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CAUTIONARY STATEMENTS AND RISK FACTORS THAT MAY AFFECT FUTURE RESULTS |
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In connection with the safe harbor provisions of the Reform Act, Funding Corp., NEA and NJEA (collectively, the Partnerships), 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) made by or on behalf of the registrants 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," "believe," "could," "estimated," "may," "plan," "potential," "projection," "target," "outlook") are not statements of historical facts and may be forward-looking. Fo
rward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could cause the registrants' actual results to differ materially from those contained in forward-looking statements made by or on behalf of any of the registrants.
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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 statement.
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The following are some important factors that could have a significant impact on the registrants' operations and financial results, and could cause the registrants' actual results or outcomes to differ materially from those discussed in the forward-looking statements:
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The registrants are subject to changes in laws or regulations, including the PURPA, changing governmental policies and regulatory actions, including those of the FERC, with respect to, but not limited to, acquisition and disposal of assets and facilities, and present or prospective competition.
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The registrants are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or increase costs. There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future.
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The registrants operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the energy industry, including deregulation of the production and sale of electricity. The registrants will need to adapt to these changes and may face increasing competitive pressure.
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The Partnerships were developed and operated as QFs under PURPA and the regulations promulgated thereunder by the FERC. However, in December 2003, an amended and restated power purchase agreement of NJEA became effective and NJEA no longer operates as a QF. NEA continues to operate as a QF. FERC regulations require that at least 5% of a QF's total energy output be useful thermal energy. To meet the QF requirement, NEA sells steam under a long-term sales agreement to an unrelated third party for use in a gas and chemical processing facility to maintain NEA's QF status. NEA is dependent upon the on-going operations of this facility. Loss of QF status would entitle one power purchaser to renegotiate the price provisions of its power purchase agreement.
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A substantial portion of the output from the Partnerships' power generation facilities is sold under long-term power purchase agreements to four regulated utilities, two of which are under common control. The limited number of power purchasers creates a concentration of counterparty risk. The remaining output from the power generation facilities is sold, from time to time, in the merchant markets. In addition, it is expected that upon expiration of the power purchase agreements, the residual portion of the electrical output will be sold in the merchant market. Merchant plants sell power based on market conditions at the time of sale. The amount and timing of revenues to be received from the merchant markets in the future is uncertain. As mentioned above, in December 2003, an amended and restated power purchase agreement between NJEA and a New Jersey utility became effective. The agreement provides for, among other things, the ability to deliver electricity to the New Jersey utility from sources other than th
e NJEA facility.
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The operation of power generation facilities involves many risks, including start up risks, breakdown or failure of equipment, transmission lines or pipelines, use of new technology, the dependence on a specific fuel source or the impact of unusual or adverse weather conditions (including natural disasters), as well as the risk of performance below expected levels of output or efficiency. This could result in lost revenues and/or increased expenses. Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses, including the cost of replacement power. Breakdown or failure of an operating facility may prevent the facility from performing under applicable power sales agreements which, in certain situations, could result in termination of the agreement or payment of liquidated damages.
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The registrants use derivative instruments, such as swaps and options, to manage their commodity and financial market risks. The registrants could recognize financial losses as a result of volatility in the market values of these contracts, or if a counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative instruments involves management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the value of the reported fair value of these contracts.
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In addition to risks discussed elsewhere, risk factors specifically affecting the registrants' success include the ability to efficiently operate generating assets, the successful and timely completion of project restructuring activities, the price and supply of fuel, transmission constraints, competition from new sources of generation, excess generation capacity and demand for power. There can be significant volatility in market prices for fuel, and there are other financial, counterparty and market risks that are beyond the control of the registrants. The registrants' inability or failure to effectively hedge their assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk measures could significantly impair their future financial results.
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The registrants' results of operations can be affected by changes in the weather. Severe weather can be destructive, causing outages and/or property damage, which could require additional costs to be incurred.
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The registrants are subject to costs and other effects of legal and administrative proceedings, settlements, investigations and claims; as well as the effect of new, or changes in, tax rates or policies, rates of inflation, accounting standards, securities laws or corporate governance requirements.
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The registrants are subject to direct and indirect effects of terrorist threats and activities. Generation and transmission facilities, in general, have been identified as potential targets. The effects of terrorist threats and activities include, among other things, terrorist actions or responses to such actions or threats, the inability to generate, purchase or transmit power, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic recovery in the U.S., and the increased cost and adequacy of security and insurance.
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The registrants' ability to obtain insurance, and the cost of and coverage provided by such insurance, could be affected by national events as well as registrant-specific events.
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The registrants are substantially leveraged. The ability of the registrants to make interest and principal payments and fund capital expenditures is dependent on the future performance of the Partnerships. Future performance is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the control of the registrants. The registrants are also subject to restrictive covenants under their debt agreements that will limit the ability to borrow additional funds.
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All obligations of the Partnerships are non-recourse to the direct and indirect owners of the registrants. Following any default by the Partnerships, security is limited to the owners' economic interests in the Partnerships. The owners have no meaningful revenues other than the distributions they receive from the Partnerships. In the event of default, the ability of the owners to satisfy any obligations will be limited to amounts payable by the Partnerships as distributions.
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The issues and associated risks and uncertainties described above are not the only ones the registrants may face. Additional issues may arise or become material as the energy industry evolves. The risks and uncertainties associated with these additional issues could impair the registrants' businesses in the future.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations |
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This discussion should be read in conjunction with the Notes to Consolidated and Combined Financial Statements and Notes to Financial Statements contained herein. In the discussion of Results of Operations below, all comparisons are with the corresponding items in the prior year.
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Results of Operations |
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NE LP Consolidated
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NE LP's net income for 2003, 2002 and 2001 was $61.9 million, $98.1 million and $16.7 million, respectively. Net income for 2003 included a gain of $15.2 million on restructuring of contracts, a gain of $11.1 million on an energy bank settlement, and net unrealized mark-to-market losses of $3.9 million on derivatives. Net income for 2002 included a gain of $45.1 million on restructuring of contracts and net unrealized mark-to-market gains of $7.3 million on derivatives. Net income for 2001 included an $18.3 million cumulative effect of adopting FAS 133 and net unrealized mark-to-market losses of $21.6 million on derivatives.
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NE LP Consolidated - 2003 compared to 2002
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Net income, excluding the items mentioned above, decreased in 2003 compared to 2002 primarily due to higher fuel costs in 2003 and higher O&M expenses, partially offset by lower interest expense and higher revenues. The high price of market gas in 2001 helped to increase the energy price in NJEA's power purchase agreement, and allowed the Partnerships to benefit from lower gas prices in 2002.
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NE LP's revenues are derived from six power purchase agreements with regulated utilities in Massachusetts and New Jersey. Under the terms of these contracts power generated from the Partnerships' facilities (or, in the case of NJEA, from the wholesale market) are sold to these utilities at prices specified in the contracts. The pricing under three of the Massachusetts power purchase agreements is substantially fixed. The pricing under one of the Massachusetts power purchase agreements and the New Jersey power purchase agreement is indexed to fuel indices and the pricing under the remaining Massachusetts power purchase agreement is indexed to the power market.
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Revenue increased in 2003 primarily due to fixed escalators, and favorable pricing under the power purchase agreements tied to the fuel and power indices. In connection with the amended and restated NJEA power purchase agreement mentioned below, the New Jersey facility did not operate for the last thirteen days in December 2003, instead selling power purchased in the wholesale market to the New Jersey utility. Included as an offset to revenue in 2003 is $4.0 million of purchased power.
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Revenues in 2003 were comprised of $401.3 million of power sales to utilities net of purchased power and $3.0 million of steam sales. Power sales to utilities reflect a decrease in utility energy bank and deferred revenue balances of $28.3 million and $25.6 million in 2003 and 2002, respectively. The decrease in energy bank balances, which increased reported revenues, are determined in accordance with scheduled or specified rates under certain power purchase agreements.
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Fuel expense increased in 2003 primarily as a result of increased prices of natural gas required to fuel the facilities. As a result of the contract restructuring in 2002, approximately 37% of the New Jersey facility's 2003 fuel requirements were purchased through variable priced fuel contracts. Approximately 50% of the Massachusetts facility's fuel requirements are purchased either through variable priced fuel contracts or through the wholesale market. In order to manage the fixed price exposure of natural gas prices in 2003, NE LP and the Partnerships entered into a costless collar in 2002. Settlements on the costless collar were $16.4 million in 2003, reflected as a reduction in fuel expense. In addition, as a result of the contract restructurings, the deferred credit amortization for fuel contracts decreased to $13.6 million in 2003 compared to $20.8 million in 2002.
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O&M expense increased $1.6 million in 2003 primarily from preparing the New Jersey facility to operate as a merchant plant due to contract restructurings.
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In March 2003, NEA bifurcated a fuel supply contract with one of its suppliers who provided approximately 75% of NEA's daily fuel requirements to manage the variable and fixed price volumes separately. In July 2003, NEA entered into two agreements with this supplier to terminate the variable price agreement that provided for the purchase of 13,399 MMBtu/day (Termination Agreement) and to partially terminate the fixed price agreement that provided for the purchase of 35,418 MMBtu/day (Partial Termination Agreement). These agreements were executed to hedge the Partnerships' exposure to natural gas prices in anticipation of other contract restructurings.
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On August 31, 2003, the Termination Agreement became effective resulting in removal of a $39.2 million liability representing the unamortized deferred credit as of the termination date and a $15.2 million gain for NEA. In conjunction with this termination, NEA was to pay a termination fee of $24.0 million, of which $12.0 million was paid by the NE LP partners and recorded by NE LP as a capital contribution. Promissory notes were issued by the NE LP partners for the remaining $12.0 million. The notes bore interest at a rate of 6% per annum and were paid in full in January 2004. See "Subsequent Events" below.
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NEA entered into two replacement long-term gas supply agreements with PMI and TEMI which became effective September 1, 2003. These two contracts provide NEA with the same combined quantity of natural gas and with pricing that is expected to be more favorable over the term of the agreements. Affiliates of PMI and TEMI have guaranteed certain of their respective obligations under the long-term gas supply agreements. See "Subsequent Events" below.
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In December 2003, an agreement between NJEA and a New Jersey utility became effective to amend and restate the power purchase agreement in order to realize cost savings by sourcing power from the wholesale market rather than NJEA's facility during periods when market prices are lower than generation costs. The new agreement provides for, among other things, the ability to deliver electricity to the New Jersey utility from sources other than NJEA's facility at a payment that is less than the payment required under the prior power purchase agreement. In accordance with the agreement, NE LP and the Partnerships paid $26.2 million to the New Jersey utility which was funded through a loan to NE LP from an affiliate of NE LP which matures in June 2011.
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In connection with this restructuring, NJEA amended its remaining long-term gas supply agreement and terminated the long-term gas supply agreements with TEMI and PMI. Under the terms of the amended long-term gas supply agreement, the supplier will provide all of the fuel required to operate the facility when the partnership determines that it is economically beneficial to do so. The partnership is required to pay a monthly fee of $0.2 million to the fuel supplier regardless of whether fuel is purchased during the month. In addition, the partnership also amended its steam sales agreement. Under the terms of the amendment, the partnership is to pay a monthly fee of up to $0.4 million to the steam supplier when the partnership decides that it is not economically beneficial to operate the facility and therefore, cannot sell steam to the steam supplier.
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In December 2000, NEA exercised its option to receive a reduced energy payment for the period remaining on one of the PPAs in lieu of paying the energy bank balance existing as of that date. The $24.9 million balance as of December 31, 2000 was being amortized into revenue on a straight-line basis over the remaining life of the agreement which expires on September 15, 2021. NEA's accounting treatment reflected the position that, as of December 31, 2000, the energy bank balance represented deferred revenue and was being reduced for the discounted amount of the energy payments on a straight-line basis over the remaining life of the PPA. The power purchaser (Power Purchaser) disputed this position. The Power Purchaser contended that the energy bank balance was being adjusted monthly and could require a significant payment by NEA upon termination. On October 31, 2002, the Power Purchaser filed a demand for arbitration with the American Arbitration Association in this matter.
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On March 31, 2003, the energy bank was terminated resulting in an $11.1 million gain for NEA. In connection with the termination, a settlement of the disputes in connection with the arbitration was reached between NE LP, acting on its behalf and on behalf of NEA, and another company (Agent), acting on its behalf and on behalf of the Power Purchaser. The registrants understand that the Agent acts as agent and representative of the Power Purchaser with respect to the PPA. Under the terms of the settlement, the arbitration was irrevocably dismissed and the related claims released, any energy bank obligations under the PPA were terminated, the energy bank balance of $22.2 million was eliminated, and NE LP paid approximately $11.1 million plus interest to the Agent in June 2003.
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As a condition to this settlement, the Agent entered into an agreement (PMI Agreement) with PMI. Under the terms of the PMI Agreement, until termination of the PPA, PMI is to purchase power from the Agent under the same terms as the Agent purchases power under the PPA, as the Power Purchaser's agent and representative. Also, under the PMI Agreement the parties agreed to seek approvals and satisfy conditions for NEA to terminate the PPA on or before December 31, 2003. Those approvals and conditions included approvals under the indentures relating to the Funding Corp. and Acquisition Corp. secured notes and bonds. The parties have been unable to satisfy the conditions and will continue to operate under the existing terms of the PPA.
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In February 2003, NJEA entered into an agreement to modify the gas index used for calculating the energy price in the power purchase agreement with a New Jersey utility. This modification was effective as of August 14, 2002 with the rate being adjusted annually on August 14th of each year. Since August 14, 2002, the New Jersey utility had been paying for power under the rate that was in effect prior to the modification and in March 2003 the New Jersey utility paid $9.2 million to NJEA representing the additional amount owed to NJEA using the agreed upon index. Payments for power delivered beginning February 1, 2003 through the end of the term of the power purchase agreement were made using the agreed upon index. In November 2003, this agreement was approved by the state regulatory authority. However, this agreement was terminated when the amended and restated power purchase agreement mentioned above became effective in December 2003.
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NE LP makes scheduled interest and principal payments on its outstanding debt. NE LP is scheduled to make semi-annual principal and interest payments on June 30 and December 30. Interest expense for NE LP decreased in each of 2003 and 2002 as a result of decreasing principal balances on its outstanding debt. This decrease was partially offset by interest on the December 2003 $26.2 million loan to NE LP from an affiliate of NE LP mentioned above.
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Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. By allowing wholesale electricity 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. NE LP does 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.
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NE LP Consolidated - 2002 compared to 2001
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Net income excluding the gain on restructuring of contracts and the mark-to-market gain on derivatives increased in 2002 compared to 2001 primarily due to higher revenue and lower interest expense, partially offset by higher fuel costs.
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Revenues for the year ended December 31, 2002 improved primarily as a result of increased electricity sales prices and higher volume under certain power purchase agreements. Revenues in 2002 were comprised of $386.6 million of power sales to utilities and $3.9 million of steam sales. In 2001, revenues were comprised of $360.6 million of power sales to utilities and $3.8 million of steam sales. Power sales to utilities reflect a decrease in utility energy bank and deferred revenue balances of $25.6 million and $23.1 million in 2002 and 2001, respectively. The decrease in energy bank balances, which increased reported revenues, is determined in accordance with scheduled or specified rates under certain power purchase agreements.
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Fuel expense increased primarily as a result of increased prices of natural gas required to fuel the facilities. These fuel costs were partly offset in each of 2002 and 2001 by $20.8 million of deferred credit amortization for fuel contracts.
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In 2002, the Partnerships restructured certain contracts. In conjunction with these restructurings, NE LP paid fees of approximately $23.9 million of which $23.3 million was funded through capital contributions by its partners. A gain of approximately $45.1 million was recognized as a result of these restructuring activities.
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During 2002, NJEA entered into two new long-term gas supply agreements with PMI and TEMI which became effective January 1, 2003. These new agreements provided the partnership with the same combined quantity of natural gas and with pricing that was more favorable to the partnership than the agreement previously in effect. Before restructuring, the prior agreement provided the partnership with approximately 37% of its fuel requirements, and approximately 18% of the total fuel requirements of the Partnerships. Affiliates of PMI and TEMI guaranteed certain of their respective obligations under the new long-term gas supply agreements. As discussed above, these two agreements were terminated in December 2003.
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NEA terminated all agreements with its steam sales user and lessee in 2002 and entered into a new operating lease and ancillary agreements with a new lessee effective January 1, 2003 through September 14, 2016. Under the terms of the operating lease agreement, the lessee will operate and maintain NEA's carbon dioxide facility. Base rent under the lease is $0.1 million per month during the winter months (as defined in the operating lease agreement) and $0.2 million per month during the summer months (as defined in the operating lease agreement). NEA is selling a portion of the steam at a minimum charge of $0.1 million during the winter months (as defined in the operating lease agreement) and $0.2 million during the summer months (as defined in the operating lease agreement). Both the base rent and base steam cost are adjusted every month by the operating results of the facility as defined in the operating lease agreement.
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The Partnerships
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The Partnerships' net income for 2003, 2002 and 2001 was $79.7 million, $116.1 million and $34.8 million, respectively. Net income for 2003 included a gain of $15.2 million on restructuring of contracts, a gain of $11.1 million on an energy bank settlement, and net unrealized mark-to-market losses of $3.9 million on derivatives. Net income for 2002 included a gain of $45.1 million on restructuring of contracts and net unrealized mark-to-market gains of $7.3 million on derivatives. Net income for 2001 included an $18.3 million cumulative effect of adopting FAS 133 and net unrealized mark-to-market losses of $21.6 million on derivatives. |
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The Partnerships - 2003 compared to 2002
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Net income excluding the items mentioned above, decreased in 2003 compared to 2002 primarily due to higher fuel costs and higher O&M expenses, partially offset by lower interest expense and higher revenues. The high price of market gas in 2001 helped to increase the energy price in NJEA's power purchase agreement, and allowed the Partnerships to benefit from lower gas prices in 2002.
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The Partnerships' revenues are derived from six power purchase agreements with regulated utilities in Massachusetts and New Jersey. Under the terms of these contracts power generated from the Partnerships' facilities (or, in the case of NJEA, from the wholesale market) are sold to these utilities at prices specified in the contracts. The pricing under three of the Massachusetts power purchase agreements is substantially fixed. The pricing under one of the Massachusetts power purchase agreements and the New Jersey power purchase agreement are indexed to fuel indices and the pricing under the remaining Massachusetts power purchase agreement is indexed to the power market.
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Revenue increased in 2003 primarily due to fixed escalators, and favorable pricing under the power purchase agreements tied to the fuel and power indices. In connection with the amended and restated power purchase agreement mentioned above, the New Jersey facility did not operate for the last thirteen days in December 2003, instead selling power purchased in the wholesale market to the New Jersey utility. Included in revenue in 2003 is $4.0 million of purchased power.
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Revenues in 2003 were comprised of $401.7 million of power sales to utilities net of purchased power and $3.0 million of steam sales. Power sales to utilities reflect a decrease in utility energy bank and deferred revenue balances of $28.3 million and $25.6 million in 2003 and 2002, respectively. The decreases in energy bank balances, which increased reported revenues, are determined in accordance with scheduled or specified rates under certain power purchase agreements.
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Fuel expense increased in 2003 primarily as a result of increased prices of natural gas required to fuel the facilities. As a result of the contract restructuring in 2002, approximately 37% of the New Jersey facility's fuel requirements were purchased through variable priced fuel contracts. Approximately 50% of the Massachusetts facility's fuel requirements are purchased either through variable priced fuel contracts or through the wholesale market. In order to manage the price exposure of natural gas prices in 2003, NE LP and the Partnerships entered into a costless collar in 2002. Settlements on the costless collar were $16.4 million in 2003, reflected as a reduction in fuel expense. In addition, as a result of the contract restructurings, the deferred credit amortization for fuel contracts decreased to $13.6 million in 2003 compared to $20.8 million in 2002.
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O&M expense increased $1.6 million in 2003 primarily from preparing the New Jersey facility to operate as a merchant plant due to contract restructurings.
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In March 2003, NEA bifurcated a fuel supply contract with one of its suppliers who provided approximately 75% of NEA's daily fuel requirements to manage the variable and fixed price volumes separately. In July 2003, NEA entered into two agreements with this supplier to terminate the variable price agreement that provided for the purchase of 13,399 MMBtu/day (Termination Agreement) and to partially terminate the fixed price agreement that provided for the purchase of 35,418 MMBtu/day (Partial Termination Agreement). These agreements were executed to hedge the Partnerships' exposure to natural gas prices in anticipation of other contract restructurings.
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On August 31, 2003, the Termination Agreement became effective resulting in removal of a $39.2 million liability representing the unamortized deferred credit as of the termination date and a $15.2 million gain for NEA. In conjunction with this termination, NEA was to pay a termination fee of $24.0 million, of which $12.0 million was paid by the NE LP partners and recorded by NE LP as a capital contribution. Promissory notes were issued by the NE LP partners for the remaining $12.0 million. The notes bore interest at a rate of 6% per annum and were paid in full in January 2004. See "Subsequent Events" below.
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NEA entered into two replacement long-term gas supply agreements with PMI and TEMI which became effective September 1, 2003. These two contracts provide NEA with the same combined quantity of natural gas and with pricing that is expected to be more favorable over the term of the agreements. Affiliates of PMI and TEMI have guaranteed certain of their respective obligations under the long-term gas supply agreements. See "Subsequent Events" below.
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In December 2003, an agreement between NJEA and a New Jersey utility became effective to amend and restate the power purchase agreement in order to realize cost savings by sourcing power from the wholesale market rather than NJEA's facility during periods when market prices are lower than generation costs. The new agreement provides for, among other things, the ability to deliver electricity to the New Jersey utility from sources other than NJEA's facility at a payment that is less than the payment required under the prior power purchase agreement. In accordance with the agreement, NE LP and the Partnerships paid $26.2 million to the New Jersey utility which was funded through a loan from an affiliate of NE LP which matures in June 2011.
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In connection with this restructuring, NJEA amended its remaining long-term gas supply agreement and terminated the long-term gas supply agreements with TEMI and PMI. Under the terms of the amended long-term gas supply agreement, the supplier will provide all of the fuel required to operate the facility when the partnership determines that it is economically beneficial to do so. The partnership is required to pay a monthly fee of $0.2 million to the fuel supplier regardless of whether fuel is purchased during the month. In addition, the partnership also amended its steam sales agreement. Under the terms of the amendment, the partnership is to pay a monthly fee of up to $0.4 million to the steam supplier when the partnership decides that it is not economically beneficial to operate the facility and therefore, cannot sell steam to the steam supplier.
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In December 2000, NEA exercised its option to receive a reduced energy payment for the period remaining on one of the PPAs in lieu of paying the energy bank balance existing as of that date. The $24.9 million balance as of December 31, 2000 was being amortized into revenue on a straight-line basis over the remaining life of the agreement which expires on September 15, 2021. NEA's accounting treatment reflected the position that, as of December 31, 2000, the energy bank balance represented deferred revenue and was being reduced for the discounted amount of the energy payments on a straight-line basis over the remaining life of the PPA. The Power Purchaser disputed this position. The Power Purchaser contended that the energy bank balance was being adjusted monthly and could require a significant payment by NEA upon termination. On October 31, 2002, the Power Purchaser filed a demand for arbitration with the American Arbitration Association in this matter.
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On March 31, 2003, the energy bank was terminated resulting in an $11.1 million gain for NEA. In connection with the termination, a settlement of the disputes in connection with the arbitration was reached between NE LP, acting on its behalf and on behalf of NEA, and the Agent, acting on its behalf and on behalf of the Power Purchaser. The registrants understand that the Agent acts as agent and representative of the Power Purchaser with respect to the PPA. Under the terms of the settlement, the arbitration was irrevocably dismissed and the related claims released, any energy bank obligations under the PPA were terminated, the energy bank balance of $22.2 million was eliminated, and NE LP paid approximately $11.1 million plus interest to the Agent in June 2003.
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As a condition to this settlement, the Agent entered into the PMI Agreement with PMI. Under the terms of the PMI Agreement, until termination of the PPA, PMI is to purchase power from the Agent under the same terms as the Agent purchases power under the PPA, as the Power Purchaser's agent and representative. Also, under the PMI Agreement the parties agreed to seek approvals and satisfy conditions for NEA to terminate the PPA on or before December 31, 2003. Those approvals and conditions included approvals under the indentures relating to the Funding Corp. and Acquisition Corp. secured notes and bonds. The parties have been unable to satisfy the conditions and will continue to operate under the existing terms of the PPA.
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In February 2003, NJEA entered into an agreement to modify the gas index used for calculating the energy price in the power purchase agreement with a New Jersey utility. This modification was effective as of August 14, 2002 with the rate being adjusted annually on August 14th of each year. Since August 14, 2002, the New Jersey utility had been paying for power under the rate that was in effect prior to the modification and in March 2003 the New Jersey utility paid $9.2 million to NJEA representing the additional amount owed to NJEA using the agreed upon index. Payments for power delivered beginning February 1, 2003 through the end of the term of the power purchase agreement were made using the agreed upon index. In November 2003, this agreement was approved by the state regulatory authority. However, this agreement was terminated when the amended and restated power purchase agreement mentioned above became effective in December 2003.
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The Partnerships - 2002 compared to 2001
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Net income excluding the gain on restructuring of contracts and the mark-to-market gain on derivatives increased in 2002 compared to 2001 primarily due to higher revenue and lower interest expense, partially offset by higher fuel costs.
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Revenues for the year ended December 31, 2002 improved primarily as a result of increased electricity sales prices and higher volume under certain power purchase agreements. Revenues in 2002 were comprised of $386.6 million of power sales to utilities and $3.9 million of steam sales. In 2001, revenues were comprised of $360.6 million of power sales to utilities and $3.8 million of steam sales. Power sales to utilities reflect a decrease in utility energy bank and deferred revenue balances of $25.6 million and $23.1 million in 2002 and 2001, respectively. The decrease in energy bank balances, which increased reported revenues, are determined in accordance with scheduled or specified rates under certain power purchase agreements.
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Fuel expense increased primarily as a result of increased prices of natural gas required to fuel the facilities. These fuel costs were partly offset in each of 2002 and 2001 by $20.8 million of deferred credit amortization for fuel contracts.
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In 2002, the Partnerships restructured certain contracts. In conjunction with these restructurings, NE LP paid fees of approximately $23.9 million of which $23.3 million was funded through capital contributions by its partners. A gain of approximately $45.1 million was recognized as a result of these restructuring activities.
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During 2002, NJEA entered into two new long-term gas supply agreements with PMI and TEMI which became effective January 1, 2003. These new agreements provided the partnership with the same combined quantity of natural gas and with pricing that was more favorable to the partnership than the agreement previously in effect. Before restructuring, the prior agreement provided the partnership with approximately 37% of its fuel requirements, and approximately 18% of the total fuel requirements of the Partnerships. Affiliates of the suppliers have guaranteed certain of their respective obligations under the new long-term gas supply agreements. As discussed above, these two agreements were terminated in December 2003.
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NEA terminated all agreements with its steam sales user and lessee in 2002 and entered into a new operating lease and ancillary agreements with a new lessee effective January 1, 2003 through September 14, 2016. Under the terms of the operating lease agreement, the lessee will operate and maintain NEA's carbon dioxide facility. Base rent under the lease is $0.1 million per month during the winter months (as defined in the operating lease agreement) and $0.2 million per month during the summer months (as defined in the operating lease agreement). NEA is selling a portion of the steam at a minimum charge of $0.1 million during the winter months (as defined in the operating lease agreement) and $0.2 million during the summer months (as defined in the operating lease agreement). Both the base rent and base steam cost are adjusted every month by the operating results of the facility as defined in the operating lease agreement.
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The Partnerships make scheduled interest and principal payments on their outstanding debt. The Partnerships are scheduled to make semi-annual principal and interest payments on June 30 and December 30. Interest expense for the Partnerships decreased in each of 2003 and 2002 as a result of decreasing principal balances on their outstanding debt.
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Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. By allowing wholesale electricity 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. 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.
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The Funding Corp. and the Acquisition Corp.
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Both the Funding Corp. and the Acquisition Corp. use interest income and principal payments received from the notes receivable from the Partnerships and NE LP, respectively, to make scheduled interest and principal payments on their outstanding debt. Both are scheduled to make semi-annual principal and interest payments on June 30 and December 30. Interest expense for the Funding Corp. and the Acquisition Corp. decreased in each of 2003 and 2002 as a result of decreasing principal balances on its outstanding debt. |
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Subsequent Events
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In December 2003, an agreement between NJEA and a New Jersey utility became effective to amend and restate the power purchase agreement in order to realize cost savings by sourcing power from the wholesale market rather than NJEA's facility during periods when market prices are lower than generation costs. In connection with this agreement in January 2004, NJEA entered into two off-peak power purchase contracts with PMI and TEMI, each for the purchase of up to 125 MW per off-peak hour at a fixed price to supply power to the New Jersey utility under the amended and restated power purchase agreement. Under the terms of these contracts, PMI and TEMI will purchase power from the wholesale market to be sold to NJEA. The pricing in the NJEA power purchase agreement with the New Jersey utility is based on a gas index, thus NJEA's purchase of off-peak power at a fixed price from PMI and TEMI and sale to the New Jersey utility at a gas indexed price exposes NJEA to decreases in the price of natural gas.
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In January 2004, a Partial Termination Agreement between NEA and one of its fuel suppliers became effective which resulted in removal of a $108.1 million liability representing the unamortized deferred credit as of the termination date, the addition of a $2.0 million asset representing the value of the remaining contract, and a $115.1 million gain. In conjunction with this partial termination, the fuel supplier paid the partnership $5.0 million and the partners of NE LP paid $12.0 million plus interest to the fuel supplier in satisfaction of the loans outstanding related to the Termination Agreement which became effective in August 2003. The reduction in NEA's volume of fixed gas exposes NEA to increases in the price of natural gas. When combined, NJEA's and NEA's exposures to changes in natural gas prices are expected to be offsetting.
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To replace the remaining fuel requirements, NEA entered into two additional replacement long-term gas supply agreements with PMI and TEMI which became effective in January 2004 and provide the partnership with gas indexed pricing.
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Related Party Information |
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NE LP and the Partnerships receive O&M, fuel management and administrative services from entities related to FPL Energy. Payments to these entities for these services approximate $3.2 million annually. For additional information see Note 5.
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The Partnerships will receive fuel pursuant to fuel supply agreements with entities related to FPL Energy and Tractebel. For additional information see Note 3 - Fuel Supply, Transportation and Storage Agreements.
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Liquidity and Capital Resources |
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The Funding Corp. and the Partnerships
- Cash flow generated by the Partnerships during 2003 was sufficient to fund operating expenses as well as the debt service requirements of the Funding Corp. Debt maturities of the Funding Corp. will require cash outflows of approximately $356.7 million in principal and interest through 2008, including $61.5 million in 2004. It is anticipated that cash requirements for principal and interest payments in 2004 will be satisfied with the Partnerships' operational cash flow. Operational cash flow may be affected by, among other things, changes in laws or regulations, including the PURPA, weather conditions, competition for retail and wholesale customers, availability, pricing and transportation of fuel and other energy commodities, and market demand for energy. See Funding Corp.'s Note 3 to Financial Statements, and Note 4 to Consolidated and Combined Financial Statements - Funding Corp. |
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Contributions from partners were $61.3 million, $23.3 million and $0 million in 2003, 2002 and 2001, respectively. The contributions from partners in 2003 were used to pay for restructurings of contracts and settlement of the NEA energy bank. See "Results of Operations" for further discussion of the dispute and resolution of this energy bank.
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Letters of credit were established to satisfy requirements in certain power purchase agreements. As of December 31, 2003, one letter of credit related to a power purchase agreement remains. This letter of credit can be drawn upon in multiple drawings in favor of the power purchaser in the event that the power purchase agreement has terminated at the time when there is a positive energy bank balance existing. See Note 7 to Consolidated and Combined Financial Statements - Energy Bank and Loan Collateral.
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The Acquisition Corp. and NE LP
- Cash flow generated by NE LP during 2003 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 $502.1 million in principal and interest through 2008, including $86.3 million in 2004. Debt maturities of NE LP's note payable-affiliate will require NE LP cash outflows of approximately $35.7 million in principal and interest through 2011, including $4.8 million in 2004. It is anticipated that cash requirements for principal and interest payments in 2004 will be satisfied with NE LP's operational cash flow. Operational cash flow may be affected by, among other things, changes in laws or regulations, including the PURPA, weather conditions, competition for retail and wholesale customers, availability, pricing and transportation of fuel and other energy commodities, an
d market demand for energy. See Acquisition Corp.'s Note 3 to Financial Statements, and Note 4 to Consolidated and Combined Financial Statements - Acquisition Corp. |
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Contributions from partners were $24.0 million, $23.3 million and $0 million in 2003, 2002 and 2001, respectively. These contributions were used to fund contract restructurings.
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Letters of credit were established to satisfy requirements in certain power purchase agreements. As of December 31, 2003, one letter of credit related to a power purchase agreement remains. This letter of credit can be drawn upon in multiple drawings in favor of the power purchaser in the event that the power purchase agreement has terminated at the time when there is a positive energy bank balance existing. See Note 7 to Consolidated and Combined Financial Statements - Energy Bank and Loan Collateral.
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The long-term contractual obligations of NE LP and the Partnerships at December 31, 2003 were as follows:
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NE LP AND THE PARTNERSHIPS
December 31, 2003
(Thousands of Dollars)
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1. Nature of Business |
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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). NE LP is jointly owned by subsidiaries of ESI Energy, LLC (ESI Energy) and Tractebel Power, Inc. (Tractebel Power). ESI Energy is wholly-owned by FPL Energy, LLC (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, industrial services and energy services business, and a member of the Suez group. NE LP also formed a wholly-owned subsidiary, Northeast Energy, LLC (NE
LLC) to assist in such acquisitions. NE LP had no financial activity prior to January 1, 1998.
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The Partnerships were formed in 1986 to develop, construct, own, operate and manage two separate nominal 300 megawatt (mw) 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 had been granted permission by the FERC to operate as qualifying facilities (QFs) as defined in the Public Utility Regulatory Policies Act of 1978, as amended and as defined in federal regulations. In December 2003, NJEA executed an amended and restated power purchase agreement and no longer operates as a QF. NEA continues to operate as a QF. NJEA now has Electric Wholesale Generator status and market base rate authority which allows NJEA to sell power at market rates.
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The partners of NE LP and the Partnerships 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 relating to the debt issued by the Acquisition Corp.
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2. Summary of Significant Accounting Policies |
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Basis of Presentation
- The accompanying consolidated financial statements include the accounts of NE LP and subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The accompanying combined financial statements include the accounts of NEA and NJEA for all periods and are combined based on common ownership. All material intercompany transactions have been eliminated in the combination. Certain amounts included in prior years' consolidated and combined financial statements have been reclassified to conform to the current year's presentation. |
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Impairment of Long-Lived Assets
- NE LP and the Partnerships (collectively, the registrants) evaluate on an ongoing basis the recoverability of their assets and related intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable as described in FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." |
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Goodwill and Other Intangible Assets -
Effective January 1, 2002, the registrants adopted FAS 142, "Goodwill and Other Intangible Assets." FAS 142 requires the carrying amount of intangible assets that do not meet the criteria for recognition apart from goodwill to be reclassified as goodwill. The registrants do not have any intangible assets that require such reclassification. FAS 142 also requires each of the registrants to reassess the useful lives and method of amortization of its intangible assets. FAS 142 did not have a material effect on the registrants' financial statements. |
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Accounting for Asset Retirement Obligations
- Effective January 1, 2003, the registrants adopted FAS 143, "Accounting for Asset Retirement Obligations." The statement requires that a liability for the fair value of an asset retirement obligation be recognized in the period in which it is incurred with the offsetting associated asset retirement cost capitalized as part of the carrying amount of the long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over its useful life. Changes in the asset retirement obligation resulting from the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense. The implementation of FAS 143 did not have a material effect on the registrant's financial statements. |
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Variable Interest Entities (VIEs)
- In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, "Consolidations of Variable Interest Entities." In December 2003, the FASB revised FIN 46, which partially delayed its effective date for public companies until the first quarter of 2004, but permitted companies to choose earlier adoption for some or all of their investments. FIN 46 requires the consolidation of entities which are determined to be VIEs when the reporting company determines that it will absorb a majority of the VIE's expected losses, receive a majority of the VIE's residual returns, or both. The company that is required to consolidate the VIE is called the primary beneficiary. Conversely, the reporting company would be required to deconsolidate VIEs which are currently consolidated when the company is not considered to be the primary beneficiary. Variable interests are contractual, ownership or other monetary interests in an entity that change with changes in
the fair value of the entity's net assets exclusive of variable interests. An entity is considered to be a VIE when its capital is insufficient to permit it to finance its activities without additional subordinated financial support or its equity investors, as a group, lack the characteristics of having a controlling financial interest. Under their current structure, none of the registrants believes it will be required to consolidate any VIEs beginning in the first quarter of 2004. |
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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, 2003 and 2002, the recorded amount of cash approximates its fair value. |
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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, fixed escalation factors and other conditions. 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 on the balance sheets in energy bank and other liabilities. Revenue from steam sales is recognized upon delivery. |
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Cogeneration Facilities, Carbon Dioxide Facility and Other Assets
- The facilities and other assets are depreciated using the straight-line method over their estimated useful lives ranging from 5 to 34 years. |
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Major Maintenance
- 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 periods ended December 31, 2003, 2002 and 2001, the Partnerships recorded major maintenance expense of $4.6 million, $4.7 million and $7.3 million, respectively. At December 31, 2003 and 2002, the Partnerships had $12.4 million and $9.1 million of accrued major maintenance expense, respectively. |
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Inventories
- Fuel inventories consist of natural gas and fuel oil and are stated at the lower of cost, determined on an average cost basis, or market. Spare parts inventories are stated at lower of cost or market and are determined by specific identification. |
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Power Purchase Agreements
- The fair value of the power purchase agreements acquired 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. |
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Fuel Contract
- The fair value of the remaining fuel contract which was acquired is being amortized on a straight-line basis over the term of the contract. |
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Natural Gas Hedging Instruments
- Periodic settlements on natural gas 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. |
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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 effective interest method. |
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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. |
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Contract Restructurings - Due to the lack of specific accounting guidance, when a contract is restructured, NE LP and the Partnerships analogize to EITF 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments" and EITF 01-07, "Creditor's Accounting for a Modification or Exchange of Debt Instruments" to account for the transactions. If a contract is to be accounted for as a termination, the remaining net book value of the asset or liability is removed from the balance sheet, the cash that is exchanged between the parties is recognized as either income or expense, the fair value of the new contract is recorded on the balance sheet and a gain or loss is recognized on the statement of operations. If a contract is to be accounted for as a modification, cash that is exchanged between the parties is added or subtracted to the basis of the asset or liability.
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Accounting for Derivative Instruments and Hedging Activities - Effective January 1, 2001, NE LP and the Partnerships adopted FAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by FAS 137 and 138 (collectively, FAS 133). As a result, beginning in January 2001, derivative instruments are recorded on NE LP's and the Partnerships' balance sheets as either an asset or liability (in prepaid expenses and other current assets and other accrued expenses) measured at fair value. NE LP and the Partnerships use derivative instruments (primarily swaps and options) to manage the commodity price risk inherent in power and fuel purchases.
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For NE LP and the Partnerships, changes in the derivatives' fair values are recognized currently in earnings (in fuel costs) unless hedge accounting is applied. While substantially all of NE LP's and the Partnerships' derivative transactions are entered into for the purposes described above, hedge accounting is only applied where specific criteria are met and it is practicable to do so. In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective. The hedging instrument's effectiveness is assessed utilizing regression analysis at the inception of the hedge and on at least a quarterly basis throughout its life. Hedges are considered highly effective when a correlation coefficient of .8 or higher is achieved. All of the transactions that NE LP and the Partnerships have designated as hedges are cash flow hedges. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of oth
er comprehensive income and is reclassified into net income in the period(s) during which the transaction being hedged affects earnings. The ineffective portion of these hedges flows through earnings in the current period. Settlement gains and losses are passed through fuel expense.
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In January 2001, NE LP and the Partnerships recorded an unrealized $18.3 million gain as the cumulative effect of adopting FAS 133, representing the effect of those derivative instruments for which hedge accounting was not applied. For those contracts where hedge accounting was applied, the adoption of the new rules resulted in a credit of approximately $4.3 million to other comprehensive income for NE LP and the Partnerships.
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Effective July 1, 2003, NE LP and the Partnerships adopted FAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (FAS 149). The statement amends and clarifies financial accounting and reporting for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. There was no financial statement impact upon adoption of FAS 149. However, the statement could have a significant future impact on the number of contracts that will be marked to market through earnings.
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Effective October 1, 2003, NE LP and the Partnerships adopted Emerging Issues Task Force (EITF) Issue No. 03-11 (EITF 03-11), which provides guidance on whether to report realized gains or losses on physically settled derivative contracts not held for trading purposes on a gross or net basis and requires realized gains or losses on derivative contracts that do not settle physically to be reported on a net basis. The guidance in EITF 03-11 was applied to all periods presented and was applied using a revised definition of "physical delivery." Based on changes made by FAS 149, NE LP and the Partnerships believe that where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore, under these new rules, physical delivery has not occurred. Previously, NE LP and the Partnerships generally reported contracts requiring physical delivery of a commodity on a gross basis, even when an offsetting position e
xisted. Under EITF 03-11 revenue was reduced by $4.0 million for the year ended December 31, 2003. There was no change to revenue in 2002 and 2001. Fuel cost was increased (decreased) by $3.9 million, $(7.3) million and $21.6 million for the years ended December 31, 2003, 2002 and 2001, respectively. These amounts were reclassified from change in fair value of derivatives on the Consolidated and Combined Statements of Operations. Therefore, there was no change to net income in 2003, 2002 and 2001. Neither NE LP or the Partnerships had a significant change as a result of adopting EITF 03-11.
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Effective October 1, 2003, NE LP and the Partnerships also adopted the U.S. Securities and Exchange Commission (SEC) staff guidance requiring the realized and unrealized effects of derivative instruments not accounted for as hedges to be reported within the same caption on the statements of operations. NE LP and the Partnerships had no significant change as a result of adopting the SEC staff guidance.
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Accumulated other comprehensive income (loss) is separately displayed in NE LP's and the Partnerships' balance sheets. Included in NE LP's and the Partnerships' accumulated other comprehensive income at December 31, 2003 is approximately $1.2 million of net unrealized gains associated with cash flow hedges of forecasted fuel purchases through December 2004, all of which is expected to be reclassified into net income within the next twelve months. Accumulated other comprehensive income of NE LP and the Partnerships of approximately a $16.4 million gain was reclassified into net income for the twelve months ended December 31, 2003. Within other comprehensive income, approximately $15.2 million represents the effective portion of the net gain on cash flow hedges during the twelve months ended December 31, 2003.
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Comprehensive income below includes net income and net unrealized gains (losses) on cash flow hedges of forecasted fuel purchases for both NE LP and the Partnerships of approximately $(1.2) million, and $4.3 million for the years ended December 31, 2003 and 2002, respectively.
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Use of Estimates
- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. |
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3. Cogeneration Facilities, Power Purchase Agreements and Carbon Dioxide Facility |
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Power Purchase Agreements
- In 1986, NEA entered into three power purchase agreements with three Massachusetts utilities, and in 1988, NEA entered into two power purchase agreements with two Massachusetts utilities. Under the five power purchase agreements, NEA agreed to sell approximately 290 mw per year at initial floor prices per kwh subject to adjustment based on actual volumes purchased, fixed 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 approximately 250 mw per year 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 these receivables. However, management does not believe significant credit risk exists at December 31, 2003. |
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In February 2003, NJEA entered into an agreement to modify the gas index used for calculating the energy price in the power purchase agreement with a New Jersey utility. This modification was effective as of August 14, 2002 with the rate being adjusted annually on August 14th of each year. Since August 14, 2002, the New Jersey utility had been paying for power under the rate that was in effect prior to the modification and in March 2003 the New Jersey utility paid $9.2 million to NJEA representing the additional amount owed to NJEA using the agreed upon index. Payments for power delivered beginning February 1, 2003 through the end of the term of the power purchase agreement were made using the agreed upon index. In November 2003, this agreement was approved by the state regulatory authority. However, this agreement was terminated when the amended and restated power purchase agreement mentioned below became effective in December 2003.
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In December 2003, NJEA's agreement with the New Jersey utility to amend and restate the power purchase agreement became effective. The agreement provides for, among other things, the ability to deliver electricity to the utility from sources other than NJEA's facility at NJEA's discretion. In connection with this restructuring, NJEA amended its remaining long-term gas supply agreement and terminated the long-term gas supply agreements with TEMI and PMI in January 2004. Under the terms of the amended long-term gas supply agreement, the supplier will provide all of the fuel required to run the facility when it is operating. NJEA also entered into two off-peak power purchase contracts with PMI and TEMI which were effective in January 2004. Under the terms of these contracts PMI and TEMI will sell power to NJEA to be sold by NJEA to the New Jersey utility.
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For the years ended December 31, 2003, 2002 and 2001, power sale revenues from two different utilities accounted for approximately 40% and 46%, 39% and 49%, and 41% and 46%, respectively, of NE LP's and the Partnerships' total consolidated and combined revenues excluding energy bank revenues.
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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 prices under the Partnerships' power purchase agreements, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain.
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Energy Bank Balances
- Two of the power purchase agreements continue to have energy banks and record cumulative payments made by the utilities in excess of avoided cost rates scheduled or specified in such agreements. The energy bank balances bear interest at various rates specified in the agreements. Upon termination of the agreements, with the exception of the NEA power purchase agreement discussed below, some or all of the remaining amounts recorded in the energy banks will be required to be repaid. The remaining energy bank balance is partially secured by a letter of credit (see Note 7 - Energy Bank and Loan Collateral). |
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In December 2000, NEA exercised its option to receive a reduced energy payment for the period remaining on one of the power purchase agreements (PPA) in lieu of paying the energy bank balance existing as of that date. The $24.9 million balance as of December 31, 2000 was being amortized into revenue on a straight-line basis over the remaining life of the agreement which expires on September 15, 2021. NEA's accounting treatment reflected the position that, as of December 31, 2000, the energy bank balance represented deferred revenue and was being reduced for the discounted amount of the energy payments on a straight-line basis over the remaining life of the PPA. The power purchaser (Power Purchaser) disputed this position. The Power Purchaser contended that the energy bank balance was being adjusted monthly and could require a significant payment by NEA upon termination. On October 31, 2002, the Power Purchaser filed a demand for arbitration with the American Arbitration Association in thi
s matter.
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On March 31, 2003, the energy bank was terminated resulting in an $11.1 million gain for NEA. In connection with the termination, a settlement of the disputes in connection with the arbitration was reached between NE LP, acting on its behalf and on behalf of NEA, and another company (Agent), acting on its behalf and on behalf of the Power Purchaser. The registrants understand that the Agent acts as agent and representative of the Power Purchaser with respect to the PPA. Under the terms of the settlement, the arbitration was irrevocably dismissed and the related claims released, any energy bank obligations under the PPA were terminated, the energy bank balance of $22.2 million was eliminated, and NE LP paid approximately $11.1 million plus interest to the Agent in June 2003.
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As a condition to this settlement, the Agent entered into an agreement (PMI Agreement) with PMI. Under the terms of the PMI Agreement, until termination of the PPA, PMI is to purchase power from the Agent under the same terms as the Agent purchases power under the PPA, as the Power Purchaser's agent and representative. Also, under the PMI Agreement the parties agreed to seek approvals and satisfy conditions for NEA to terminate the PPA on or before December 31, 2003. Those approvals and conditions included approvals under the indentures relating to the Funding Corp. and Acquisition Corp. secured notes and bonds. The parties have been unable to satisfy the conditions and will continue to operate under the existing terms of the PPA.
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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 the thermal energy produced for sale to unrelated third parties. In 1990, NEA entered into an amended and restated steam sales agreement with a processor and seller of carbon dioxide. The amended and restated NEA steam sales agreement extended for the same term as the carbon dioxide facility's lease, with automatic extension for any renewal period under that lease. Pursuant to the steam sales agreement, NEA sold a portion of the steam generated by the NEA facility at a price that fluctuated 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 was $0.1 million per month, adjusted by the operating results of the facili
ty as outlined in the lease agreement. Additionally, NEA paid the steam user $0.1 million annually for administrative services related to the operation of the carbon dioxide facility. |
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In October 2002, NEA terminated all agreements with the steam sales user and lessee and entered into a new operating lease and ancillary agreements with a new lessee effective January 1, 2003 through September 14, 2016. Under the terms of the operating lease agreement, the lessee will operate and maintain NEA's carbon dioxide facility. Base rent under the lease is $0.1 million per month during the winter months as defined in the agreement and $0.2 million per month during the summer months as defined in the agreement. NEA is selling a portion of the steam at a minimum charge of $0.1 million during the winter months (as defined) and $0.2 million during the summer months (as defined). Both the base rent and base steam cost are adjusted every month by the operating results of the facility as defined in the agreement.
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In 1989, NJEA entered into a 20-year steam sales agreement with a steam user adjacent to the NJEA facility. Under this agreement, NJEA sold a 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.
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In December 2003, in conjunction with the amended and restated power purchase agreement mentioned above, NJEA amended the steam sales agreement. Under the terms of the amendment NJEA is to pay a monthly fee of up to $0.4 million to the steam supplier when NJEA decides that it is not economically beneficial to operate the facility and therefore cannot sell steam to the steam supplier. NJEA no longer operates as a QF.
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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, PSE&G, PMI and TEMI. 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. |
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The ProGas contract commenced in 1991, and the initial 15-year term was subsequently extended an additional seven years. The maximum total volume of gas to be delivered under the ProGas contracts was approximately 48,800 of MMBtu per day for NEA. The contract price, including transportation, of the ProGas supply delivered to the import point is determined with reference to a base price in 1990 and re-determined annually thereafter based on specified inflation indices. The PSE&G contract commenced in 1991 and provided 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.
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In March 2003, NEA bifurcated a fuel supply contract with one of its suppliers who provided approximately 75% of NEA's daily fuel requirements to manage the variable and fixed price volumes separately. In July 2003, NEA entered into two agreements with this supplier to terminate the variable price agreement that provided for the purchase of 13,399 MMBtu/day (Termination Agreement) and to partially terminate the fixed price agreement that provided for the purchase of 35,418 MMBtu/day (Partial Termination Agreement). These agreements were executed to hedge the Partnerships' exposure to natural gas prices in anticipation of other contract restructurings.
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On August 31, 2003, the Termination Agreement became effective resulting in removal of a $39.2 million liability representing the unamortized deferred credit as of the termination date and a $15.2 million gain for NEA. In conjunction with this termination, NEA was to pay a termination fee of $24.0 million, of which $12.0 million was paid by the NE LP partners and recorded by NE LP as a capital contribution. Promissory notes were issued by the NE LP partners for the remaining $12.0 million. The notes bore interest at a rate of 6% per annum and were paid in full in January 2004.
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NEA entered into two replacement long-term gas supply agreements with PMI and TEMI which became effective September 1, 2003. These two contracts provide NEA with the same combined quantity of natural gas and with pricing that is expected to be more favorable over the term of the agreements. Affiliates of PMI and TEMI have guaranteed certain of their respective obligations under the long-term gas supply agreements.
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In connection with the amended and restated power purchase agreement mentioned above, in December 2003, NJEA amended its long-term gas supply agreement with PSE&G. Under the terms of the amended agreement, PSE&G will provide all of the fuel required to operate the facility when NJEA decides it is economically beneficial to do so. NJEA is required to pay a monthly fee of $0.2 million to PSE&G regardless of whether fuel is purchased during the month.
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In 2002, the Partnerships restructured certain contracts. In conjunction with these restructurings NE LP paid fees of approximately $23.9 million of which $23.3 million was funded through capital contributions by its partners. A gain of approximately $45.1 million was recognized as a result of these restructuring activities.
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During 2002, NJEA entered into two new long-term gas supply agreements with PMI and TEMI which became effective January 1, 2003. These new agreements provided the partnership with the same combined quantity of natural gas and with pricing that is more favorable to the partnership than the agreement previously in effect. Before restructuring, the prior agreement provided the partnership with approximately 37% of its fuel requirements, and approximately 18% of the total fuel requirements of the Partnerships. Affiliates of PMI and TEMI have guaranteed certain of their respective obligations under the new long-term gas supply agreements. In December 2003, these agreements were terminated in conjunction with the amended and restated power purchase agreement mentioned above.
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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 $36 million, $45 million and $46 million for the years ended December 31, 2003, 2002 and 2001, respectively. Total payments under such contracts were approximately $166.9 million, $163.9 million and $156.3 million in 2003, 2002 and 2001, respectively, inclusive of demand charges. Total charges under the contract with PSE&G, including transportation costs, during 2003, 2002 and 2001, were approximately $49.9 million, $31.2 million and $41.6 million, respectively. NEA's facility also has the capability to burn No. 2 fuel oil which is stored on site for contingency supply.
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4. Loans Payable |
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Funding Corp.
- The proceeds from the Funding Corp.'s secured notes (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., and, thus, the Partnerships, have borrowings outstanding as follows: |
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Exhibit No. |
Description |
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3.1(1)
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Certificate of Incorporation of the Funding Corp.
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3.1.1(5)
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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
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3.1.2(6)
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Certificate of Incorporation of the Acquisition Corp. as filed with the Secretary of State of the State of Delaware on January 12, 1998
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3.2(5)
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By-laws of the Funding Corp.
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3.2.1(6)
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By-laws of the Acquisition Corp.
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3.3(5)
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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
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3.4(5)
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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
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3.5(5)
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Amended and Restated Agreement of Limited Partnership of NEA dated as of November 21, 1997
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3.6(5)
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Amended and Restated Agreement of Limited Partnership of NJEA dated as of November 21, 1997
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3.7(5)
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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
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3.8(5)
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Agreement of Limited Partnership of NE LP, a Delaware limited partnership, dated as of November 21, 1997
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4.1(1)
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Trust Indenture dated as of November 15, 1994, among the Partnerships, the Funding Corp. and the Trustee
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4.2(1)
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First Supplemental Indenture dated as of November 15, 1994, among the Partnerships, the Funding Corp and the Trustee, including forms of the securities
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4.3(1)
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Credit Agreement dated as of December 1, 1994, among the Partnerships, each of the institutions referred to therein and Sanwa Bank Limited, New York Branch (Sanwa)
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4.4(1)
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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
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4.5(1)
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Amended and Restated Project Loan and Credit Agreement dated as of December 1, 1994, between the Partnerships and the Funding Corp.
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4.6(1)
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Partnerships' Guarantee Agreement dated as of December 1, 1994, between the Partnerships and the Trustee
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4.7(1)
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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.
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4.8(1)
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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
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4.9(1)
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Assignment and Security Agreement dated as of December 1, 1994, between the Funding Corp. and the Trustee
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4.10(1)
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Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between the Partnerships, NE LP and the Trustee
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4.11(1)
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Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NEA and the Trustee
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4.12(1)
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Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NJEA and the Trustee
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4.13(1)
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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
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4.14(1)
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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
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4.15(1)
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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
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4.16(1)
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Amended and Restated Stock Pledge Agreement dated as of December 1, 1994, between NJEA and the Trustee
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4.17(1)
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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
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4.18(1)
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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
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4.19(1)
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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
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4.20(1)
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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
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4.21(5)
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Second Supplemental Trust Indenture dated as of January 14, 1998 among the Funding Corp., NEA, NJEA and the Trustee
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4.22(5)
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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
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4.23(5)
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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
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4.24(6)
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Indenture, dated as of February 19, 1998 among the Acquisition Corp., NE LP, NE LLC, and the Trustee
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4.25(6)
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Registration Rights Agreement, dated as of February 19, 1998 by and among the Acquisition Corp., NE LP, and Goldman Sachs & Co.
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4.26(6)
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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
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4.27(6)
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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
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10.1(1)
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Accommodation Agreement dated as of June 28, 1989, between NEA, BECO, Commonwealth, Montaup, and The Chase Manhattan Bank (National Association)
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10.2.1(1)
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Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Sayreville O&M Agreement"), between NJEA and Westinghouse Power
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|
10.2.2(1)
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Letter Agreement regarding the Sayreville Heat Rate dated June 23, 1993, between NJEA and Westinghouse Power
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10.2.3(1)
|
Letter Agreement regarding extension of the Sayreville O&M Agreement dated June 23, 1993, between Westinghouse Power and NJEA
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10.2.4(1)
|
Second Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Bellingham O&M Agreement"), between NEA and Westinghouse Power
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10.2.5(1)
|
Letter Agreement regarding the Bellingham Heat Rate dated June 23, 1993, between NEA and Westinghouse
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10.2.6(1)
|
Letter Agreement regarding extension of the Bellingham O&M Agreement dated June 23, 1993, between NEA and Westinghouse Power
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10.2.7(2)
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Amendment No. 1 to the Bellingham O&M Agreement, dated as of May 1, 1995, by and between NEA and Westinghouse Power
|
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10.3.1(1)
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Power Purchase Agreement dated as of April 1, 1986 (the "BECO I Power Purchase Agreement"), between NEA and Boston Edison
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10.3.2(1)
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First Amendment to the BECO I Power Purchase Agreement dated as of June 8, 1987, between Boston Edison and NEA
|
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10.3.3(1)
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Second Amendment to the BECO I Power Purchase Agreement dated as of June 21, 1989, between Boston Edison and NEA
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10.3.4(1)
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Power Purchase Agreement dated as of January 28, 1988 (the "BECO II Power Purchase Agreement"), between NEA and Boston Edison
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10.3.5(1)
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First Amendment to the BECO II Power Purchase Agreement dated as of June 21, 1989, between NEA and Boston Edison
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10.3.6(1)
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Power Sale Agreement dated as of November 26, 1986 (the "Commonwealth I Power Purchase Agreement"), between NEA and Commonwealth
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10.3.7(1)
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First Amendment to the Commonwealth I Power Purchase Agreement dated as of August 15, 1988, between Commonwealth and NEA
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10.3.8(1)
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Second Amendment to the Commonwealth I Power Purchase Agreement dated as of January 1, 1989, between Commonwealth and NEA
|
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|
10.3.9(1)
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Power Sale Agreement dated as of August 15, 1988 (the "Commonwealth II Power Purchase Agreement"), between NEA and Commonwealth
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|
10.3.10(1)
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First Amendment to the Commonwealth II Power Purchase Agreement dated as of January 1, 1989, between NEA and Commonwealth
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|
10.3.11(1)
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Power Purchase Agreement dated as of October 17, 1986 (the "Montaup Power Purchase Agreement"), between NEA and Montaup
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|
10.3.12(1)
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First Amendment to the Montaup Power Purchase Agreement dated as of June 28, 1989, between Montaup and NEA
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|
10.3.13(1)
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Power Purchase Agreement dated as of October 22, 1987 (the "JCP&L Power Purchase Agreement"), between NJEA and JCP&L
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10.3.14(1)
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First Amendment to the JCP&L Power Purchase Agreement dated as of June 16, 1989, between JCP&L and NJEA
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|
10.4.1(1)
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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
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10.4.2(1)
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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")
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10.4.3(1)
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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")
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10.4.4(1)
|
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")
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|
10.4.5(1)
|
ProGas/TransCanada NE Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada Pipelines Limited, an Ontario corporation ("TransCanada")
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10.4.6(1)
|
Northeast Gas Substitution Agreement dated as of July 30, 1993, among ProGas, NEA and TransCanada
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|
10.4.7(1)
|
Northeast Notice and Consent dated as of July 30, 1993, among NEA, ProGas and TransCanada
|
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|
10.4.8(1)
|
ProGas NE Producer Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada
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|
10.4.9(1)
|
Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA, ProGas USA and ProGas
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|
10.4.10(1)
|
Firm Gas Transportation Agreement (Rate Schedule X-319) dated as of February 27, 1991, between Transco and NJEA
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|
10.4.11(1)
|
Gas Purchase and Sales Agreement dated as of May 4, 1989 (the "PSE&G Agreement"), between NJEA and PSE&G
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|
10.5.1(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
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|
10.5.2(1)
|
Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NJEA
|
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|
10.5.3(2)
|
Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NEA
|
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|
10.5.4(2)
|
Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NJEA
|
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|
10.6.1(1)
|
Gas Purchase Contract dated as of May 12, 1988 (the "Bellingham ProGas Agreement"), between ProGas and NEA
|
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|
10.6.2(1)
|
First Amending Agreement to the Bellingham ProGas Agreement dated as of April 17, 1989, between ProGas and NEA
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|
10.6.3(1)
|
Second Amending Agreement to the Bellingham ProGas Agreement dated as of June 23, 1989, between ProGas and NEA
|
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|
10.6.4(1)
|
Amending Agreement to the ProGas Agreements (as defined below) dated as of November 1, 1991, between ProGas, NEA and NJEA
|
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|
10.6.5(1)
|
Third Amending Agreement to the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA
|
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|
10.6.6(1)
|
Letter Agreement regarding the Bellingham ProGas Agreement dated as of September 14, 1992, between ProGas and NEA
|
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|
10.6.7(1)
|
Letter Agreement regarding the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA
|
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|
10.7.1(1)
|
Amended and Restated Steam Sales Agreement dated as of December 21, 1990, between NEA and NECO-Bellingham, Inc., a Massachusetts corporation ("NECO")
|
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|
10.7.2(1)
|
Industrial Steam Sales Contract dated as of June 5, 1989, between NJEA and Hercules Incorporated, a Delaware corporation ("Hercules")
|
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|
10.8.1(1)
|
Letter agreement regarding Bellingham Project power transmission arrangements dated June 29, 1989, between NEA and BECO
|
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|
10.8.2(1)
|
Letter agreement regarding Bellingham Project power transmission arrangements dated June 6, 1989, between NEA and Commonwealth
|
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|
10.8.3(1)
|
Letter agreement regarding Bellingham Project power transmission arrangements dated June 28, 1989, between NEA and Montaup
|
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|
10.9(1)
|
Amended and Restated Interconnection Agreement dated as of September 24, 1993, between BECO and NEA
|
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|
10.10. 1(4)
|
Guaranty of Contract for Operation and Maintenance dated May 12, 1995 by Westinghouse Power
|
| |
|
10.10.2(1)
|
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
|
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|
10.11.1(1)
|
Ground Lease Agreement dated as of June 28, 1989, between NJEA and ETURC
|
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|
10.11.2(1)
|
Agreement of Sublease dated as of June 28, 1989, between ETURC and NJEA
|
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|
10.11.3(1)
|
Lease of Property dated as of June 1, 1986, between Prestwich Corporation and NE LP
|
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|
10.12.1(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
|
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|
10.12.2(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
|
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|
10.13(1)
|
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
|
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|
10.14(1)
|
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated June 29, 1989, by NEA in favor of BECO, Commonwealth and Montaup
|
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|
10.15(3)
|
Declaration of Easements, Covenants, and Restrictions dated as of June 28, 1989 by NEA
|
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|
10.16(5)
|
Operation and Maintenance Agreement dated as of November 21, 1997 by and between NE LP and FPLE Operating Services
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|
10.17(5)
|
Operation and Maintenance Agreement dated as of November 21, 1997 by and between NE LP and FPLE Operating Services
|
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|
10.18(5)
|
Fuel Management Agreement, dated as of January 20, 1998, effective retroactive to January 14, 1998, by and between NE LP and ESI Northeast Fuel, assigned by NE LP to NEA on January 20, 1998
|
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10.19(5)
|
Fuel Management Agreement, dated as of January 20, 1998, effective retroactive to January 14, 1998, by and between NE LP and ESI Northeast Fuel, assigned by NE LP to NJEA on January 20, 1998
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|
10.20(5)
|
Administrative Services Agreement dated as of November 21, 1997 between NE LP and ESI GP
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|
10.21(6)
|
Reimbursement Agreement dated as of November 21, 1997 by and among FPL Group Capital, Tractebel Power and NE LP
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|
10.22(7)
|
Termination Agreement, dated August 9, 2002, between ProGas and NJEA
|
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|
10.23(8)
|
Base Contract for Sale and Purchase of Natural Gas, dated October 2, 2002, between PMI and NJEA
|
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|
10.24(8)
|
Base Contract for Sale and Purchase of Natural Gas, dated September 26, 2002, between TEMI and NJEA
|
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|
10.25(8)
|
Guarantee, dated October 2, 2002, between FPL Group Capital Inc and NJEA
|
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|
10.26(8)
|
Guaranty, dated October 2, 2002, by Tractebel S.A. in favor of NJEA
|
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|
10.27(9)
|
Operating Lease Agreement dated as of October 10, 2002 between NEA and The BOC Group, Inc.
|
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|
10.28(9)
|
On-Site Steam Supply Agreement between NEA and The BOC Group, Inc. dated as of October 10, 2002
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|
10.29(9)
|
Three Party Agreement dated as of October 10, 2002 among The BOC Group, Inc., Praxair, Inc. and NEA
|
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|
10.30(9)
|
Consent and Agreement dated as of October 10, 2002 among The BOC Group, Inc. and Praxair, Inc.
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|
10.31(9)
|
Flue Gas Supply Agreement dated as of October 10, 2002 between NEA and Praxair, Inc.
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|
10.32(9)
|
BOC Flue Gas Agreement of Sale dated as of October 10, 2002 by and between The BOC Group, Inc. and NEA
|
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|
10.33(9)
|
Agreement dated February 28, 2003 between JCP&L and NJEA relating to the Power Purchase Agreement dated as of October 22, 1987, as amended
|
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|
10.34(9)
|
Transition Services Agreement dated as of October 11, 2002 by and between The BOC Group, Inc. and NEA
|
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|
10.35(10)
|
Service Agreement, dated February 1, 2003, between Transcontinental Gas Pipe Line Corporation and NJEA
|
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|
10.36(10)
|
Service Agreement, dated February 1, 2003, between Transcontinental Gas Pipe Line Corporation and NEA
|
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|
10.37(10)
|
Amending Agreement, dated as of March 1, 2003, between ProGas and NEA
|
| |
|
10.38(11)
|
Termination Agreement, dated as of July 11, 2003, between ProGas and NEA
|
| |
|
10.39(11)
|
Partial Termination Agreement, dated July 11, 2003, between ProGas and NEA
|
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|
10.40(12)
|
Base Contract for Sale and Purchase of Natural Gas, dated August 1, 2003, between PMI and NEA
|
| |
|
10.41(12)
|
Base Contract for Sale and Purchase of Natural Gas, dated August 1, 2003, between TEMI and NEA
|
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|
10.42(12)
|
Guarantee, dated August 1, 2003, by FPL Group Capital in favor of NEA
|
| |
|
10.43(12)
|
Guaranty, dated August 1, 2003, by Tractebel S.A. in favor of NEA
|
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|
10.44(12)
|
First Amendment to Guarantee, dated August 1, 2003, by FPL Group Capital, with the consent and acknowledgement of NEA
|
| |
|
10.45(12)
|
First Amendment to Guarantee, dated October 2, 2002, by FPL Group Capital, with the consent and acknowledgement of NJEA
|
| |
|
10.46
|
Amended and Restated Power Purchase Agreement dated as of May 16, 2003 by and between NJEA and JCP&L
|
| |
|
10.47
|
Sayreville Execution Agreement dated May 16, 2003 between JCP&L and NJEA
|
| |
|
10.48
|
Amendment to Gas Purchase and Sales Agreement dated as of August 20, 2003 by and between PSE&G and NJEA
|
| |
|
10.49
|
Capacity Transfer Agreement dated October 9, 2003 between NJEA and PSE&G Energy Resources & Trade LLC
|
| |
|
10.50
|
Termination Agreement dated as of October 21, 2003 between Hercules Incorporated and NJEA
|
| |
|
10.51
|
Letter Agreement dated October 9, 2003 by and between PSE&G and NJEA
|
| |
|
10.52
|
First Amendment to Amended and Restated Power Purchase Agreement dated as of October 21, 2003 by and between NJEA and JCP&L
|
| |
|
10.53
|
First Amendment to Industrial Steam Sales Contract dated as of December 16, 2003 by and between NJEA and Hercules Incorporated
|
| |
|
10.54
|
Second Amendment to Amended and Restated Power Purchase Agreement dated as of December 16, 2003 by and between NJEA and JCP&L
|
| |
|
10.55
|
Interim Agreement dated December 18, 2003 by and between NJEA and JCP&L
|
| |
|
10.56
|
Guaranty dated as of December 23, 2003 by Suez-Tractebel S.A. in favor of PSE&G
|
| |
|
10.57
|
Guarantee dated as of December 23, 2003 by FPL Group Capital Inc in favor of PSE&G
|
| |
|
10.58
|
Termination Agreement dated December 23, 2003 by and between NJEA and TEMI
|
| |
|
10.59
|
Termination Agreement dated December 23, 2003 by and between NJEA and PMI
|
| |
|
21
|
Subsidiaries of the Registrants
|
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|
31(a)
|
Rule 13a-14(a)/15d-14(a) Certification of President (equivalent to the Chief Executive Officer) of ESI Tractebel Funding Corp.
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31(b)
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Rule 13a-14(a)/15d-14(a) Certification of Treasurer (equivalent to the Chief Financial Officer) of ESI Tractebel Funding Corp.
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31(c)
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Rule 13a-14(a)/15d-14(a) Certification of President (equivalent to the Chief Executive Officer) of ESI Tractebel Acquisition Corp.
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31(d)
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Rule 13a-14(a)/15d-14(a) Certification of Treasurer (equivalent to the Chief Financial Officer) of ESI Tractebel Acquisition Corp.
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31(e)
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Rule 13a-14(a)/15d-14(a) Certification of President (equivalent to the Chief Executive Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of Northeast Energy Associates, a limited partnership
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31(f)
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Rule 13a-14(a)/15d-14(a) Certification of Vice President and Treasurer (equivalent to the Chief Financial Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of Northeast Energy Associates, a limited partnership
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31(g)
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Rule 13a-14(a)/15d-14(a) Certification of President (equivalent to the Chief Executive Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of North Jersey Energy Associates, a limited partnership
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31(h)
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Rule 13a-14(a)/15d-14(a) Certification of Vice President and Treasurer (equivalent to the Chief Financial Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of North Jersey Energy Associates, a limited partnership
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31(i)
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Rule 13a-14(a)/15d-14(a) Certification of President (equivalent to the Chief Executive Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of Northeast Energy, LP
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31(j)
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Rule 13a-14(a)/15d-14(a) Certification of Vice President and Treasurer (equivalent to the Chief Financial Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of Northeast Energy, LP
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32(a)
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Section 1350 Certification of President (equivalent to the Chief Executive Officer) and Treasurer (equivalent to the Chief Financial Officer) of ESI Tractebel Funding Corp.
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32(b)
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Section 1350 Certification of President (equivalent to the Chief Executive Officer) and Treasurer (equivalent to the Chief Financial Officer) of ESI Tractebel Acquisition Corp.
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32(c)
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Section 1350 Certification of President (equivalent to the Chief Executive Officer) and Vice President and Treasurer (equivalent to the Chief Financial Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of Northeast Energy Associates, a limited partnership
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32(d)
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Section 1350 Certification of President (equivalent to the Chief Executive Officer) and Vice President and Treasurer (equivalent to the Chief Financial Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of North Jersey Energy Associates, a limited partnership
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32(e)
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Section 1350 Certification of President (equivalent to the Chief Executive Officer) and Vice President and Treasurer (equivalent to the Chief Financial Officer) of ESI Northeast Energy GP, Inc. as Administrative General Partner of Northeast Energy, LP
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