for energy bank balances on the balance sheets. Revenue from steam sales is recognized upon delivery. Cogeneration Facilities, Carbon Dioxide Facility and Other Assets - Effective January 14, 1998, all facilities were revalued as a result of applying the purchase method of accounting mentioned above. The facilities and other fixed assets are depreciated using the straight-line method over their estimated useful life which was increased from 20 years to 34 years effective January 14, 1998. Unamortized Financing Costs - Unamortized financing costs of the Partnerships at December 31, 1997 consist primarily of investment banking fees, legal fees and other costs associated with the placement of previously issued secured notes (Funding Corp. Securities) which were being amortized over the approximate 15-year term of the securities using the interest method. Effective January 14, 1998, these costs were revalued as a result of applying the purchase method of accounting mentioned above. Major Maintenance - Effective January 14, 1998, maintenance expenses are accrued for certain identified major maintenance and repair items related to the Partnerships' facilities. The expenses are accrued ratably over each major maintenance cycle. The amounts accrued relate to maintenance costs required for the equipment to operate over its depreciable life. For the period ended December 31, 1998, the Partnerships recorded major maintenance expense of $2.8 million. At December 31, 1998, the Partnerships had $4.1 million of accrued major maintenance. Inventories - Inventories consist of natural gas and fuel oil and are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market through January 13, 1998. Effective January 14, 1998, inventories are determined on an average cost basis to better match revenues and expenses. The change did not have a significant impact on the financial statements. Power Purchase Agreements - Effective January 14, 1998, power purchase agreements which were determined to be in excess of prevailing rates for similar agreements were adjusted as a result of applying the purchase method of accounting mentioned above. These amounts are being amortized over the respective agreement periods, ranging from 14 to 24 years, on a straight-line basis or matched to scheduled fixed-price increases under the power purchase agreements, as applicable. Fuel Contracts - Effective January 14, 1998, fuel contracts which were determined to be in excess of prevailing rates for similar contracts were adjusted as a result of applying the purchase method of accounting mentioned above. The fuel contracts are being amortized on a straight-line basis over the remaining terms of the contracts, 16 years. O&M Contracts - Effective January 14, 1998, O&M contracts which were determined to be in excess of prevailing rates for similar contracts were adjusted as a result of applying the purchase method of accounting mentioned above. The O&M contracts were initially assigned a value of $18.7 million dollars. For the period ended December 31, 1998, the Partnerships recorded $4.5 million of amortization expense for the O&M contracts. Effective December 31, 1998, the O&M contracts between Siemens Westinghouse Operating Services Company (O&M provider) and the Partnerships were terminated by mutual consent of both parties and the payment of $10 million to the O&M provider. See Note 7 for further disclosure on the O&M contracts. Interest Rate Swaps - Interest rate swaps that do not qualify for hedge accounting are recorded at fair value, with changes in the fair value recognized currently in income as adjustments to interest expense. See Note 6 for further disclosure regarding interest rate swap agreements. Natural Gas Hedging Instrument - Premiums paid for natural gas call options are deferred and recognized in income in conjunction with the underlying natural gas purchases. Gains and losses on natural gas purchase swap agreements are recognized as adjustments to fuel costs at monthly settlement dates. Purchases of natural gas under forward purchase agreements are accounted for as fuel costs at their contract price at delivery. See Note 6 for further disclosure regarding natural gas hedging instruments. Deferred Debt Issuance Costs - Deferred debt issuance costs of NE LP are being amortized over the approximate 14-year term of the Acquisition Corp.'s note payable using the interest method. Income Taxes - Partnerships are not taxable entities for Federal and state income tax purposes. As such, no provision has been made for income taxes since such taxes, if any, are the responsibilities of the individual partners. Accounting for Derivative Instruments and Hedging Activities - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. (FAS) 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Registrants are currently assessing the effect, if any, on their financial statements of implementing FAS 133. The Registrants will be required to adopt the standard in 2000. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Cogeneration Facilities, Power Purchase Agreements and Carbon Dioxide Facility Power Purchase Agreements - In 1986, NEA entered into five power purchase agreements with three Massachusetts utilities to sell approximately 290 MW at initial floor prices per kwh subject to adjustment based on actual volumes purchased, escalation factors, and other conditions. Performance under certain of these agreements is secured by a second mortgage on the NEA facility. In 1987, NJEA entered into an agreement with a New Jersey utility to sell 250 MW at an initial fixed price per kwh subject to adjustments, as defined in the agreement. These power purchase agreements have initial terms with expiration dates ranging from 2011 to 2021. The majority of the Partnerships' power sales to utilities are generated through these agreements. As such, the Partnerships are directly affected by changes in the power generation industry. Substantially all of the Partnerships' accounts receivable are with these utilities. The Partnerships do not require collateral or other security to support their receivables. However, management does not believe significant credit risk exists at December 31, 1998. For the years ended December 31, 1998, 1997 and 1996, power sale revenues from two different utilities accounted for approximately 47% and 40%, 46% and 40% and 45% and 44%, respectively, of total revenues. Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. While NE LP and the Partnerships do not expect electric utility industry restructuring to result in any material adverse change to the Partnerships' power purchase agreements, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain. Energy Bank Balances - Certain of the power purchase agreements require the establishment of energy banks to record cumulative payments made by the utilities in excess of avoided cost rates scheduled or specified in such agreements. Some of the energy banks bear interest at various rates specified in the agreements. Upon termination of the agreements, remaining amounts recorded in the energy banks will be required to be repaid. Energy bank balances are partially secured by letters of credit (see Note 7 - Energy Bank and Loan Collateral). Steam Sales Agreements and Carbon Dioxide Facility - In order for the Partnerships' facilities to maintain qualifying facility status, the facilities are required to generate five percent of total energy output as steam for sale to unrelated third parties. In 1990, NEA entered into an amended and restated NEA steam sales agreement with a processor and seller of carbon dioxide. The amended and restated NEA steam sales agreement extends for the same terms as the carbon dioxide facility's lease, with automatic extension for any renewal period under the carbon dioxide facility's lease. Pursuant to the steam sales agreement, NEA sells all the steam generated by the NEA facility at a price that fluctuates based on changes in the price of a specified grade of fuel oil. In conjunction with this contract, NEA constructed the carbon dioxide facility and, in 1989, entered into a 16-year agreement to lease the facility to the steam user. Base rent under the lease is $100,000 per month, adjusted by the operating results of the facility as outlined in the lease agreement. Additionally, NEA pays the steam user $100,000 annually for administrative services rendered related to the operation of the carbon dioxide facility. In 1989, NJEA entered into a 20-year steam sales agreement with a steam user adjacent to the NJEA facility. Under this agreement, NJEA sells a specified maximum quantity of steam at a floor price that can increase based on changes in prices of coal. This agreement automatically renews for two consecutive five-year terms unless either party gives notice not to renew two years before the expiration of each of the prior terms. Fuel Supply, Transportation and Storage Agreements - Natural gas is provided to the NEA and NJEA facilities primarily under long-term contracts for supply, transportation and storage. The remaining fuel requirements are provided under short-term spot arrangements. The long-term natural gas supply is provided under contracts with ProGas Limited (ProGas) and Public Service Electric and Gas Company (PSE&G). Various pipeline companies provide transportation of the natural gas. Gas storage agreements provide contractual arrangements for the storage of limited volumes of natural gas with third parties for future delivery to the Partnerships. The ProGas contracts commenced in 1991, and the initial 15-year terms were subsequently extended an additional seven years. The maximum total volumes of gas to be delivered under the ProGas contracts are approximately 48,800 and 22,000 millions of British thermal units (MMBtu) per day for NEA and NJEA, respectively. The contract price, including transportation, of the ProGas supply delivered to the import point is determined with reference to a base price in 1990, re-determined annually thereafter based on specified inflation indices. The PSE&G contract commenced in 1991 and provides for the sale and delivery to NJEA of up to 25,000 MMBtu per day of gas for a term of 20 years. The contract price of the PSE&G gas is established monthly using a contractually specified mechanism. With the exception of the PSE&G arrangement, all of the Partnerships' long- term contractual arrangements call for monthly demand charge payments. These demand charge payments reserve certain pipeline transportation capacity and are made regardless of the Partnerships' specified fuel requirements in any month and regardless of whether the Partnerships utilize the capacity reserved. These demand charges totaled approximately $46 million, $46 million and $48 million for the years ended December 31, 1998, 1997 and 1996, respectively. Total payments under such contracts were approximately $125.4 million, $112.5 million and $100.5 million in 1998, 1997 and 1996, respectively, inclusive of demand charges. Total charges under the contract with PSE&G, including transportation costs, during 1998, 1997 and 1996, were approximately $24.6 million , $28.1 million and $32.4 million, respectively. In the event the available capacity under these agreements is not utilized by the operations of the facilities, the Partnerships have the opportunity under certain of these contractual arrangements to sell unused capacity to third parties, but have not yet done so. NEA's facility also has the capability to burn No. 2 fuel oil which is stored on site for contingency supply. 4. Loans Payable Funding Corp. - The proceeds from the Funding Corp. Securities were used to make loans to the Partnerships and notes of the Partnerships were issued to the Funding Corp. in an aggregate principal amount equal to the Funding Corp. Securities. The Funding Corp. has borrowings outstanding as follows:
December 31, 1998 1997 8.43% Senior Secured Notes Due 2000 ................................................ $ 49,844,000 $ 71,407,000 9.16% Senior Secured Notes Due 2002 ................................................ 31,500,000 31,500,000 9.32% Senior Secured Bonds Due 2007 ................................................ 215,740,000 215,740,000 9.77% Senior Secured Bonds Due 2010 ................................................ 171,640,000 171,640,000 Total long-term debt ............................................................. 468,724,000 490,287,000 Less current maturities ........................................................ 23,511,000 21,563,000 Long-term debt, excluding current maturities ................................... $445,213,000 $468,724,000
Interest on the Funding Corp. Securities is payable semiannually on each June 30 and December 30. Principal repayments are made semiannually in amounts stipulated in the trust indenture. Future principal payments are as follows: Year ending December 31: 1999 ......... ........................................ $ 23,511,000 2000 .................................................. $ 26,333,000 2001 .................................................. $ 20,160,000 2002 .................................................. $ 22,688,000 2003 .................................................. $ 23,818,000 Thereafter ............................................ $352,214,000 The Funding Corp. Securities are not subject to optional redemption but are subject to mandatory redemption in certain limited circumstances involving the occurrence of an event of loss, as defined in the trust indenture, for which the Partnerships fail to or are unable to restore a facility. Additionally, the Partnerships may, at their option, repurchase all or part of the Funding Corp. Securities with proceeds received from the release of cash collateral maintained as security for letters of credit. The Funding Corp. Securities are unconditionally guaranteed, jointly and severally, by the Partnerships and are secured by a lien on, and a security interest in, substantially all of the assets of the Partnerships. The Partnerships are jointly and severally required to make scheduled payments on the notes on dates and in amounts identical to the scheduled payments of principal and interest on the Funding Corp. Securities. The Funding Corp. Securities, the guarantees thereon provided by the Partnerships and the notes are nonrecourse to the partners and are payable solely from the collateral pledged as security. The trust indenture governing the Funding Corp. Securities contains certain restrictions on certain activities of the Partnerships, including incurring additional indebtedness or liens, distributions to the partners, the cancellation of power sale and fuel supply agreements, the use of proceeds from the issuance of the Funding Corp. Securities and the execution of mergers, consolidations and sales of assets. Under the terms of a previous loan and credit agreement, the Partnerships were required to enter into interest rate swap agreements providing for the payments on a notional principal amount to be made by the Partnerships at fixed interest rates, in exchange for payments to be made by such financial institutions at floating interest rates. The original specified notional principal amount declines periodically until the scheduled expiration of the swaps in 1999. The Partnerships are jointly and severally liable under these agreements. As a result of the repayment of such loans with the proceeds of the Funding Corp. Securities, the original interest swap agreements no longer qualify for hedge accounting and are recorded at fair value. Changes in fair value are recognized in the statements of operations. Acquisition Corp. - During 1998, the Acquisition Corp. issued $220,000,000 of 7.99% Secured Bonds Due 2011 (Acquisition Corp. Securities) for the purpose of reimbursing certain partners of NE LP for a portion of $545 million in equity contributions used to acquire the Partnerships. The proceeds from the Acquisition Corp. Securities were loaned to NE LP, evidenced by a promissory note. Interest on the Acquisition Corp. Securities is payable semiannually on each June 30 and December 30. Principal repayments are made annually commencing on June 30, 2002 and are in amounts stipulated in the trust indenture. Future principal payments are as follows: Year ending December 31: 2002 .................................................. $ 8,800,000 2003 .................................................. $ 8,800,000 Thereafter ............................................ $202,400,000 The Acquisition Corp. Securities are subject to optional redemption after June 30, 2008 at the redemption prices set forth in the trust indenture and are subject to extraordinary mandatory redemption at a redemption price of 100% of the principal amount thereof in certain limited circumstances as defined in the trust indenture. The Acquisition Corp. Securities are unconditionally guaranteed by NE LP and are payable solely from payments to be made by NE LP under the promissory note and bond guaranty. NE LP's obligations to make payments under the promissory note are nonrecourse to the direct and indirect owners of NE LP. Payments with respect to the promissory note and, therefore, in respect of the Acquisition Corp. Securities will be effectively subordinated to payment of all indebtedness and other liabilities and commitments of the Partnerships, including the guarantee by the Partnerships of its indebtedness. Repayment of the Acquisition Corp. Securities is guaranteed by all interests in the Partnerships. The Acquisition Corp. Securities will rank senior to all subordinated indebtedness and rank evenly with all senior indebtedness that the Acquisition Corp. incurs in the future. 5. Related Party Information Administrative Services Agreement - NE LP and an entity related to FPL Energy have entered into an administrative services agreement that provides for management and administrative services to the Partnerships. The agreement expires in 2018, provides for fees of a minimum of $600,000 per year, subject to certain adjustments, and reimburses costs and expenses of performing services. For the period ended December 31, 1998, the Partnerships incurred $765,000 under the agreement. Operations and Maintenance Agreements - NE LP and an entity related to FPL Energy have entered into operations and maintenance agreements that provide for the operations and maintenance of the Partnerships. The agreements expire in 2016, subject to extension by mutual agreement of the parties before six months preceding expiration. The agreements provide for fees of a minimum of $750,000 per year, subject to certain adjustments, for each Partnership and reimburse costs and expenses of performing services. For the period ended December 31, 1998, the Partnerships incurred $1,461,000 under the agreements. See Note 7 - Operations and Maintenance of the Cogeneration Facilities. Fuel Management Agreements - NE LP and an entity related to FPL Energy have entered into fuel management agreements that provide for the management of all natural gas and fuel oil, transportation and storage agreements, and the location and purchase of any additional required natural gas or fuel oil for the Partnerships. The agreements expire in 2023, provide for fees of a minimum of $450,000 per year, subject to certain adjustments, for each Partnership and reimburse costs and expenses of performing services. For the period ended December 31, 1998, the Partnerships incurred $881,000 under the agreements. The Partnerships pay a management fee to NE LP in an amount equal to the administrative services, operations and maintenance and fuel management agreements mentioned above. Accrued expenses under the administrative services, operations and maintenance and fuel management agreements were $473,000 at December 31, 1998. The average balances due to related parties did not vary materially from these amounts. Additionally, power sales to an entity related to FPL Energy were $1.1 million for the year ended December 31, 1998. For the years ended December 31, 1997 and 1996, certain expenses were paid by IEC and subsequently reimbursed by the Partnerships. Payments made by IEC for the years ended December 31, 1997 and 1996 were $4,996,000 and $4,778,000, respectively. Reimbursements made by the Partnerships to IEC for the years ended December 31, 1997 and 1996 were $4,897,000 and $5,031,000, respectively. Net accrued expenses due from the previous owners were $43,000 at December 31, 1997. 6. Financial Instruments The Partnerships have made use of derivative financial instruments to hedge their exposure to fluctuations in both interest rates and the price of natural gas. Under the terms of a previous loan and credit agreement, the Partnerships were required to enter into fixed interest rate swap agreements as a means of managing exposure to the variable rate of interest of those borrowings. In conjunction with the refinancing of those borrowings, the Partnerships entered into counter-swap agreements so that the Partnerships would no longer be exposed to changes in interest rates. The notional amount of these interest rate swap agreements was $5.5 million and $12.9 million at December 31, 1998 and 1997, respectively. The notional amount indicates the size of the transaction entered into, not the partnerships exposure to loss. The net effect on interest expense due to the interest rate swap agreements were (decreases) increases of $(11,000), $103,000 and $137,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The prices received by the Partnerships for power sales under their long- term contracts do not move precisely in tandem with the prices paid by the Partnerships for natural gas. To mitigate the price risk associated with purchases of natural gas, the Partnerships may, from time to time, enter into certain transactions either through public exchanges or by means of over-the-counter transactions with specific counterparties. The Partnerships mitigate their risk through purchases of natural gas through the use of natural gas call options, natural gas purchase swap agreements that require the Partnerships to pay a fixed price (absolutely or within a specified range) in return for a variable price on specified notional quantities of natural gas, and forward purchases of natural gas. The contract amount of these agreements was 13.4 million MMBtu and 21.9 million MMBtu at December 31, 1998 and 1997, respectively. The net gain included in fuel costs resulting from the gas purchase options, swap agreements and forward purchases was $2.5 million, $4.0 million and $5.2 million for the years ended December 31, 1998, 1997 and 1996, respectively. The carrying amounts of cash equivalents and short-term debt approximate their fair values. The following estimates of the fair value of financial instruments have been made using available market information and other valuation methodologies. However, the use of different market assumptions or methods of valuation could result in different estimated fair values.
December 31, 1998 1997 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (Thousands of Dollars) Long-term debt of Partnerships/Funding Corp. (a) ............. $468,724 $574,000(b) $490,287 $526,010(b) Long-term debt of NE LP/Acquisition Corp. .................... $220,000 $250,000(b) $ n/a $ n/a Interest rate swap agreements of NE LP/the Partnerships ...... $ 191 $ 191(c) $ 889 $ 889(c) Gas purchase swap agreements of NE LP/the Partnerships ....... $ - $ 788(c) $ - $ 2,527(c) (a) Includes current maturities. (b) Based on the borrowing rate currently available for debt instruments with similar terms and average maturities. (c) Based on estimated cost to terminate the agreements.
7. Commitments and Contingencies Energy Bank and Loan Collateral - Subsequent to the Acquisitions on January 14, 1998, certain credit arrangements were terminated and replaced with new letters of credit and a guaranty to satisfy requirements in certain power purchase agreements. Specifically, new energy bank letters of credit were issued in face amounts of $12.7 million and $54 million. The $12.7 million letter of credit expires on December 31, 1999 and can be drawn upon on one occasion in the event that a certain power purchase agreement has terminated at a time when there was a positive energy bank balance existing in favor of the power purchaser. The $54 million letter of credit expires on December 31, 1999 and can be drawn upon in multiple drawings in the event that a certain power purchase agreement has terminated at the time when there was a positive energy bank balance existing in favor of the power purchaser. The NEA power purchase agreements are also secured by a second mortgage on the NEA cogeneration facilities. A guaranty was made by a subsidiary of FPL Group, Inc. in favor of the Partnerships' trustee. The guarantor unconditionally and irrevocably guarantees the payment of an amount equal to 50% of the debt service reserve requirement with respect to the Funding Corp. Securities. The guaranty expires on December 31, 1999 and is automatically extended for successive one-year periods unless the guarantor gives notice that it will not renew. Once the new credit arrangements were in place, cash of approximately $69.2 million (plus approximately $2.5 million in accrued interest) was released and distributed to the partners. Additionally, new letters of credit were issued in substitution for cash on deposit in Partnership trust accounts and approximately $33.2 million in cash was released and distributed to the partners. Operations and Maintenance of the Cogeneration Facilities - In 1989, the Partnerships entered into two separate ten-year O&M agreements with the O&M provider for an aggregate annual consideration of approximately $11.1 million, subject to changes in specified indices. Under these agreements, the Partnerships were required to pay the O&M provider a bonus payable annually over the term of the agreements based on operating performance. The Partnerships incurred $16.7 million, $19.7 million and $16.7 million for O&M and bonus expenses for the years ended December 31, 1998, 1997 and 1996, respectively. Effective December 31, 1998, the O&M contracts between the O&M provider and the Partnerships were terminated by mutual consent of both parties. The Partnerships paid the O&M Provider $10 million in cash to terminate the agreements and recorded a net gain of $4.2 million, the effect of which is reflected in the statement of operations for the period ended December 31, 1998. Additionally, the Partnerships agreed to pay the O&M Provider a total of $15.6 million for spare parts to be purchased in 1999 and 2000. An entity related to FPL Energy became the new provider of O&M services for the Partnerships on January 1, 1999. Operating Lease - NEA entered into a 26-year operating lease in 1986 for a parcel of land. The lease may be extended for another 25 years at the option of NEA. Lease payments under the operating lease are as follows: Year ending December 31: 1999 .................................................. $ 201,000 2000 .................................................. $ 213,000 2001 .................................................. $ 225,000 2002 .................................................. $ 237,000 2003 .................................................. $ 249,000 Thereafter ............................................ $2,511,000 Lease expense under this agreement is recognized on a straight-line levelized basis of approximately $198,000 annually over the lease term. INDEPENDENT AUDITORS' REPORT ESI TRACTEBEL FUNDING CORP.: We have audited the financial statements of ESI Tractebel Funding Corp. as of December 31, 1998 and for the year then ended, listed in the accompanying index at Item 14(a)1 of this Annual Report (Form 10-K) to the Securities and Exchange Commission for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of ESI Tractebel Funding Corp. at December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants West Palm Beach, Florida March 19, 1999 INDEPENDENT AUDITORS' REPORT ESI TRACTEBEL FUNDING CORP. (FORMERLY IEC FUNDING CORP.): In our opinion, the balance sheet and the related statements of operations and of cash flows as of and for each of the two years in the period ended December 31, 1997 (appearing on pages 30 through 34 of this Form 10-K Annual Report) present fairly, in all material respects, the financial position, results of operations and cash flows of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) (the "Company") as of and for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the financial statements of the Company for any period subsequent to December 31, 1997. PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts March 24, 1998 ESI TRACTEBEL FUNDING CORP. BALANCE SHEETS (Thousands of Dollars)
December 31, 1998 1997 ASSETS Current assets: Cash .............................................................................. $ 1 $ 1 Current portion of notes receivable from the Partnerships.......................... 23,511 21,563 Total current assets ............................................................ 23,512 21,564 Notes receivable from the Partnerships .............................................. 445,213 468,724 TOTAL ASSETS ........................................................................ $ 468,725 $ 490,288 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of securities payable ............................................. $ 23,511 $ 21,563 Securities payable .................................................................. 445,213 468,724 Stockholders' equity: Common stock, no par value, 10,000 shares authorized, issued and outstanding ...... 1 1 COMMITMENTS AND CONTINGENCIES TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................................... $ 468,725 $ 490,288
The accompanying notes are an integral part of these financial statements. ESI TRACTEBEL FUNDING CORP. STATEMENTS OF OPERATIONS (Thousands of Dollars)
Years Ended December 31, 1998 1997 1996 Interest income ......................................................... $ 45,327 $ 47,303 $ 49,404 Interest expense ........................................................ (45,327) (47,303) (49,404) NET INCOME .............................................................. $ - $ - $ -
The accompanying notes are an integral part of these financial statements. ESI TRACTEBEL FUNDING CORP. STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Years Ended December 31, 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................................................ $ - $ - $ - Adjustment to reconcile net income to net cash provided by operating activities: Other - net.................................................................... - - - Net cash provided by operating activities ....................................... - - - CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments received from the Partnerships.................................. 21,563 24,075 25,204 Principal payments on debt ........................................................ (21,563) (24,075) (25,204) Net cash provided by financing activities ....................................... - - - Net increase in cash ................................................................ - - - Cash at beginning of period ......................................................... 1 1 1 Cash at end of period ............................................................... $ 1 $ 1 $ 1 Supplemental disclosure of cash flow information: Cash paid for interest ............................................................ $ 45,327 $ 47,303 $49,404
The accompanying notes are an integral part of these financial statements. ESI TRACTEBEL FUNDING CORP. NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997 and 1996 1. Nature of Business ESI Tractebel Funding Corp. (Funding Corp.) is a Delaware corporation established in 1994 as a special purpose funding corporation for the purpose of issuing the securities described in Note 3. On January 14, 1998, the Funding Corp. was acquired by a subsidiary of ESI Energy, Inc. (ESI Energy), Tractebel Power, Inc. (Tractebel Power) and Broad Street Contract Services, Inc. (Broad Street) from Intercontinental Energy Corporation (IEC), a Massachusetts corporation. Broad Street participates for the purpose of providing an independent director and has no economic interests. The Funding Corp. changed its name from IEC Funding Corp. to its current name concurrent with and related to its acquisition. The Funding Corp. acts as agent of Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership (combined, the Partnerships) with respect to the securities and holds itself out as agent of the Partnerships in all dealings with third parties relating to the securities. The Partnerships, owners of electric power generation stations in the northeastern United States, are owned indirectly by subsidiaries of ESI Energy and Tractebel Power. 2. Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. The Securities The Funding Corp. previously issued secured notes (Securities). The proceeds from the Securities were used to make loans to the Partnerships. In connection with this transaction, the notes outstanding under a previous loan and credit agreement of the Partnerships were surrendered and new notes of the Partnerships were issued to the Funding Corp. in the aggregate principal amount of the Securities. Borrowings outstanding are as follows:
December 31, 1998 1997 8.43% Senior Secured Notes Due 2000 ................................................ $ 49,844,000 $ 71,407,000 9.16% Senior Secured Notes Due 2002 ................................................ 31,500,000 31,500,000 9.32% Senior Secured Bonds Due 2007 ................................................ 215,740,000 215,740,000 9.77% Senior Secured Bonds Due 2010 ................................................ 171,640,000 171,640,000 Total long-term debt ............................................................. 468,724,000 490,287,000 Less current maturities ........................................................ 23,511,000 21,563,000 Long-term debt, excluding current maturities ................................... $445,213,000 $468,724,000
Interest on the Securities is payable semiannually on each June 30 and December 30. Principal repayments are made semiannually and are in amounts stipulated in the trust indenture. Future principal payments are as follows: Year ending December 31: 1999 .................................................. $ 23,511,000 2000 .................................................. $ 26,333,000 2001 .................................................. $ 20,160,000 2002 .................................................. $ 22,688,000 2003 .................................................. $ 23,818,000 Thereafter ............................................ $352,214,000 The Securities are not subject to optional redemption but are subject to mandatory redemption in certain limited circumstances involving the occurrence of an event of loss, as defined in the trust indenture, for which the Partnerships fail to or are unable to restore a facility. Additionally, the Partnerships may, at their option, repurchase all or part of the Securities with proceeds received from the release of cash collateral maintained as security for letters of credit. The Securities are unconditionally guaranteed, jointly and severally, by the Partnerships and are secured by a lien on, and a security interest in, substantially all of the assets of the Partnerships. The Partnerships are jointly and severally required to make scheduled payments on the new notes on dates and in amounts identical to the scheduled payments of principal and interest on the Securities. The Securities, the guarantees thereon provided by the Partnerships and the new notes are nonrecourse to the partners and are payable solely from the collateral pledged as security. The trust indenture governing the Securities contains certain restrictions on certain activities of the Partnerships, including the incurrence of additional indebtedness or liens, distributions to the partners, the cancellation of power sale and fuel supply agreements, the use of proceeds from the issuance of the Securities and the execution of mergers, consolidations and sales of assets. 4. Financial Instruments The estimated fair value of the Securities and the notes receivable from the Partnerships at December 31, 1998 and 1997 was $574,000,000 and $526,010,000, respectively. The estimate of the fair value has been made using available market information and other valuation methodologies. However, the use of different market assumptions or methods of valuation could result in different estimated fair values. INDEPENDENT AUDITORS' REPORT ESI TRACTEBEL ACQUISITION CORP.: We have audited the financial statements of ESI Tractebel Acquisition Corp. as of January 12, 1998 (Date of Formation) and December 31, 1998 and for the period ended December 31, 1998, listed in the accompanying index at Item 14(a)1 of this Annual Report (Form 10-K) to the Securities and Exchange Commission for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of ESI Tractebel Acquisition Corp. at January 12, 1998 and December 31, 1998, and the results of its operations and its cash flows for the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants West Palm Beach, Florida March 19, 1999 ESI TRACTEBEL ACQUISITION CORP. BALANCE SHEETS (Thousands of Dollars)
December 31, January 12, 1998 1998 ASSETS Due from NE LP ....................................................................... $ 152 $ - Note receivable from NE LP ........................................................... 220,000 - TOTAL ASSETS ......................................................................... $220,152 $ - LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Income taxes payable ............................................................... $ 4 $ - Deferred credit - interest rate hedge ................................................ 140 - Securities payable ................................................................... 220,000 - Stockholders' equity: Common stock, $.01 par value, 100 shares authorized, 20 shares issued .............. - - Subscriptions receivable ........................................................... - - Retained earnings .................................................................. 8 - COMMITMENTS AND CONTINGENCIES TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................... $220,152 $ -
The accompanying notes are an integral part of these financial statements. ESI TRACTEBEL ACQUISITION CORP. STATEMENT OF OPERATIONS (Thousands of Dollars)
Period From January 12, 1998 (Date of Formation) to December 31, 1998 Interest income .............................................................................. $ 15,182 Interest expense ............................................................................. (15,170) Income before income taxes ................................................................... 12 Income tax expense ........................................................................... (4) NET INCOME ................................................................................... $ 8
The accompanying notes are an integral part of these financial statements. ESI TRACTEBEL ACQUISITION CORP. STATEMENT OF CASH FLOWS (Thousands of Dollars)
Period From January 12, 1998 (Date of Formation) to December 31, 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................................................. $ 8 Adjustment to reconcile net income to net cash provided by operating activities: Other - net............................................................................. (8) Net cash provided by operating activities ................................................ - CASH FLOWS FROM INVESTING ACTIVITIES: Loan to NE LP .............................................................................. (215,202) Net cash used in investing activities .................................................... (215,202) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of debt securities ................................................................ 215,050 Proceeds from interest rate hedge .......................................................... 152 Net cash provided by financing activities ................................................ 215,202 Net increase in cash ......................................................................... - Cash at beginning of period .................................................................. - Cash at end of period ........................................................................ $ - Supplemental disclosure of cash flow information: Cash paid for interest ..................................................................... $ 15,182
The accompanying notes are an integral part of these financial statements. ESI TRACTEBEL ACQUISITION CORP. STATEMENT OF STOCKHOLDERS' EQUITY (Thousands of Dollars)
Common Subscriptions Retained Stockholders' Stock Receivable Earnings Equity Issuance of common stock ................................ $ - $ - $ - $ - Stock subscriptions ..................................... - - - - Net income .............................................. - - 8 8 Balances, December 31, 1998 ............................. $ - $ - $ 8 $ 8
The accompanying notes are an integral part of these financial statements. ESI TRACTEBEL ACQUISITION CORP. NOTES TO FINANCIAL STATEMENTS Period From January 12, 1998 (Date of Formation) to December 31, 1998 1. Nature of Business ESI Tractebel Acquisition Corp. (Acquisition Corp.) is a Delaware corporation established on January 12, 1998 as a special purpose funding corporation for the purpose of issuing the securities described in Note 3. The Acquisition Corp.'s common stock is jointly owned by a subsidiary of ESI Energy, Inc. (ESI Energy) and a subsidiary of Tractebel Power, Inc. (Tractebel Power). The Acquisition Corp. acts as agent of Northeast Energy, LP (NE LP) with respect to the securities and holds itself out as agent of NE LP in all dealings with third parties relating to the securities. NE LP is a Delaware limited partnership that was established on November 21, 1997 for the purpose of acquiring ownership interests in two electric power generation stations in the northeastern United States (the Partnerships). NE LP is owned by subsidiaries of ESI Energy and Tractebel Power. 2. Summary of Significant Accounting Policies Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. The Securities On February 12, 1998, the Acquisition Corp. issued $220,000,000 of 7.99% Secured Bonds Due 2011 (Securities). The proceeds from the Securities were loaned to NE LP, evidenced by a promissory note, for the purpose of reimbursing certain partners of NE LP for a portion of $545 million in equity contributions used to acquire the Partnerships. The Securities are unconditionally guaranteed by NE LP. Borrowings outstanding at December 31, 1998 were $220,000,000. Interest on the Securities is payable semiannually on each June 30 and December 30. Principal repayments are made annually commencing on June 30, 2002 and are in amounts stipulated in the trust indenture. Future principal payments are as follows: Year ending December 31: 2002 ............................................... $ 8,800,000 2003 ............................................... $ 8,800,000 Thereafter ......................................... $202,400,000 The Securities are subject to optional redemption after June 30, 2008 at the redemption prices set forth in the trust indenture and are subject to extraordinary mandatory redemption at a redemption price of 100% of the principal amount thereof in certain limited circumstances as defined in the trust indenture. The Securities are unconditionally guaranteed by NE LP and are payable solely from payments to be made by NE LP under the promissory note and bond guaranty. NE LP's obligations to make payments under the promissory note are nonrecourse to the direct and indirect owners of NE LP. Payments with respect to the promissory note and, therefore, in respect of the Securities will be effectively subordinated to payment of all indebtedness and other liabilities and commitments of the Partnerships, including the guarantee by the Partnerships of its indebtedness. Repayment of the Securities is guaranteed by all interests in the Partnerships. The Securities will rank senior to all subordinated indebtedness and rank evenly with all senior indebtedness that the Acquisition Corp. incurs in the future. 4. Financial Instruments In January 1998, the Acquisition Corp. entered into a fixed interest rate financial instrument to hedge its exposure to fluctuations in the interest rate associated with the placement of originally issued securities. The financial instrument was settled on February 17, 1998 and qualified for hedge accounting. The gain resulting from the hedge was $152,000 and is being amortized into income using the effective interest method. The estimated fair value of the Securities and the note receivable from NE LP at December 31, 1998 was $250 million. The estimate of the fair value has been made using available market information and other valuation methodologies. However, the use of different market assumptions or methods of valuation could result in different estimated fair values. 5. Stockholders' Equity On January 12, 1998 (Date of Formation), the Acquisition Corp. received stock subscriptions and subsequently issued 20 shares of common stock, par value $.01. 6. Income Taxes The Acquisition Corp. acts as agent of NE LP with respect to the Securities and holds itself out as agent of NE LP in all dealings with third parties relating to the Securities. Accordingly, as a result of the agency relationship, all tax activity of the Acquisition Corp. for federal and state income tax purposes represents amounts due to NE LP. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure On September 4, 1998, a Form 8-K reported a change in the Funding Corp.'s and the Partnerships' independent accountants. PART III Item 10. Directors and Executive Officers of the Registrants Management Committee of NE LP and the Partnerships Scot C. Hathaway. Mr. Hathaway, 40, is director of fuels and business management. He was appointed to the NE LP Management Committee by ESI GP in April 1998. Mr. Hathaway joined ESI Energy in May 1997. From 1990 to May 1997, he was employed by Doswell Limited Partnership, a cogeneration facility owned by ESI Energy. Eric M. Heggeseth. Mr. Heggeseth, 46, is vice president of Tractebel Power. He was appointed to the NE LP Management Committee by Tractebel GP in March 1998. Kenneth P. Hoffman. Mr. Hoffman, 46, is vice president of business management. He was appointed to the NE LP Management Committee by ESI GP in November 1997. Werner E. Schattner. Mr. Schattner, 53, is executive vice president of Tractebel Power. He was appointed to the NE LP Management Committee by Tractebel GP in January 1998. Directors of the Funding Corp. and the Acquisition Corp. Eric M. Heggeseth. Mr. Heggeseth, 46, is vice president of Tractebel Power. He has been a director of the Funding Corp. and the Acquisition Corp. since 1998. Werner E. Schattner. Mr. Schattner, 53, is executive vice president of Tractebel Power. He has been a director of the Funding Corp. and the Acquisition Corp. since 1998. Glenn E. Smith. Mr. Smith, 40, is vice president of project development. He was formerly director of project development for Nations Energy Corporation from May 1995 to June 1997. Prior to that, Mr. Smith was vice president of BOT Financial Corp. He has been a director of the Funding Corp. and the Acquisition Corp. since 1998. Michael W. Yackira. Mr. Yackira, 47, is president of FPL Energy. He was formerly vice president of finance and chief financial officer of FPL Group and senior vice president of finance and chief financial officer of FPL from January 1995 to January 1998. Prior to that, he was senior vice president of market and regulatory services of FPL. Mr. Yackira is a director of FPL. He has been a director of the Funding Corp. and the Acquisition Corp. since 1998. Directors of the Funding Corp. and the Acquisition Corp. are elected annually and serve until their resignation, removal or until their respective successors are elected. The members of the Management Committee of NE LP and the Partnerships serve until their resignation, removal or until their respective successors are elected. Except as noted, each director or management committee member has held his position for five years or more and his employment history is continuous. Item 11. Executive Compensation None. Item 12. Security Ownership of Certain Beneficial Owners and Management The Partnerships and NE LP. The following table sets forth the direct and indirect interests of ownership:
Name and Address of Nature of Percentage Title of Class Beneficial Owner Beneficial Ownership Interest Partnerships: General and Limited Partnership Interest NE LP(1) General Partner 98%LP 1%GP Limited Partnership Interest NE LLC(1) Limited Partner 1%LP NE LP: General Partnership Interest ESI GP(1) General Partner in NE LP 1%GP General Partnership Interest Tractebel GP(2) General Partner in NE LP 1%GP Limited Partnership Interest ESI LP(1) Limited Partner in NE LP 49%LP Limited Partnership Interest Tractebel LP(2) Limited Partner in NE LP 49%LP (1) The address for each of NE LP, NE LLC, ESI GP and ESI LP is c/o FPL Energy, Inc., 700 Universe Blvd., Juno Beach, Florida 33408. (2) The address for each of Tractebel GP and Tractebel LP is c/o Tractebel Power, Inc., 1177 West Loop South, Suite 900, Houston, Texas 77027.
The Funding Corp. The following table sets forth the number of shares and percentage owned of the Funding Corp.'s voting securities beneficially owned by each person known to be the beneficial owner of more than five percent (5%) of the voting securities:
Name and Address of Amount and Nature of Percent of Title of Class Beneficial Owner Beneficial Ownership Class Common Stock ESI Northeast Funding (1) 3,750 37.5% Common Stock Tractebel Power (1) 3,750 37.5% Common Stock Broad Street (2) 2,500 25.0% (1) The address for ESI Northeast Funding is c/o FPL Energy, Inc., 700 Universe Blvd., Juno Beach, Florida 33408 and the address for Tractebel Power, Inc. is 1177 West Loop South, Suite 900, Houston, Texas 77027. (2) The address for Broad Street is Two Wall Street, New York, New York 10005. Broad Street is a nominee of the Trustee and its sole purpose is to provide an independent director.
The Acquisition Corp. The following table sets forth the number of shares and percentage owned of the Acquisition Corp.'s voting securities beneficially owned by each person known to be the beneficial owner of more than five percent (5%) of the voting securities:
Name and Address of Amount and Nature of Percent of Title of Class Beneficial Owner Beneficial Ownership Class Common Stock ESI Northeast Acquisition (1) 10 50.0% Common Stock Tractebel Power 10 50.0% (1) The address for ESI Northeast Acquisition is c/o FPL Energy, Inc., 700 Universe Blvd., Juno Beach, Florida 33408.
Item 13. Certain Relationships and Related Transactions Administrative Services Agreement. NE LP and an entity related to FPL Energy have entered into an administrative services agreement that provides for management and administrative services to the Partnerships. The agreement expires in 2018, provides for fees of a minimum of $600,000 per year, subject to certain adjustments, and reimburses costs and expenses of performing services. For the period ended December 31, 1998, the Partnerships incurred $765,000 under the agreement. O&M Agreements. NE LP and an entity related to FPL Energy have entered into operations and maintenance agreements that provide for the operations and maintenance of the Partnerships. The agreements expire in 2016, subject to extension by mutual agreement of the parties before six months preceding expiration. The agreements provide for fees of a minimum of $750,000 per year, subject to certain adjustments, for each Partnership and reimburse costs and expenses of performing services. For the period ended December 31, 1998, the Partnerships incurred $1,461,000 under the agreements. Fuel Management Agreements. NE LP and an entity related to FPL Energy have entered into fuel management agreements that provide for the management of all natural gas and fuel oil, transportation and storage agreements, and the location and purchase of any additional required natural gas or fuel oil for the Partnerships. The agreements expire in 2023, provide for fees of a minimum of $450,000 per year, subject to certain adjustments, for each Partnership and reimburse costs and expenses of performing services. For the period ended December 31, 1998, the Partnerships incurred $881,000 under the agreements. Power Sales. From time to time, FPL's Energy Marketing & Trading Division will purchase excess power produced by NJEA and resell the power to the marketplace. These purchases totaled $1.1 million in 1998.
PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements Page(s) NE LP: Independent Auditors' Report - Deloitte & Touche LLP 11 Consolidated Balance Sheets 13 Consolidated Statements of Operations 14 Consolidated Statements of Cash Flows 15 Consolidated Statements of Partners' Equity 16 Notes to Consolidated Financial Statements 21-27 Partnerships: Independent Auditors' Report - Deloitte & Touche LLP 11 Independent Auditors' Report - PricewaterhouseCoopers LLP 12 Combined Balance Sheets 17 Combined Statements of Operations 18 Combined Statements of Cash Flows 19 Combined Statements of Partners' Equity 20 Notes to Combined Financial Statements 21-27 Funding Corp.: Independent Auditors' Report - Deloitte & Touche LLP 28 Independent Auditors' Report - PricewaterhouseCoopers LLP 29 Balance Sheets 30 Statements of Operations 31 Statements of Cash Flows 32 Notes to Financial Statements 33-34 Acquisition Corp.: Independent Auditors' Report - Deloitte & Touche LLP 35 Balance Sheet 36 Statement of Operations 37 Statement of Cash Flows 38 Statement of Stockholders' Equity 39 Notes to Financial Statements 40-41 2. Financial Statement Schedules - Schedules are omitted as not applicable or not required. 3. Exhibits including those Incorporated by Reference
Exhibit No. Description 3.1* Certificate of Incorporation of the Funding Corp. 3.1.1***** Certificate of Amendment of Certificate of Incorporation of the Funding Corp. as filed with the Secretary of State of the State of Delaware on February 3, 1998 3.1.2****** Certificate of Incorporation of the Acquisition Corp. as filed with the Secretary of State of the State of Delaware on January 12, 1998 3.2***** By-laws of the Funding Corp. 3.2.1****** By-laws of the Acquisition Corp. 3.3***** Amended and Restated Certificate of Limited Partnership of NEA as filed with the Secretary of State of the Commonwealth of Massachusetts on March 31, 1986, as amended and restated on January 9, 1987 and November 6, 1987, as further amended on July 6, 1989 and as amended and restated on February 16, 1998 3.4***** Amended and Restated Certificate of Limited Partnership of NJEA as filed with the Secretary of State of the State of New Jersey on November 3, 1986, as amended and restated on January 14, 1987, June 25, 1987, March 4, 1988 and February 16, 1998 3.5***** Amended and Restated Agreement of Limited Partnership of NEA dated as of November 21, 1997 3.6***** Amended and Restated Agreement of Limited Partnership of NJEA dated as of November 21, 1997 3.7***** Certificate of Limited Partnership of NE LP, a Delaware limited partnership, as filed with the Secretary of State of the State of Delaware on November 21, 1997 3.8***** Agreement of Limited Partnership of NE LP, a Delaware limited partnership, dated as of November 21, 1997 4.1* Trust Indenture dated as of November 15, 1994, among the Partnerships, the Funding Corp. and the Trustee 4.2* First Supplemental Indenture dated as of November 15, 1994, among the Partnerships, the Funding Corp and the Trustee, including forms of the securities 4.3* Credit Agreement dated as of December 1, 1994, among the Partnerships, each of the financial institutions referred to therein and Sanwa 4.4* Collateral Agency Agreement dated as of December 1, 1994 among the Partnerships, the Funding Corp. , the Trustee, Sanwa, the Swap Providers (as defined therein) and State Street Bank and Trust Company, as Collateral Agent 4.5* Amended and Restated Project Loan and Credit Agreement dated as of December 1, 1994, between the Partnerships and the Funding Corp. 4.6* Partnerships' Guarantee Agreement dated as of December 1, 1994, between the Partnerships and the Trustee 4.7* Registration Rights Agreement dated as of November 21, 1994, among the Partnerships, the Funding Corp., Chase Securities, Inc., Merrill Lynch, Pierce Fenner & Smith, Incorporated and Salomon Brothers, Inc. 4.8* Pledge, Trust and Intercreditor Agreement dated as of December 1, 1994 among the Partnerships, Sanwa, and Sanwa Bank Trust Company of New York and the Trustee 4.9* Assignment and Security Agreement dated as of December 1, 1994, between the Funding Corp. and the Trustee 4.10* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between the Partnerships, NE LP and the Trustee 4.11* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NEA and the Trustee 4.12* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NJEA and the Trustee 4.13* Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of December 1, 1994, made by NEA in favor of the Trustee 4.14* Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Additional Properties) dated as of December 1, 1994, made by NEA in favor of the Trustee 4.15* Amended and Restated Indenture of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of December 1, 1994, made by NJEA in favor of the Trustee 4.16* Amended and Restated Stock Pledge Agreement dated as of December 1, 1994, between NJEA and the Trustee 4.17* Assignment of Mortgage dated as of December 1, 1994, between The Chase Manhattan Bank (National Association) and the Trustee with respect to the Bellingham Mortgage dated as of June 28, 1989 4.18* Assignment of Mortgage dated as of December 1, 1994, between The Chase Manhattan Bank (National Association) and the Trustee with respect to the Bellingham Mortgage dated August 10, 1989 4.19* Assignment of Mortgage dated as of December 1, 1994, between The Chase Manhattan Bank (National Association) and the Trustee with respect to the Sayreville Mortgage dated June 28, 1989 4.20* Assignment of Security Agreements dated as of December 1, 1994, among The Chase Manhattan Bank (National Association), the Trustee, the Partnerships, the Funding Corp. and NE LP 4.21***** Second Supplemental Trust Indenture dated as of January 14, 1998 among the Funding Corp., NEA, NJEA and the Trustee 4.22***** Amendment to Amended and Restated Assignment and Security Agreement by and between NEA, NJEA, NE LP and the Trustee dated as of January 14, 1998 4.23***** Termination of Pledge, Trust and Intercreditor Agreement dated as of January 30, 1998 among NEA, NJEA, Sanwa, Sanwa Bank and Trust Company of New York and the Trustee 4.24****** Indenture, dated as of February 19, 1998 among the Acquisition Corp., NE LP, NE LLC, and the Trustee 4.25****** Registration Rights Agreement, dated as of February 19, 1998 by and among the Acquisition Corp., NE LP, and Goldman Sachs & Co. 4.26****** Company & Partner Pledge Agreement dated as of February 19, 1998 by and among the Acquisition Corp., NE LP, NE LLC in favor of the Trustee 4.27****** Sponsor Pledge Agreement dated as of February 19, 1998 by and among ESI Northeast Acquisition, ESI GP, ESI LP, Tractebel GP, Tractebel LP, and Tractebel Power in favor of the Trustee 10.1* Accommodation Agreement dated as of June 28, 1989, between NEA, BECO, Commonwealth, Montaup, and The Chase Manhattan Bank (National Association) 10.2.1* Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Sayreville O&M Agreement"), between NJEA and Westinghouse Power 10.2.2* Letter Agreement regarding the Sayreville Heat Rate dated June 23, 1993, between NJEA and Westinghouse Power 10.2.3* Letter Agreement regarding extension of the Sayreville O&M Agreement dated June 23, 1993, between Westinghouse Power and NJEA 10.2.4* Second Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Bellingham O&M Agreement"), between NEA and Westinghouse Power 10.2.5* Letter Agreement regarding the Bellingham Heat Rate dated June 23, 1993, between NEA and Westinghouse 10.2.6* Letter Agreement regarding extension of the Bellingham O&M Agreement dated June 23, 1993, between NEA and Westinghouse Power 10.2.7** Amendment No. 1 to the Bellingham O&M Agreement, dated as of May 1, 1995, by and between NEA and Westinghouse Power 10.3.1* Power Purchase Agreement dated as of April 1, 1986 (the "BECO I Power Purchase Agreement"), between NEA and BECO 10.3.2* First Amendment to the BECO I Power Purchase Agreement dated as of June 8, 1987, between BECO and NEA 10.3.3* Second Amendment to the BECO I Power Purchase Agreement dated as of June 21, 1989, between BECO and NEA 10.3.4* Power Purchase Agreement dated as of January 28, 1988 (the "BECO II Power Purchase Agreement"), between NEA and BECO 10.3.5* First Amendment to the BECO II Power Purchase Agreement dated as of June 21, 1989, between NEA and BECO 10.3.6* Power Sale Agreement dated as of November 26, 1986 (the "Commonwealth I Power Purchase Agreement"), between NEA and Commonwealth 10.3.7* First Amendment to the Commonwealth I Power Purchase Agreement dated as of August 15, 1988, between Commonwealth and NEA 10.3.8* Second Amendment to the Commonwealth I Power Purchase Agreement dated as of January 1, 1989, between Commonwealth and NEA 10.3.9* Power Sale Agreement dated as of August 15, 1988 (the "Commonwealth II Power Purchase Agreement"), between NEA and Commonwealth 10.3.10* First Amendment to the Commonwealth II Power Purchase Agreement dated as of January 1, 1989, between NEA and Commonwealth 10.3.11* Power Purchase Agreement dated as of October 17, 1986 (the "Montaup Power Purchase Agreement"), between NEA and Montaup 10.3.12* First Amendment to the Montaup Power Purchase Agreement dated as of June 28, 1989, between Montaup and NEA 10.3.13* Power Purchase Agreement dated as of October 22, 1987 (the "JCP&L Power Purchase Agreement"), between NJEA and JCP&L 10.3.14* First Amendment to the JCP&L Power Purchase Agreement dated as of June 16, 1989, between JCP&L and NJEA 10.4.1* Firm Transportation Service Agreement dated as of February 28, 1994, among CNG Transmission Corporation, a Delaware corporation ("CNG"), NEA, ProGas U.S.A., Inc., a Delaware corporation ("ProGas USA") and ProGas 10.4.2* Firm Gas Transportation Agreement (Rate Schedule X-320) dated as of February 27, 1991, between NEA and Transcontinental Gas Pipe Line Corporation, a Delaware corporation ("Transco") 10.4.3* Rate Schedule X-35 Firm Gas Transportation Agreement dated as of October 1, 1993, between NEA and Algonquin Gas Transmission Company, a Delaware corporation ("Algonquin") 10.4.4* Service Agreement for Rate Schedule FTS-5 dated as of February 16, 1994, between NEA and Texas Eastern Transmission Corporation, a Delaware corporation ("Texas Eastern") 10.4.5* ProGas/TransCanada NE Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada Pipelines Limited, an Ontario corporation ("TransCanada") 10.4.6* Northeast Gas Substitution Agreement dated as of July 30, 1993, among ProGas, NEA and TransCanada 10.4.7* Northeast Notice and Consent dated as of July 30, 1993, among NEA, ProGas and TransCanada 10.4.8* ProGas NE Producer Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada 10.4.9* Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA, ProGas USA and ProGas 10.4.10* Firm Gas Transportation Agreement (Rate Schedule X-319) dated as of February 27, 1991, between Transco and NJEA 10.4.11* Service Agreement for Rate Schedule FTS-5 dated as of February 16, 1994, between Texas Eastern and NJEA 10.4.12* ProGas/TransCanada NJ Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada 10.4.13* North Jersey Gas Substitution Agreement dated as of July 30, 1993, among ProGas, NJEA and TransCanada 10.4.14* North Jersey Notice and Consent dated as of July 30, 1993, among NJEA, ProGas and TransCanada 10.4.15* ProGas NJ Producer Assignment dated as of July 30, 1993, between ProGas and TransCanada 10.4.16* Gas Purchase and Sales Agreement dated as of May 4, 1989 (the "PSE&G Agreement"), between NJEA and PSE&G 10.5.1* Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NEA 10.5.2* Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NJEA 10.5.3** Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NEA 10.5.4** Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NJEA 10.6.1* Gas Purchase Contract dated as of May 12, 1988 (the "Bellingham ProGas Agreement"), between ProGas and NEA 10.6.2* First Amending Agreement to the Bellingham ProGas Agreement dated as of April 17, 1989, between ProGas and NEA 10.6.3* Second Amending Agreement to the Bellingham ProGas Agreement dated as of June 23, 1989, between ProGas and NEA 10.6.4* Amending Agreement to the ProGas Agreements (as defined below) dated as of November 1, 1991, between ProGas, NEA and NJEA 10.6.5* Third Amending Agreement to the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA 10.6.6* Letter Agreement regarding the Bellingham ProGas Agreement dated as of September 14, 1992, between ProGas and NEA 10.6.7* Letter Agreement regarding the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA 10.6.8* Gas Purchase Contract dated as of May 12, 1988 (the "Sayreville ProGas Agreement," and together with the Bellingham ProGas Agreement, the "ProGas Agreements"), between ProGas and NJEA 10.6.9* First Amending Agreement to the Sayreville ProGas Agreement dated April 17, 1989, between ProGas and NJEA 10.6.10* Second Amending Agreement to the Sayreville ProGas Agreement dated June 23, 1989, between ProGas and NJEA 10.6.11* Third Amending Agreement to the Sayreville ProGas Agreement dated July 30, 1993, between ProGas and NJEA 10.6.12* Letter Agreement regarding the Sayreville ProGas Agreement dated as of September 14, 1992, between ProGas and NJEA, as amended as of April 22, 1994 by Letter Agreement between ProGas and NJEA 10.6.13* Letter Agreement regarding the Sayreville ProGas Agreement dated July 30, 1993, between ProGas and NJEA 10.7.1* Amended and Restated Steam Sales Agreement dated as of December 21, 1990, between NEA and NECO-Bellingham, Inc., a Massachusetts corporation ("NECO") 10.7.2* Industrial Steam Sales Contract dated as of June 5, 1989, between NJEA and Hercules Incorporated, a Delaware corporation ("Hercules") 10.8.1* Letter agreement regarding Bellingham Project power transmission arrangements dated June 29, 1989, between NEA and BECO 10.8.2* Letter agreement regarding Bellingham Project power transmission arrangements dated June 6, 1989, between NEA and Commonwealth 10.8.3* Letter agreement regarding Bellingham Project power transmission arrangements dated June 28, 1989, between NEA and Montaup 10.9* Amended and Restated Interconnection Agreement dated as of September 24, 1993, between BECO and NEA 10.10.1* Amended and Restated Lease Agreement dated as of December 21, 1990, between NEA and NECO 10.10.2* Carbon Dioxide Agreement dated as of December 21, 1990, between NECO and Praxair, Inc., as successor to Liquid Carbonic Carbon Dioxide Corporation ("Praxair") 10.10.3* BOC Gases Carbon Dioxide Agreement dated as of December 21, 1990, between NECO and the BOC Gases of the BOC Group, Inc., a Delaware corporation ("BOC Gases") 10.10.4* Assignment and Security Agreement dated as of December 1, 1991, between NECO and NEA 10.10.5*** Operation and Maintenance Agreement by and between NECO-Bellingham, Inc. as Lessee and Westinghouse as Operator for the Bellingham Project Carbon Dioxide Recovery Facility dated as of May 1, 1995 10.10.5.1**** Guaranty of Contract for Operation and Maintenance dated May 12, 1995 by Westinghouse Power 10.10.6* Licensing Agreement for the Fluor Daniel Carbon Dioxide Recovery Process dated as of June 28, 1989, between Fluor Daniel Inc., a California corporation ("Fluor Daniel"), and NEA 10.11.1* Ground Lease Agreement dated as of June 28, 1989, between NJEA and ETURC 10.11.2* Agreement of Sublease dated as of June 28, 1989, between ETURC and NJEA 10.11.3* Lease of Property dated as of June 1, 1986, between Prestwich Corporation and NE LP 10.12.1* Investment Agreement dated as of December 1, 1994, between Sanwa and Sanwa Bank Trust Company of New York under the Pledge, Trust and Intercreditor Agreement 10.12.2* Investment Agreement dated as of December 1, 1994, between Sanwa and Sanwa Bank Trust Company of New York under the Pledge, Trust and Intercreditor Agreement 10.13* Agreement between the Water and Sewer Commissioners of the Town of Bellingham and NEA dated as of December 13, 1988 and December 30, 1988, respectively 10.14* Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated June 29, 1989, by NEA in favor of BECO, Commonwealth and Montaup 10.15*** Declaration of Easements, Covenants, and Restrictions dated as of June 28, 1989 by NEA 10.16***** Operation and Maintenance Agreement dated as of November 21, 1997 by and between NE LP and FPLE Operating Services 10.17***** Operation and Maintenance Agreement dated as of November 21, 1997 by and between NE LP and FPLE Operating Services 10.18***** Fuel Management Agreement, dated as of January 20, 1998, by and between NE LP and ESI Northeast Fuel , assigned by NE LP to NEA on January 20, 1998 10.19***** Fuel Management Agreement, dated as of January 20, 1998, effective retroactive to January 14, 1998, by and between NE LP and ESI Northeast Fuel 10.20***** Administrative Services Agreement dated as of November 21, 1997 between NE LP and ESI GP 10.21****** Reimbursement Agreement dated as of November 21, 1997 by and among FPL Group Capital, Tractebel Power and NE LP 16******* Change in Certifying Accountant Letter 21 Subsidiaries of the Registrants 27.1 Financial Data Schedule - ESI Tractebel Funding Corp. 27.2 Financial Data Schedule for the period January 1, 1998 to January 13, 1998 - Northeast Energy Associates, A Limited Partnership 27.3 Financial Data Schedule for the period January 1, 1998 to January 13, 1998 - North Jersey Energy Associates, A Limited Partnership 27.4 Financial Data Schedule for the period January 14, 1998 to December 31, 1998 - Northeast Energy Associates, A Limited Partnership 27.5 Financial Data Schedule for the period January 14, 1998 to December 31, 1998 - North Jersey Energy Associates, A Limited Partnership 27.6 Financial Data Schedule - ESI Tractebel Acquisition Corp. 27.7 Financial Data Schedule - Northeast Energy LP * Incorporated herein by reference from the Registration Statement on Form S-4, file no. 33-87902, filed with the Securities and Exchange Commission by the Funding Corp. on February 9, 1995, as amended. ** Incorporated herein by reference from the Annual Report on Form 10-K filed by the Funding Corp. and the Partnerships on April 1, 1996. *** Incorporated herein by reference from the Quarterly Report on Form 10-Q filed by the Funding Corp. and the Partnerships on November 14, 1996. **** Incorporated herein by reference from the Annual Report on Form 10-K filed by the Funding Corp. and the Partnerships on March 31, 1997. ***** Incorporated herein by reference from the Annual Report on Form 10-K filed by the Funding Corp. and the Partnerships on March 27, 1998. ****** Incorporated herein by reference from the Registration Statement on Form S-4, file no. 333-52397, filed with the Securities and Exchange Commission by the Acquisition Corp. on August 11, 1998, as amended. ******* Incorporated herein by reference from Form 8-K filed by the Funding Corp. and the Partnerships on September 4, 1998. (b) Reports On Form 8-K: None.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. ESI TRACTEBEL FUNDING CORP. ESI TRACTEBEL ACQUISITION CORP. KENNETH P. HOFFMAN Kenneth P. Hoffman Vice President (Principal Executive Officer ) Date: March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the date indicated. Signature and Title as of March 30, 1999: KENNETH P. HOFFMAN PETER D. BOYLAN Kenneth P. Hoffman Peter D. Boylan Vice President Treasurer (Principal Executive Officer) (Principal Financial and Principal Accounting Officer) Directors: ERIC M. HEGGESETH WERNER E. SCHATTNER Eric M. Heggeseth Werner E. Schattner GLENN E. SMITH MICHAEL W. YACKIRA Glenn E. Smith Michael W. Yackira SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP (ESI Northeast Energy GP, Inc. as Administrative General Partner) NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP (ESI Northeast Energy GP, Inc. as Administrative General Partner) NORTHEAST ENERGY, LP (ESI Northeast Energy GP, Inc. as Administrative General Partner) KENNETH P. HOFFMAN Kenneth P. Hoffman Vice President of ESI Northeast Energy GP, Inc. (Principal Executive Officer ) Date: March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the date indicated. Signature and Title as of March 30, 1999: KENNETH P. HOFFMAN PETER D. BOYLAN Kenneth P. Hoffman Peter D. Boylan Vice President of Treasurer of ESI Northeast Energy GP, Inc. ESI Northeast Energy GP, Inc. (Principal Executive Officer) (Principal Financial and Principal Accounting Officer and Director of ESI Northeast Energy GP, Inc.) Directors of ESI Northeast Energy GP, Inc.: GLENN E. SMITH MICHAEL W. YACKIRA Glenn E. Smith Michael W. Yackira EX-21 2 SUBSIDIARIES OF NE LP EXHIBIT 21 SUBSIDIARIES OF NE LP
State or Jurisdiction Subsidiary of Incorporation 1. Northeast Energy, LLC (100%-Owned) .................................................... Florida 2. Northeast Energy Associates, A Limited Partnership (99%-Owned) (a) .................... Massachusetts 3. North Jersey Energy Associates, A Limited Partnership (99%-Owned) (a) ................. New Jersey (a) Northeast Energy, LLC owns the remaining 1% interest.
SUBSIDIARIES OF NJEA
State or Jurisdiction Subsidiary of Incorporation 1. ESI Tractebel Urban Renewal Corporation (100%-Owned) .................................. New Jersey
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from ESI Tractebel Funding Corp.'s balance sheet as of December 31, 1998 and statement of operations for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000934665 ESI Tractebel Funding Corp. 1,000 U.S. DOLLARS JAN-1-1998 12-MOS DEC-31-1998 DEC-31-1998 1 $1 $0 $23,511 $0 $0 $23,512 $0 $0 $468,725 $23,511 $445,213 $0 $0 $1 $0 $468,725 $0 $45,327 $0 $0 $0 $0 $45,327 $0 $0 $0 $0 $0 $0 $0 $0 $0
EX-27.2 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the combined statement of operations for the period January 1, 1998 to January 13, 1998 of Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership and is qualified in its entirety by reference to such financial statements. 0000934667 Northeast Energy Associates, A Limited Partnership 1,000 U.S. DOLLARS JAN-01-1998 OTHER DEC-31-1997 JAN-13-1998 1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $13,109 $13,109 $0 $7,642 $136 $0 $2,422 $2,909 $0 $2,909 $0 $0 $0 $2,909 $0 $0
EX-27.3 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the combined statement of operations for the period January 1, 1998 to January 13, 1998 of Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership and is qualified in its entirety by reference to such financial statements. 0000934666 North Jersey Energy Associates A Limited Partnership 1,000 U.S. DOLLARS JAN-01-1998 OTHER DEC-31-1997 JAN-13-1998 1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $13,109 $13,109 $0 $7,642 $136 $0 $2,422 $2,909 $0 $2,909 $0 $0 $0 $2,909 $0 $0
EX-27.4 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the combined balance sheet as of December 31, 1998 and the combined statement of operations for the period January 14, 1998 to December 31, 1998 of Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership and is qualified in its entirety by reference to such financial statements. 0000934667 Northeast Energy Associates, A Limited Partnership 1,000 U.S. DOLLARS JAN-14-1998 OTHER DEC-31-1998 DEC-31-1998 1 $35,152 $0 $29,746 $0 $4,935 $70,239 $513,553 $20,987 $1,403,045 $45,896 $445,213 $0 $0 $0 $425,153 $1,403,045 $302,693 $302,693 $0 $204,937 $6,602 $0 $61,154 $30,000 $0 $30,000 $0 $0 $0 $30,000 $0 $0
EX-27.5 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the combined balance sheet as of December 31, 1998 and the combined statements of operations for the period January 14, 1998 to December 31, 1998 of Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership and is qualified in its entirety by reference to such financial statements. 0000934666 North Jersey Energy Associates, A Limited Partnership 1,000 U.S. DOLLARS JAN-14-1998 OTHER DEC-31-1998 DEC-31-1998 1 $35,152 $0 $29,746 $0 $4,935 $70,239 $513,553 $20,987 $1,403,045 $45,896 $445,213 $0 $0 $0 $425,153 $1,403,045 $302,693 $302,693 $0 $204,937 $6,602 $0 $61,154 $30,000 $0 $30,000 $0 $0 $0 $30,000 $0 $0
EX-27.6 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from ESI Tractebel Acquisition Corp.'s balance sheet as of December 31, 1998 and statement of operations for the period January 12, 1998 (Date of Formation) to December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0001059027 ESI Tractebel Acquisition Corp. 1,000 U.S. DOLLARS JAN-12-1998 OTHER JAN-12-1998 DEC-31-1998 1 $0 $0 $0 $0 $0 $0 $0 $0 $220,152 $4 $220,000 $0 $0 $0 $8 $220,152 $0 $15,182 $0 $0 $0 $0 $15,170 $12 $4 $8 $0 $0 $0 $8 $0 $0
EX-27.7 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheet as of December 31, 1998 and the consolidated statement of operations for the year ended December 31, 1998 of Northeast Energy, LP and is qualified in its entirety by reference to such financial statements. 0001059025 Northeast Energy, LP 1,000 U.S. DOLLARS JAN-01-1998 12-MOS DEC-31-1998 DEC-31-1998 1 $36,038 $0 $29,746 $0 $4,935 $71,125 $513,553 $20,987 $1,410,343 $46,033 $665,213 $0 $0 $0 $212,314 $1,410,343 $302,693 $302,693 $0 $204,937 $7,322 $0 $76,336 $14,098 $0 $14,098 $0 $0 $0 $14,098 $0 $0
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