1
Filed Pursuant to Rule 424B5
Registration No. 333-62958
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT DELIVER THESE SECURITIES UNTIL A FINAL PROSPECTUS SUPPLEMENT
IS DELIVERED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT
OFFERS TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 11, 2001
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 2, 2001)
$
NRG ENERGY, INC.
$ % SENIOR NOTES DUE
[NRG LOGO]$ % SENIOR NOTES DUE
------------------------
The notes due will bear interest at the rate of % per year,
and the notes due will bear interest at the rate of % per year.
Interest on the notes is payable on and of each year,
beginning on , . The % notes will mature on ,
, and the % notes will mature on , . We may redeem
some or all of the notes of each series at any time. The redemption prices are
discussed under the caption "Description of Notes -- Optional Redemption."
The notes will be senior obligations of ours and will rank equally with all
of our existing and future unsecured senior indebtedness.
------------------------
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-12 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 4 OF THE
ACCOMPANYING PROSPECTUS.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------------
PER SENIOR NOTE DUE TOTAL PER SENIOR NOTE DUE TOTAL
------------------------ ------------ ------------------------ ------------
Public Offering Price(1) % $ % $
Underwriting Discount % $ % $
Proceeds to NRG Energy,
Inc. (before expenses) % $ % $
-------------------------
(1) Plus accrued interest from July , 2001, if settlement occurs after that
date.
------------------------
The underwriters are offering the notes subject to various conditions. The
underwriters expect to deliver the notes to purchasers, in book-entry form only
through The Depository Trust Company, on or about July , 2001.
------------------------
Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC DEUTSCHE BANC ALEX. BROWN
Co-Managers
ABN AMRO INCORPORATED
BARCLAYS CAPITAL
TD SECURITIES
TOKYO-MITSUBISHI INTERNATIONAL PLC
WILLIAMS CAPITAL GROUP, L.P.
July , 2001
2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THE DOCUMENT
CONTAINING THE INFORMATION.
---------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-12
Use of Proceeds............................................. S-13
Description of Notes........................................ S-14
Underwriting................................................ S-16
Legal Matters............................................... S-17
PROSPECTUS
About this Prospectus....................................... 1
Where You Can Find More Information......................... 1
Incorporation of Certain Documents by Reference............. 1
Forward-Looking Statements.................................. 2
Risk Factors................................................ 4
The Company................................................. 15
Use of Proceeds............................................. 16
Earnings to Fixed Charges Ratio............................. 16
Description of Debt Securities.............................. 16
Description of Stock........................................ 25
Description of Warrants..................................... 29
Description of Depositary Shares............................ 30
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 33
Plan of Distribution........................................ 33
Legal Matters............................................... 34
Experts..................................................... 34
i
3
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first is this prospectus supplement,
which describes the specific terms of this offering. The second part, the
accompanying prospectus, gives more general information, some of which may not
apply to this offering.
If the description of the offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement.
Unless we have indicated otherwise, references in this prospectus
supplement and the accompanying prospectus to "NRG," "we," "us" and "our" or
similar terms are to NRG Energy, Inc. and its consolidated subsidiaries.
ii
4
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by and should be read
together with the more detailed information and financial statements included or
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
NRG ENERGY, INC.
NRG Energy, Inc. is a leading global energy company primarily engaged in
the acquisition, development, ownership and operation of power generation
facilities and the sale of energy, capacity and related products. We believe we
are one of the three largest independent power generation companies in the
United States and the fifth largest independent power generation company in the
world, measured by our net ownership interest in power generation facilities. We
own all or a portion of 73 generation projects, including projects under
construction, that have a total generating capacity of 34,776 megawatts ("MW");
our current net ownership interest in those projects is 21,612 MW, of which
17,174 MW are located in the United States. In addition, we are actively
pursuing the acquisition and development of additional generation projects.
As the following table illustrates, we have grown significantly during
recent years, primarily as a result of our success in acquiring domestic power
generation facilities:
YEAR ENDED DECEMBER 31,
--------------------------------------- COMPOUND ANNUAL
1997 1998 1999 2000 GROWTH RATE
------- ------- -------- -------- ---------------
Net Ownership Interest (in MW
at end of period, including
projects under
construction).............. 2,637 3,300 10,990 15,007 78.5%
Operating Income (in
thousands)................. $18,109 $57,012 $109,520 $573,073 216.3%
EBITDA (in thousands)(1)..... $39,790 $82,711 $161,516 $692,548 159.2%
Net Income (in thousands).... $21,982 $41,732 $ 57,195 $182,935 102.7%
---------------
(1) EBITDA is the sum of income (loss) before income taxes, interest expense
(net of capitalized interest) and depreciation and amortization expense.
EBITDA is a measure of financial performance not defined under generally
accepted accounting principles, which you should not consider in isolation
or as a substitute for net income, cash flows from operations or other
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, EBITDA may not be comparable to similarly titled
measures presented by other companies and could be misleading because all
companies and analysts do not calculate it in the same fashion.
We intend to continue our growth through a combination of targeted
acquisitions in selected core markets, the expansion or repowering of existing
facilities and the development of new greenfield projects. We have signed
agreements to acquire an additional 4,268 MW of net ownership interest in
existing generation projects and have scheduled expansion, repowering or
greenfield generation projects that would add 12,392 MW of net ownership
interest. To prepare for these expansion, repowering and greenfield development
opportunities, we have agreed to purchase 22 turbine generators from General
Electric Company and two turbine generators from Siemens Westinghouse over a
five-year period commencing in 2002. These new turbines, which we expect to
install at domestic facilities, will have a combined nominal generating capacity
of approximately 4,640 MW. In addition, we have on order three General Electric
turbines with a combined nominal capacity of approximately 740 MW scheduled for
delivery in January 2002, which we expect to install in facilities outside of
the United States. We have also acquired the right to purchase an additional 24
General Electric turbines and an additional three Siemens Westinghouse turbines
through our acquisition of assets from LS Power, LLC. These turbines have a
combined nominal generating capacity of approximately 4,306 MW. All but 1,993 MW
of the turbines we have on order have been allocated to our current, identified
expansion, repowering or greenfield development projects.
S-1
5
We have also expanded our power marketing activities, which allow us to
optimize the value of our power generation assets and enable us to better meet
our customers' energy requirements. By linking our power generation capabilities
and access to fuel supplies with our power marketing and risk management
expertise, we believe that we can secure favorable pricing for our fuel
purchases and power sales.
In addition to our power generation projects and power marketing
activities, we also have interests in district heating and cooling systems and
steam transmission operations. We also believe we are one of the largest
landfill gas generation companies in the United States, extracting methane from
landfills to generate electricity.
We were established in 1989 and are a majority-owned subsidiary of Xcel
Energy Inc. Our headquarters and principal executive offices are located at 901
Marquette Avenue, Suite 2300, Minneapolis, Minnesota 55402-3265.
STRATEGY
Our vision is to be a well-positioned, top three generator of power in
selected core markets. Central to this vision is the pursuit of a well-balanced
generation business that is diversified in terms of geographic location, fuel
type and dispatch level. Currently, approximately 79% of our net generation
capacity is located in the United States in five core markets: our Northeast,
South Central and West Coast regions, and our recently added North Central and
Mid-Atlantic regions. With our diversified asset base, we seek to have
generating capacity available to back up any given facility during its outages,
whether planned or unplanned, while having ample resources to take advantage of
peak power market price opportunities and periods of constrained availability of
generating capacity, fuels and transmission.
The following charts illustrate our diversity in terms of net MW currently
in operation or under construction:
Geographic Location
U.S. EUROPE AUSTRALIA OTHER
---- ------ --------- -----
79 9.00 10.00 2.00
Primary Fuel Type
COAL GAS OIL OTHER
---- --- --- -----
34 43.00 21.00 2.00
Dispatch Level
BASE-LOAD PEAKING INTERMEDIATE
--------- ------- ------------
41 28.00 31.00
Our strategy is to capitalize on our acquisition, development and operating
skills to build a balanced, global portfolio of power generation assets. We
intend to implement this strategy by continuing an aggressive acquisition
program and accelerating our development of existing site expansion projects and
greenfield projects. We believe that our operational skills and experience give
us a strong competitive position in the unregulated generation marketplace.
S-2
6
Domestic. The table that follows summarizes our domestic power generation
operations in our core markets and our pending acquisitions, and planned
greenfield and expansion projects.
TOTAL OUR NET
CAPACITY OWNERSHIP
UNITED STATES REGIONS STATES OF OPERATION PRIMARY FUELS (MW) INTEREST (MW)
--------------------- -------------------------- ----------------- -------- -------------
Existing
Northeast(1)................................... Connecticut, Maine, Gas, Coal and Oil 7,529 7,106
Massachusetts, New Jersey
and New York
South Central.................................. Louisiana, Oklahoma, Texas Gas and Coal 5,154 4,005
and Mississippi
West Coast..................................... California Gas and Coal 3,078 1,551
North Central.................................. Illinois Gas 3,326 3,151
Mid-Atlantic................................... 4,482 1,187
Delaware, Maryland and Coal and Oil ------ ---------
Pennsylvania
Total Existing Domestic(2)................... 23,569 17,000
------ ---------
------ ---------
Pending and Planned Projects
2,196 2,196
Connecticut Gas, Oil and Coal
Northeast......................................
3,849 3,494
Texas, Louisiana, Florida Gas
South Central.................................. and Mississippi
1,216 608
California Coal, Oil and Gas
West Coast.....................................
2,779 2,779
Illinois and Missouri Gas
North Central..................................
Mid-Atlantic(3)................................ 686 794
Pennsylvania and Coal, Oil and Gas ------ ---------
New Jersey
Total Pending and Planned Domestic........... 10,726 9,871
------ ---------
------ ---------
---------------
(1) Includes the Kingston project in Ontario, Canada (27 MW net ownership
interest).
(2) Excludes domestic assets held by NEO Corporation and the Energy Investor
Fund (108 MW net ownership interest).
(3) Net ownership interest figure is greater than total capacity figure because
we are acquiring additional fractional interests in two stations that are
already included in the total capacity figure set forth in the "Existing"
table above.
International. We are presently focusing our international development and
acquisition activities in Europe, Australia/Asia Pacific and Latin America. In
the future, we will consider other areas that are consistent with our strategy.
The table that follows describes our existing and pending international power
generation operations.
TOTAL OUR NET
CAPACITY OWNERSHIP
GLOBAL MARKETS COUNTRIES OF OPERATION PRIMARY FUELS (MW) INTEREST(MW)
-------------- ----------------------- ------------------ -------- ------------
Existing
Australia/Asia Pacific........................... Australia Coal, Landfill Gas 5,837 2,080
and Methane
Europe........................................... Czech Republic, Gas and Coal 3,036 1,853
Germany, Hungary and
United Kingdom
Latin America.................................... 1,323 478
Bolivia, Brazil and Hydro, Gas, Coal, ------ --------
certain passive Oil and Geothermal
investments
Total Existing International................... 10,196 4,411
------ --------
------ --------
Pending
3,596 1,827
Estonia and Turkey Oil Shale and Coal
Europe...........................................
1,260 650
Taiwan and India Gas
Australia/Asia Pacific...........................
Latin America.................................... 851 833
Peru Hydro and Oil ------ --------
Total Pending International.................... 5,707 3,310
------ --------
------ --------
Power Marketing and Fuel Procurement. Our energy marketing subsidiary, NRG
Power Marketing, Inc., began operations in 1998 to maximize the utilization of
and return from our domestic generation assets and to mitigate the risks
associated with those assets. This subsidiary markets energy and energy related
commodities, including electricity, natural gas, oil, coal and emission
allowances. By using internal resources to acquire fuel for and to market
electricity generated by our domestic facilities, we believe we can secure the
best pricing available in the markets in which we sell power and enhance our
ability to compete. We generally attempt to balance our fixed-price physical and
financial purchase and sale commitments in terms of contract volumes and the
timing of performance and delivery obligations; however, we do take uncovered
market positions within guidelines established by the Board of Directors of NRG
Power Marketing.
S-3
7
RECENT DEVELOPMENTS
RECENT AND PENDING ACQUISITIONS, GREENFIELD PROJECTS AND EXPANSION PROJECTS
Completed
Audrain. In June 2001, we purchased an approximately 640 MW natural
gas-fired power plant in Audrain County, Missouri from Duke Energy North America
LLC. Operation of the Audrain facility has been suspended due to problems with
the plant's transformers. The transformers are currently under repair and we
expect that commercial operation of the plant will resume in the third quarter
of 2001. The transformers are under warranty from the manufacturer.
Brazos Valley. In June 2001, we closed on the construction financing for a
633 MW gas-fired power plant in Fort Bend County, Texas that we will build,
operate and manage. At the time of the closing, we also became the 100% owner of
the project by purchasing STEAG Power LLC's 50% interest in the project. We
estimate that our investment in the project will total approximately $170
million. We expect the project to begin commercial operation in February 2003.
Conectiv. In June 2001, we purchased 1,081 MW of interests in power
generation plants from a subsidiary of Conectiv for approximately $643 million.
We acquired a 100% interest in the 784 MW coal-fired Indian River Generating
Station located near Millsboro, Delaware and in the 170 MW oil-fired Vienna
Generating Station located in Vienna, Maryland. In addition, we acquired 64 MW
of the 1,711 MW coal-fired Conemaugh Generating Station located approximately 60
miles east of Pittsburgh, Pennsylvania and 63 MW of the 1,711 MW coal-fired
Keystone Generating Station located approximately 50 miles east of Pittsburgh,
Pennsylvania.
PowerGen. In June 2001, we purchased a 389 MW gas-fired power plant and a
116 MW thermal power plant, both of which are located on Csepel Island in
Budapest, Hungary, from PowerGen. In April 2001, we also purchased from PowerGen
its interest in Saale Energie GmbH and its 33.3% interest in MIBRAG BV. By
acquiring PowerGen's interest in Saale Energie, we increased our ownership
interest in the 960 MW coal-fired Schkopau power station located near Halle,
Germany from 200 MW to 400 MW. By acquiring PowerGen's interest in MIBRAG, an
integrated energy business in eastern Germany consisting primarily of two
lignite mines and three power stations, we increased our ownership of MIBRAG
from 33.3% to 66.7%; however, MIBRAG is in the process of buying back the shares
we acquired from PowerGen, which will result in The Washington Group
International, Inc., MIBRAG's other shareholder, and us each owning 50% of
MIBRAG. We paid a total of approximately $190 million to PowerGen for all of
these interests.
Big Cajun I Expansion Project. In June 2001, we completed an approximately
240 MW expansion project at the site of our Big Cajun I facility in New Roads,
Louisiana. The expansion project cost approximately $69 million.
Pending
Conectiv. In June 2001, we extended purchase agreements that we entered
into with a subsidiary of Conectiv to acquire 794 MW of coal and oil-fired
electric generating capacity and other assets in New Jersey and Pennsylvania,
including an additional 66 MW of the Conemaugh Generating Station and an
additional 42 MW of the Keystone Generating Station. We will pay approximately
$ million for the assets. We expect the acquisition to close in the third
quarter of 2001 following approval of the New Jersey Board of Public Utilities.
Indeck. In May 2001, we signed a purchase agreement to acquire an
approximately 2,255 MW portfolio of operating projects and projects in advanced
development, including projects that we intend to develop, that are located in
Illinois and upstate New York from Indeck Energy Services, Inc. Approximately
402 MW are currently in operation, and we expect that an additional $1.3 billion
will be required to complete construction of the projects in advanced
development. In addition, we are obligated to loan to Indeck the funds needed to
service payments on turbine orders for the plants prior to close, up to
approximately $93 million, with the loan secured by the equipment and the
equipment contracts. If the transaction does not close, Indeck has six months to
repay the outstanding balance at an annual rate of
S-4
8
9.5%. The outstanding loan balance will be offset against the purchase price at
closing. We expect the acquisition to close in the third quarter of 2001.
Narva Power. In August 2000, we signed a Heads of Terms Agreement with
Eesti Energia, the Estonian state-owned electric utility, providing for the
purchase by us for approximately $65.5 million of a 49% stake in Narva Power,
the owner and operator of the oil shale-fired Eesti and Balti power plants,
located near Narva, Estonia. The plants have a combined capacity of
approximately 2,700 MW. We are working to close the acquisition in the third
quarter of 2001.
Bridgeport Harbor and New Haven Harbor. In December 2000, we signed asset
purchase agreements to acquire the 585 MW coal-fired Bridgeport Harbor Station
and the 466 MW oil and gas-fired New Haven Harbor Station in Connecticut for
approximately $325 million. Our closing of this acquisition has been delayed as
we address certain market power issues raised by federal and state regulatory
authorities. We have submitted information to the Department of Justice, FERC
and the Attorney General of the State of Connecticut, and we are involved in
ongoing discussions to resolve these issues. We currently expect the acquisition
to close in the third quarter of 2001.
Meriden. In December 2000, we signed a purchase agreement to acquire a 540
MW natural gas-fired generation facility being developed in Meriden,
Connecticut, for a purchase price of approximately $25 million. We expect to
close the acquisition in the third quarter of 2001. We estimate costs of
approximately $384 million to complete construction of the plant, which has a
planned commercial operation date of June 2003.
McClain. In May 2001, we signed a purchase agreement to acquire Duke
Energy's 77% interest in the McClain Energy Generating Facility located near
Oklahoma City, Oklahoma for approximately $283 million. The McClain facility is
in the final stage of construction and will be an approximately 500 MW
natural-gas fired plant. The plant is expected to begin commercial operation
during the third quarter of 2001, and we expect to close the acquisition in the
third quarter of 2001. The Oklahoma Municipal Power Authority owns the remaining
23% interest.
CALIFORNIA
We own approximately 1,569 MW of net generating capacity in California,
which represented approximately 11% of our net MW of operating projects and
projects under construction as of December 31, 2000. Due to the acquisition and
construction of projects outside of California, we expect that by December 31,
2001 this percentage will decrease to approximately 7% of our net MW of
operating projects and projects under construction. Net income from our
California assets represented approximately 33% of our net income in 2000 and
approximately 16% of our net income for the first three months of 2001. Due both
to the acquisition and construction of projects outside of California and to an
expected decrease in earnings from our California assets, we expect the
percentage as of December 31, 2000 to decrease in 2001.
Our California generation assets consist primarily of our interests in the
Crockett and Mt. Poso facilities and a 50% interest in West Coast Power LLC,
formed in 1999 with Dynegy Inc. The West Coast Power facilities sold uncommitted
power through the California Power Exchange ("PX") and the California
Independent System Operator ("ISO") to Pacific Gas and Electric Company
("PG&E"), Southern California Edison Company ("SCE"), and San Diego Gas and
Electric Company ("SDG&E"), the three major California investor-owned utilities.
Currently, the West Coast Power facilities sell uncommitted power through the
California ISO to the California Department of Water Resources (the "CDWR").
Crockett, Mt. Poso and certain of our other California facilities also sell
directly to PG&E, SCE and SDG&E.
The combination of rising wholesale electric prices, increases in the cost
of natural gas, the scarcity of hydroelectric power and regulatory limitations
on the rates that PG&E and SCE may charge their retail customers caused both
PG&E and SCE to default in their payments to the California PX, the California
S-5
9
ISO and other suppliers, including us. In March 2001, the California PX filed
for bankruptcy under Chapter 11 of the Bankruptcy Code, and in April 2001, PG&E
filed for bankruptcy under Chapter 11 of the Bankruptcy Code.
In March 2001, certain affiliates of West Coast Power entered into a
four-year contract with the CDWR pursuant to which the affiliates agreed to sell
up to 1,000 MW to the CDWR for the remainder of 2001 and up to 2,300 MW from
January 1, 2002 through December 31, 2004, any of which may be resold by the
CDWR to utilities such as SCE, PG&E and SDG&E. The ability of the CDWR to make
future payments is subject to the CDWR having a continued source of funding,
whether from legislative or other emergency appropriations, from a bond issuance
or from amounts collected from SCE, PG&E and SDG&E for deliveries to their
customers. As a result of the present situation in California, all of our
interests in California are exposed to the heightened risk of delayed payments
and/or non-payment regardless of whether the sales are made directly to PG&E,
SCE or SDG&E or to the California ISO or the CDWR.
Our share of the net amounts owed to our California affiliates by the
California PX, the California ISO, and the three major California utilities
totaled approximately $232 million as of May 31, 2001, based upon unaudited
financial information provided to us by such affiliates. This amount reflects
our share of (a) total amounts owed to our California affiliates of $374
million, less (b) amounts that are currently treated as "disputed revenues" and
are not recorded as accounts receivable in the financial statements of our
California affiliates, and reserves taken against accounts receivable that have
been recorded in such financial statements, both of which together totaled $142
million. We believe that we will ultimately collect in full the net amount of
$232 million owed to our California affiliates; however, if some form of
financial relief or support is not provided to PG&E and SCE, the collectibility
of this amount will become more questionable in terms of both timing and amount.
With respect to disputed revenues, these amounts relate to billing disputes
arising in the ordinary course of business and to disputes that have arisen as a
result of the California ISO and the Federal Energy Regulatory Commission
("FERC") imposing various revenue caps on the wholesale price of electricity.
None of these disputed revenues will be recorded until the particular issue that
caused them to be excluded from the financial statements is resolved. Since the
date of the PG&E bankruptcy filing, PG&E has been paying our Crockett and Mt.
Poso affiliates on a current basis.
Various legislative, regulatory and legal remedies to the liquidity crisis
faced by PG&E and SCE have been implemented or are being pursued. Assembly Bill
1X, which authorizes the CDWR to enter into contracts for the purchase of
electric power through January 1, 2003 and to issue revenue bonds to fund such
purchases, was signed into law by the Governor of California in February 2001.
In May 2001, the Governor of California signed Senate Bill 31X, which authorizes
the issuance of $13.4 billion in revenue bonds for the costs incurred by the
CDWR for the purchase and delivery of power for customers of PG&E, SCE and
SDG&E. The bonds will repay $6.7 billion to the State of California's general
fund for power purchases since January 2001 and will finance future power
purchases, including those made by the CDWR. In addition, in March, the
California Public Utilities Commission ("PUC") approved an approximately 40%
increase in the energy component of the retail electric rates paid by certain
California rate payers. This increase is in addition to the 9% increase approved
in January 2001 and a 10% increase expected to take effect next year.
The delayed collection of receivables owed to West Coast Power resulted in
a covenant default under its credit agreement. West Coast Power has entered into
a forbearance agreement with its lenders in connection with such covenant
default. In addition, our Crockett affiliate was recently notified by its
lenders that it has incurred a covenant default under its loan agreement. As a
result, we have reclassified the long-term portion of the Crockett debt to
current. Defaults under the Crockett and West Coast Power credit agreements do
not trigger defaults under any of our corporate-level financing debt securities
or borrowing arrangements.
FERC has jurisdiction over sales for resale of electricity in the
California wholesale power markets. In March 2001, FERC issued orders that
presumptively approved prices up to $273/MWh during January
S-6
10
2001 and $430/MWh during February 2001. The orders direct electricity suppliers
either to refund a portion of their January and February sales or justify prices
charged above these approved prices. The orders, if finalized, could require
West Coast Power to refund approximately $45 million in revenues from January
and February, of which our share would be approximately $22.5 million. Dynegy
Power Marketing, Inc., as the power marketer for West Coast Power, has submitted
information to justify each component of the prices it charged that were in
excess of the presumptively approved prices.
On June 19, 2001, FERC issued an order establishing a maximum pricing
methodology for spot markets in California and throughout the Western Systems
Coordinating Council ("WSCC") region at times when reserves fall below 7% in
California. The maximum prices for sales in the WSCC spot markets during those
hours, called the "market clearing price," is derived from the costs of the
least efficient provider based in California and selling through the California
ISO. At all other times, this order establishes a maximum price equal to 85% of
the last market clearing price. This maximum price program will terminate on
September 30, 2002. This order expands on a previous FERC order issued April 26,
2001.
In its June order, FERC also mandated settlement negotiations among sellers
and buyers in the California ISO markets in respect of the settlement of past
accounts, refund issues related to periods after October 2, 2000 and the
structuring of future arrangements for meeting California's energy requirements.
The settlement talks, in which we participated, were overseen by Administrative
Law Judge Curtis Wagner and concluded without reaching a resolution on July 9,
2001. Accordingly, Judge Wagner is expected to make a recommendation to FERC on
such a resolution by July 16, 2001. Judge Wagner announced that he will
recommend that FERC hold a full evidentiary hearing to review his proposals
before reaching any decision. At this early point in the proceedings, we cannot
predict what action FERC will take on any of the issues presented, including any
refunds sought from the generators. We note, however, that Judge Wagner stated
during the hearings that the $8.9 billion in refunds sought by the State of
California was unsupported, and he indicated that an appropriate level of
refunds was unlikely to be more than $1 billion for all sellers into the ISO and
PX spot markets.
The energy crisis in California has also resulted in the enactment of
legislation in Nevada that prohibits the sale by Nevada Power Company of its
Reid Gardner and Clark generating stations, located in Nevada, until July 2003.
In November 2000, we and our partner Dynegy Inc. had executed asset purchase
agreements with Nevada Power, a subsidiary of Sierra Pacific Resources, to
acquire these stations. Additionally, the California legislature has enacted
legislation which prohibits the sale of Sierra Pacific's North Valmy generating
station, also located in Nevada, until 2006. In October 2000, we had signed an
asset purchase agreement to acquire Sierra Pacific's 50% interest in the North
Valmy station. Due to the probability that we will be unable to close these
acquisitions in the near future, we no longer include the North Valmy, Reid
Gardner and Clark stations in the totals we give of MWs subject to signed
acquisition agreements; however, we continue to discuss with Sierra Pacific
possible responses to this legislation.
RECENT FINANCING FACILITIES
Bridge Loan
In June 2001, we entered into a $600 million term loan facility with Credit
Suisse First Boston as administrative agent, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Citicorp USA, Inc. as co-syndication agents, and various
lenders. The facility is unsecured and provides for borrowings of base rate
loans and Eurocurrency loans. The facility terminates on June 21, 2002. The
facility contains covenants that restrict our incurrence of liens and require us
to maintain a net worth of at least $1.5 billion plus 25% of our net income from
July 1, 2001 through the date of any determination thereof. In addition, we must
maintain a debt to capitalization ratio of not more than 0.68 to 1.0 for any
quarter or not more than 0.72 to 1.0 for any consecutive two months in any six
month period. An event of default under our existing corporate-level revolving
credit agreement is also an event of default under this facility. As of June 30,
2001, the aggregate amount outstanding under this facility was $600 million.
S-7
11
Construction Revolver
In May 2001, our wholly-owned subsidiary, NRG Finance Company I LLC,
entered into a $2 billion revolving credit facility with Credit Suisse First
Boston, acting through its New York Branch, as administrative agent, and various
lenders. The facility will be used to finance the acquisition, development and
construction of power generating plants located in the United States and to
finance the acquisition of turbines for such facilities. The facility provides
for borrowings of base rate loans and Eurocurrency loans and is secured by
mortgages and security agreements in respect of the assets of the projects
financed under the facility, pledges of the equity interests in the subsidiaries
or affiliates of the borrower that own such projects, and by guaranties from
each such subsidiary or affiliate. Provided that certain conditions are met that
assure the lenders that sufficient security remains for the remaining
outstanding loans, the borrower may repay loans relating to one project and have
the liens relating to that project released. Loans that have been repaid may be
reborrowed, as permitted by the terms of the facility. The facility terminates
on May 8, 2006. The facility is non-recourse to us other than our obligation to
contribute equity at certain times in respect of projects and turbines financed
under the facility. Moreover, in the case where an affiliate (rather than a
subsidiary) of the borrower owns a project, if the lenders enforce such
affiliate's guaranty and the amount realized by such enforcement is reduced due
to a fraudulent conveyance claim, we would be liable to pay the lenders the
amount of such reduction. As of June 30, 2001, the aggregate amount outstanding
under this facility was $104 million.
S-8
12
THE OFFERING
Securities Offered............ $ principal amount of %
Senior Notes due .
$ principal amount of %
Senior Notes due .
Maturity Date................. % Senior Notes due
% Senior Notes due
Interest Payment Dates........ and , commencing
.
Ranking....................... The notes will be senior unsecured obligations
and will rank equally with all of our existing
and future senior unsecured indebtedness. All
existing and future liabilities of our
subsidiaries and project affiliates will be
effectively senior to the notes.
Ratings....................... Each series of notes is expected to be assigned
a rating of "BBB-" by Standard & Poor's Ratings
Group and "Baa3" by Moody's Investors Service,
Inc.
Optional Redemption........... We may redeem some or all of the notes of
either series at any time at the redemption
prices described in "Description of Notes
-- Optional Redemption".
Sinking Fund.................. None.
Change of Control............. Upon a "Change of Control" (as defined in
"Description of Debt Securities -- Change of
Control" in the accompanying prospectus), a
holder of notes may require us to repurchase
that holder's notes, in whole or in part, at
101% of the principal amount of those notes,
plus accrued interest. A Change of Control will
not be deemed to have occurred with respect to
a series of notes if, after giving effect
thereto, those notes are rated "BBB-" or better
by Standard & Poor's Ratings Group and "Baa3"
or better by Moody's Investors Service, Inc.
Use of Proceeds............... The net proceeds from the sale of both series
of notes are estimated to be approximately
$ million. The net proceeds of this
offering will be used for repayment of
short-term indebtedness incurred to fund
acquisitions, for investments and general
corporate purposes and to provide capital for
planned acquisitions.
S-9
13
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical financial data set forth below as of December 31,
1998, 1999 and 2000, and for the years then ended have been derived from our
audited consolidated financial statements. All dollar amounts are set forth in
thousands.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1998 1999 2000 2000 2001
---------- ---------- ----------- ---------- ----------
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Revenues from majority-owned
operations........................ $ 100,424 $ 432,518 $ 2,018,622 $ 332,671 $ 624,262
Equity (loss) in earnings of
unconsolidated affiliates......... 81,706 67,500 139,364 (9,644) 18,904
---------- ---------- ----------- ---------- ----------
Total operating revenues and equity
earnings.......................... 182,130 500,018 2,157,986 323,027 643,166
Operating costs and expenses........ (125,118) (390,498) (1,584,913) (260,090) (516,142)
---------- ---------- ----------- ---------- ----------
Operating income.................... 57,012 109,520 573,073 62,937 127,024
Other income (expense)(1)........... 9,379 14,970 (3,478) (267) 23
Interest expense.................... (50,313) (93,376) (293,922) (52,317) (86,992)
Income tax benefit (expense)(2)..... 25,654 26,081 (92,738) (1,607) (4,877)
---------- ---------- ----------- ---------- ----------
Net income.......................... $ 41,732 $ 57,195 $ 182,935 $ 8,746 $ 35,178
---------- ---------- ----------- ---------- ----------
AS OF MARCH 31, 2001
--------------------------------------------------
ACTUAL ADJUSTMENTS(3) AS ADJUSTED %
---------- -------------- ----------- ------
CAPITALIZATION DATA:
Cash and cash equivalents..................... $ 126,588 $ 723,000 $ 849,588 --
========== ========== ========== ======
Current portion of long-term debt............. 375,803 -- 375,803 5.0%
Short-term debt:
Non-recourse(4)............................. 40,000 -- 40,000 0.5%
Recourse(5)................................. 467,000 (467,000) -- --
Long-term debt:
Non-recourse(4)............................. 2,233,792 -- 2,233,792 29.6%
Recourse(5)................................. 1,491,523 1,190,000 2,681,523 35.5%
Senior debentures (NRG Equity Units)........ 283,500 -- 283,500 3.8%
Total stockholders' equity.................... 1,930,390 -- 1,930,390 25.6%
---------- ---------- ---------- ------
Total capitalization..................... $6,822,008 $ 723,000 $7,545,008 100.0%
========== ========== ========== ======
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------- -----------------------
1998 1999 2000 2000 2001
---------- ---------- ----------- ---------- ----------
CONSOLIDATED BALANCE SHEET DATA:
Net property, plant and equipment.... $ 204,729 $1,975,403 $4,041,668 $3,669,654 $5,322,764
Net equity investments in projects... 800,924 932,591 973,261 893,303 909,236
Total assets......................... 1,293,426 3,431,684 5,978,992 5,293,808 7,655,473
Long-term recourse debt, including
current maturities................. 505,550 915,000 1,503,896 1,169,608 1,775,023
Long-term non-recourse debt,
including current maturities....... 120,926 1,056,860 2,293,422 2,325,677 2,609,595
Stockholders' equity................. 579,332 893,654 1,462,088 872,120 1,930,390
S-10
14
AS OF AND FOR THE THREE
AS OF AND FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED MARCH 31,
------------------------------------------- -----------------------
1998 1999 2000 2000 2001
------------ ------------ ------------- ---------- ----------
OTHER DATA:
Power generating capacity (MW),
net.............................. 3,300 10,990 15,007 13,664 18,380
Consolidated EBITDA(6)............. $ 82,711 $ 161,516 $ 692,548 $ 82,657 $ 165,139
Total debt to total capitalization
ratio............................ 52.0% 72.4% 72.2% 82.5% 71.7%
Ratio of recourse debt to recourse
debt and equity.................. 46.6% 58.4% 50.8% 67.0% 53.7%
Consolidated interest expense
coverage ratio(7)................ 1.64x 1.72x 2.36x 1.58x 1.90x
Ratio of earnings to fixed
charges(8)(9).................... -- 1.04x 1.77x 1.52x 1.24x
---------------
(1) Includes pretax charges of $26.7 million, $0 and $3.9 million in the years
1998, 1999 and 2000, respectively, and $0 and $2.8 million for the three
months ended March 31, 2000 and 2001, respectively, to write-down the
carrying value of certain energy projects. These amounts also include the
gain on sale of our interest in projects of $30.0 million in 1998, $15.5
million in 1999 and $1.8 million in 2000.
(2) We have been included in the consolidated federal income tax and state
franchise tax returns of Xcel Energy. We have calculated our tax position on
a separate company basis under a tax sharing agreement with Xcel Energy and
received payment from Xcel Energy for tax benefits and paid Xcel Energy for
tax liabilities. Although this practice will not continue in the future, we
do not expect that this will have a material adverse effect on our earnings.
(3) Adjustments for the current offering and the issuance of $690 million of
senior notes in April 2001 and the application of the proceeds from the
offerings.
(4) Non-recourse debt is indebtedness incurred by a subsidiary for which there
is no recourse to NRG.
(5) Recourse debt is a direct corporate-level obligation of NRG.
(6) EBITDA is the sum of income (loss) before income taxes, interest expense
(net of capitalized interest) and depreciation and amortization expense.
EBITDA is a measure of financial performance not defined under generally
accepted accounting principles, which you should not consider in isolation
or as a substitute for net income, cash flows from operations or other
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, EBITDA may not be comparable to similarly titled
measures presented by other companies and could be misleading because all
companies and analysts do not calculate it in the same fashion.
(7) This coverage ratio equals EBITDA divided by interest expense.
(8) The ratio of earnings to fixed charges is calculated by dividing earnings by
fixed charges. For this purpose "earnings" means income (loss) before income
taxes less undistributed equity in our share of operating earnings of
unconsolidated affiliates less equity in gain from project termination
settlements plus cash distributions from project termination settlements
plus fixed charges. "Fixed charges" means interest expense plus interest
capitalized plus amortization of debt issuance costs plus one-third of our
annual rental expense, which the Securities and Exchange Commission defines
as a reasonable approximation of rental expense interest.
(9) Due primarily to undistributed equity from unconsolidated affiliates,
earnings did not cover fixed charges by $7.3 million for the year ended
December 31, 1998.
S-11
15
RISK FACTORS
Before purchasing the notes you should carefully consider the following
risk factors as well as the other information contained in this prospectus
supplement, the accompanying prospectus and the information incorporated by
reference in order to evaluate an investment in the notes.
THE RECENT POWER AND LIQUIDITY CRISES FACED BY THE UTILITIES IN CALIFORNIA POSE
A NUMBER OF RISKS TO OUR BUSINESS.
Please see the discussion under the heading "Prospectus Supplement
Summary -- Recent Developments -- California" beginning on page S-5.
THERE IS NOT A PUBLIC MARKET FOR THE NOTES.
The notes are new issues of securities, and we do not intend to list them
on any securities exchange or apply for quotation through any inter-dealer
quotation system. The underwriters have advised us that they currently intend to
make a market in the notes, but the underwriters are not obligated to do so and
may discontinue any such market-making at any time. We cannot assure you as to
the liquidity of any market that may develop for the notes, your ability to sell
your notes or the prices at which you would be able to sell your notes.
S-12
16
USE OF PROCEEDS
The net proceeds from the sale of both series of notes, estimated to be
approximately $ million, will be used to repay all amounts outstanding under
our revolving credit facility ($293 million at June 30, 2001) and for
investments, other general corporate purposes and to provide capital for planned
acquisitions. Amounts outstanding under our revolving credit facility, which
matures on March 8, 2002, bear interest at a floating rate, which at June 30,
2001 was 5.43%. The indebtedness outstanding under this facility was incurred
principally in connection with acquisitions and for general corporate purposes.
Certain of the underwriters or their affiliates are lenders under this facility.
S-13
17
DESCRIPTION OF NOTES
This section summarizes the specific financial and legal terms of the notes
that are more generally described under "Description of Debt Securities" in the
prospectus that is attached to the back of this prospectus supplement. If
anything described in this section is inconsistent with the terms described
under "Description of Debt Securities" in the attached prospectus, the terms
described here prevail.
- TITLE: % Senior Notes due and % Senior Notes due
- TOTAL INITIAL PRINCIPAL AMOUNT BEING ISSUED: $ of the
Senior Notes due and $ of the Senior Notes due .
We may issue additional notes of each series without the consent of the
holders of the notes.
- DUE DATES FOR PRINCIPAL: for the Senior Notes due
and for the Senior Notes due
- INTEREST RATES: % per annum on the Senior Notes due and %
per annum on the Senior Notes due
- DATE INTEREST STARTS ACCRUING:
- INTEREST DUE DATES: Every and until maturity
- FIRST INTEREST DUE DATE:
- REGULAR RECORD DATES FOR INTEREST: Every and
immediately preceding the applicable interest payment dates
- FORM OF NOTES: The notes of each series will be issued as Global Notes,
and may be issued in certificated form only in the limited situations
described under "Description of Debt Securities -- Exchange of Book Entry
Debt Securities for Certificated Debt Securities" in the attached
prospectus.
- NAME OF DEPOSITARY: The Depository Trust Company ("DTC").
- CHANGE OF CONTROL: Upon a Change of Control, a holder of notes of either
series may require us to repurchase that holder's notes, in whole or in
part, at 101% of the principal amount of those notes, plus accrued
interest. A Change of Control will not be deemed to have occurred with
respect to a series of notes if, after giving effect to it, those notes
are rated "BBB-" or better by Standard & Poor's Ratings Group and "Baa3"
or better by Moody's Investors Service, Inc.
- OPTIONAL REDEMPTION: We may, at our option, redeem some or all of the
notes of each series at any time. If we redeem the Senior Notes due
before or the Senior Notes due
before we must pay you whichever of the
following two items is greater:
- 100% of the principal amount of the notes to be redeemed.
- a "make whole" amount, which will be calculated as described below.
When we redeem the notes of either series, we must also pay all interest
that has accrued to the redemption date on the redeemed notes. The
redeemed notes of the applicable series will stop bearing interest on the
redemption date unless and to the extent that we default in payment of the
redemption price, even if the holder does not collect the total redemption
price for such notes on that date.
- CALCULATION OF MAKE WHOLE AMOUNT: The "make whole" amount for each
series of notes will equal the sum of the present values of the Remaining
Scheduled Payments (as defined below) discounted, on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months), at a rate
equal to the Treasury Rate (as defined below) plus basis points in
the case of the Senior Notes due and basis points in the case
of the Senior Notes due .
"REMAINING SCHEDULED PAYMENTS" means the remaining scheduled payments of
the principal and interest on a note that would be due if the note were
not redeemed. However, if the redemption date is not a scheduled interest
payment date, the amount of the next succeeding scheduled interest payment
on the note will be reduced by the amount of interest accrued on the note
to the redemption date.
"TREASURY RATE" means an annual rate equal to the semiannual equivalent
yield to maturity of the Comparable Treasury Issue (as defined below),
assuming a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price
S-14
18
(as defined below) for the redemption date. The semiannual equivalent
yield to maturity will be computed as of the third business day
immediately preceding the redemption date.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by Banc of America Securities LLC, Deutsche Banc Alex. Brown Inc.
or any of their respective affiliates as having a maturity comparable to
the remaining term of the applicable series of notes that would be
utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt issues of
comparable maturity to the remaining term of such series of notes.
"COMPARABLE TREASURY PRICE" means the average of three Reference Treasury
Dealer Quotations (as defined below) obtained by the trustee for the
redemption date.
"REFERENCE TREASURY DEALERS" means Banc of America Securities LLC and
Deutsche Banc Alex. Brown Inc. (so long as they continue to be primary
U.S. Government securities dealers) and any two other primary U.S.
Government securities dealers chosen by us. If Banc of America Securities
LLC or Deutsche Banc Alex. Brown Inc. ceases to be a primary U.S.
Government securities dealer, we will appoint in its place another
nationally recognized investment banking firm that is a primary U.S.
Government securities dealer.
"REFERENCE TREASURY DEALER QUOTATION" means the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by a Reference Treasury Dealer at 3:30 p.m., New
York City time, on the third business day preceding the redemption date.
- REDEMPTION NOTICE: We will give notice of a redemption to DTC at least
30 days (but not more than 60 days) before we redeem the notes of either
series. If we redeem only some of the notes, of that series, DTC's
practice is to choose by lot the amount to be redeemed from the notes
held by each of its participating institutions. DTC will give notice to
these participants, and these participants will give notice to any
"Street Name" holders of any indirect interests in those notes according
to arrangements among them; these notices may be subject to statutory or
regulatory requirements. We will not be responsible for giving notice to
anyone other than DTC.
- SALE OF PROPERTIES OR ASSETS: Except for a sale of our assets
substantially as an entirety, and other than assets we are required to
sell to comply with governmental regulations, we may not sell or
otherwise dispose of any assets (other than short-term, readily
marketable investments purchased for cash management purposes with funds
not representing the proceeds of other asset sales) if on a pro forma
basis, the aggregate net book value of all such sales during the most
recent 12-month period would exceed 10% of our Consolidated Net Tangible
Assets (as defined below) computed as of the end of the most recent
quarter preceding such sale; provided, however, that any such sales shall
be disregarded for purposes of this 10% limitation if the proceeds are
invested in assets in similar or related lines of our business and,
provided further, that we may sell or otherwise dispose of assets in
excess of such 10% if we retain the proceeds from such sales or
dispositions, which are not reinvested as provided above, as cash or cash
equivalents or we use the proceeds to purchase and retire the notes of
either series offered hereby or debt ranking equally with the notes.
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of the date of any
determination thereof, the total amount of all of our assets determined on
a consolidated basis in accordance with generally accepted accounting
principles ("GAAP") as of such date less the sum of (a) our consolidated
current liabilities determined in accordance with GAAP and (b) assets
properly classified as intangible assets, in accordance with GAAP.
- SINKING FUND: There is no sinking fund.
- DEFEASANCE: We may choose to terminate some of our obligations under
either series of notes as described under "Description of Debt
Securities -- Defeasance and Covenant Defeasance" in the attached
prospectus.
- TRUSTEE: We will issue the notes under an indenture, as supplemented,
with The Bank of New York, as trustee, dated March 13, 2001.
S-15
19
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated July , 2001, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the principal amount
of each series of notes set forth opposite the name of such underwriter:
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
NAME SENIOR NOTES DUE SENIOR NOTES DUE
---- --------------------- ---------------------
Banc of America Securities LLC.......................... $ $
Deutsche Banc Alex. Brown Inc...........................
ABN AMRO Incorporated...................................
Barclays Capital Inc....................................
TD Securities (USA) Inc.................................
Tokyo-Mitsubishi International plc......................
Williams Capital Group, L.P.............................
....................................
Total.............................................. $ $
============ ============
The underwriting agreement provides that the obligations of the several
underwriters to purchase the notes included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all of the notes if they purchase any
of the notes.
The underwriters, for whom Banc of America Securities LLC, Deutsche Banc
Alex. Brown Inc., ABN AMRO Incorporated, Barclays Capital Inc., TD Securities
(USA) Inc., Tokyo-Mitsubishi International plc and Williams Capital Group, L.P.
are acting as representatives, propose to offer some of the notes directly to
the public at the public offering price set forth on the cover page of this
supplement and some of the notes to certain dealers at the public offering
prices less a concession not in excess of % of the principal amount of the
Senior Notes due and % of the principal amount of the Senior Notes due
. The underwriters may allow, and such dealers may reallow, a discount not
in excess of % of the principal amount of the notes of each series on sales
to certain other dealers. After the initial offering of the notes to the public,
the public offering price and such concessions may be changed by the
representatives.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering (expressed as a
percentage of the principal amount of the notes).
PAID BY THE COMPANY
-------------------
Per Senior Note due ................................... %
Per Senior Note due ...................................
In connection with the offering, the representatives of the underwriters
may purchase and sell notes in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of notes in excess of the principal
amount of the notes to be purchased by the underwriters in the offering, which
creates a syndicate short position. Syndicate covering transactions involves
purchases of the notes in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing transactions
consist of certain bids or purchases of notes made for the purpose of preventing
or retarding a decline in the market price of the notes while the offering is in
progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
representatives of the underwriters, in covering syndicate short positions or
making stabilizing purchases, repurchase notes originally sold by that syndicate
member.
S-16
20
Any of these activities may cause the price of either series of notes to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected in the
over-the-counter market or otherwise and, if commenced, may be discontinued at
any time.
We estimate that our total expenses of this offering will be $150,000.
The representatives have performed certain investment banking and advisory
services on our behalf from time to time for which they have received customary
fees and expenses. The representatives may, from time to time, engage in
transactions with and perform services on our behalf in the ordinary course of
their business. A portion of the proceeds from the sale of the notes will be
used to repay indebtedness owed to the underwriters or their affiliates.
Accordingly, this offering is being made pursuant to Rule 2710(c)(8) of the
Conduct Rules of the National Association of Securities Dealers, Inc.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP has rendered an opinion which was filed as an
exhibit to the registration statement with respect to the legality of the notes.
Legal matters with respect to the notes will be passed upon for the underwriters
by Skadden, Arps, Slate, Meagher & Flom LLP. Each of Gibson, Dunn & Crutcher LLP
and Skadden, Arps, Slate, Meagher & Flom LLP have from time to time represented
us, and may in the future from time to time represent us, in connection with
various matters. See "Legal Matters" in the accompanying prospectus.
S-17
21
PROSPECTUS
$2,000,000,000
[NRG LOGO]
NRG ENERGY, INC.
Debt Securities, Preferred Stock, Common Stock,
Depositary Shares, Debt Warrants, Preferred Stock Warrants,
Common Stock Warrants, Stock Purchase Contracts,
Stock Purchase Units and Hybrid Securities
Combining Features of these Securities
-------------------------
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the applicable prospectus
supplement carefully before you invest.
Our common stock is listed on the New York Stock Exchange under the symbol
"NRG."
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus may not be used to sell securities unless accompanied by a
prospectus supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS JULY 2, 2001
22
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized. This prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any securities other than
the securities described in this prospectus or an offer to sell or the
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful. Neither the delivery of this prospectus,
nor any sale made hereunder, shall, under any circumstances, create any
implication that there has been no change in our affairs since the date hereof
or that the information contained or incorporated by reference herein is correct
as of any time subsequent to the date of such information.
-------------------------
TABLE OF CONTENTS
PAGE
----
About this Prospectus....................................... 1
Where You Can Find More Information......................... 1
Incorporation of Certain Documents by Reference............. 1
Forward-Looking Statements.................................. 2
Risk Factors................................................ 4
The Company................................................. 15
Use of Proceeds............................................. 16
Earnings to Fixed Charges Ratio............................. 16
Description of Debt Securities.............................. 16
Description of Stock........................................ 25
Description of Warrants..................................... 29
Description of Depositary Shares............................ 30
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 33
Plan of Distribution........................................ 33
Legal Matters............................................... 34
Experts..................................................... 34
i
23
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission using a "shelf" registration process.
Using this process, we may offer the securities described in this prospectus,
either separately or in units, in one or more offerings with a total initial
offering price of up to $2,000,000,000. This prospectus provides you with a
general description of the securities we may offer. Each time we offer
securities, we will provide a prospectus supplement to this prospectus. The
prospectus supplement will describe the specific terms of that offering. The
prospectus supplement may also add, update or change the information contained
in this prospectus. Please carefully read this prospectus and the prospectus
supplement, in addition to the information contained in the documents we refer
you to under the headings "Where You Can Find More Information" and
"Incorporation of Certain Documents by Reference".
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
these materials at the Securities and Exchange Commission's public reference
rooms at the following locations:
Judiciary Plaza, Room 10024 Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661
You can also obtain copies of these materials from the Public Reference
Room of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may obtain information on the
operation of the Public Reference Rooms of the Securities and Exchange
Commission by calling (800) SEC-0330.
Our Securities and Exchange Commission filings are also available to the
public from the Securities and Exchange Commission's web site at
http://www.sec.gov.
You can also inspect our Securities and Exchange Commission filings at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005. For further information on obtaining copies of our Securities and
Exchange Commission filings at the New York Stock Exchange, you should call
(212) 656-5060.
This prospectus is part of a registration statement we have filed with the
Securities and Exchange Commission relating to the securities described in this
prospectus. As permitted by Securities and Exchange Commission rules, this
prospectus does not contain all of the information set forth in the registration
statement. You should read the registration statement for further information
about us and the securities described in this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this prospectus that we file with them separately.
This means that we can disclose important information to you by referring you to
another document filed separately with the Securities and Exchange Commission.
The information incorporated by reference into this prospectus is considered to
be part of this prospectus, except for any information that is superseded by
information that is included directly in this prospectus or another document
that is incorporated by reference into this prospectus after the date of this
prospectus.
This prospectus incorporates by reference the documents listed below that
we have previously filed with the Securities and Exchange Commission and that
are not separately included in or delivered with this prospectus. They contain
important information about our company and its financial condition.
1
24
1. Our Annual Report on Form 10-K and Form 10-K/A for the fiscal year
ended December 31, 2000;
2. Our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001;
3. Our Current Reports on Form 8-K as filed with the Securities and
Exchange Commission on April 3, 2001; April 10, 2001; and April 30,
2001; and
4. The description of our common stock contained in the Registration
Statement on Form 8-A filed on May 17, 2000.
We incorporate by reference additional documents that we may file with the
Securities and Exchange Commission after the date of this prospectus until the
time that we sell all the securities described in this prospectus. These
documents include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (other than
filings under Item 9), as well as proxy statements.
You can obtain a copy of these filings, at no cost, by writing or calling
us at the following address or telephone number:
Investor Relations
NRG Energy, Inc.
901 Marquette Avenue, Suite 2300
Minneapolis, Minnesota 55402
(612) 373-5300
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front of these documents.
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference statements that do
not directly or exclusively relate to historical facts. Such statements are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. You can typically identify forward-looking
statements by the use of forward-looking words, such as "may," "will," "could,"
"project," "believe," "anticipate," "expect," "estimate," "continue,"
"potential," "plan," "forecasts," and similar terms. These statements represent
our intentions, plans, expectations and beliefs and are subject to risks,
uncertainties and other factors. Many of these factors are outside our control
and could cause actual results to differ materially from such forward-looking
statements. These factors include, among others:
- Economic conditions including inflation rates and monetary or currency
exchange rate fluctuations;
- Trade, monetary, fiscal, taxation, and environmental policies of
governments, agencies and similar organizations in geographic areas where
we have a financial interest;
- Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their
products and services;
- Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission and similar entities
with regulatory oversight;
- Changes in the availability or cost of capital, including those resulting
from changes in interest rates; market perceptions of the power
generation industry, us or any of our subsidiaries, or security ratings;
2
25
- Factors affecting power generation operations such as unusual weather
conditions; catastrophic weather-related damage; unscheduled generation
outages, maintenance or repairs; unanticipated changes to fossil fuel or
gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; environmental incidents;
or electric transmission or gas pipeline system constraints;
- Workforce factors including loss or retirement of key executives,
collective bargaining agreements with union employees or work stoppages;
- Volatility of energy prices in a deregulated market environment;
- Increased competition in the power generation industry;
- Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
- Factors associated with various investments including conditions of final
legal closing, partnership actions, competition, operating risks,
dependence on certain suppliers and customers, domestic and foreign
environmental and energy regulations;
- Changes in government regulations or the implementation of government
regulations, including pending changes within or outside of California as
a result of the California energy crisis, which could result in our
failure to obtain regulatory approvals required to close project
acquisitions, and which could adversely affect the continued deregulation
of the electric industry;
- Limitations on our ability to control the development or operation of
projects in which we have less than 100% interest;
- The lack of operating history at development projects, the lack of our
operating history at projects not yet owned and the limited operating
history at recently-acquired projects provide only a limited basis for
management to project the results of future operations;
- Risks associated with timely completion of development projects,
including obtaining competitive contracts, obtaining regulatory and
permitting approvals, local opposition, and construction delays;
- Failure to timely satisfy closing conditions contained in definitive
agreements for the acquisitions of projects not yet closed, many of which
are beyond our control;
- Factors challenging the successful integration of projects not previously
owned or operated by us, including the ability to obtain operating
synergies;
- Factors associated with operating in foreign countries, including delays
in permitting and licensing of generation facilities; construction delays
and business interruptions; political instability and risk of war,
expropriation and nationalization, renegotiation or nullification of
existing contracts; changes in law; and the ability to convert foreign
currency into United States dollars; and
- Other business or investment considerations that may be disclosed from
time to time in our Securities and Exchange Commission filings or in
other publicly disseminated written documents.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The foregoing review of factors should not be construed as exhaustive.
3
26
RISK FACTORS
Before you invest in any of the securities described in this prospectus,
you should be aware of the significant risks described below. You should
carefully consider these risks, together with all of the other information
included in this prospectus, the accompanying prospectus supplement and the
information incorporated by reference, before you decide whether to purchase our
securities.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our future financial condition; or (3) state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, our future results and financial
condition may be impacted by events or factors in the future that we have not
been able to accurately predict or over which we have no control.
The risk factors listed in this section, as well as any cautionary language
in this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements. Before you invest in our securities, you
should be aware that the occurrence of the events described in these risk
factors and elsewhere in this prospectus, the accompanying prospectus supplement
and the information incorporated by reference could have a material adverse
effect on our business, financial condition and results of operations.
RISKS RELATING TO THE WHOLESALE POWER MARKETS
A SUBSTANTIAL PORTION OF OUR NET INCOME IS DERIVED FROM OUR CALIFORNIA
GENERATION ASSETS. DUE TO THE LIQUIDITY CRISIS FACED BY SOME CALIFORNIA
UTILITIES, WE CANNOT ASSURE YOU AS TO THE COLLECTIBILITY OF ALL AMOUNTS OWED TO
OUR CALIFORNIA AFFILIATES.
We own approximately 1,569 MW of net generating capacity in California,
which represented approximately 11% of our net MW of operating projects and
projects under construction as of December 31, 2000. Due to the acquisition and
construction of projects outside of California, we expect that by December 31,
2001 this percentage will decrease to approximately 7% of our net MW of
operating projects and projects under construction. Net income from our
California assets represented approximately 33% of our net income in 2000. Due
both to the acquisition and construction of projects outside of California and
to an expected decrease in earnings from our California assets, we expect this
percentage to decrease in 2001.
Our California generation assets consist primarily of our interests in the
Crockett and Mt. Poso facilities and a 50% interest in West Coast Power LLC,
formed in 1999 with Dynegy Inc. The West Coast Power facilities sold uncommitted
power through the California Power Exchange ("PX") and the California
Independent System Operator ("ISO") to Pacific Gas and Electric Company
("PG&E"), Southern California Edison Company ("SCE"), and San Diego Gas and
Electric Company ("SDG&E"), the three major California investor-owned utilities.
Currently, the West Coast Power facilities sell uncommitted power through the
California ISO to the California Department of Water Resources (the "CDWR").
Crockett, Mt. Poso and certain of our other California facilities also sell
directly to PG&E, SCE and SDG&E.
The combination of rising wholesale electric prices, increases in the cost
of natural gas, the scarcity of hydroelectric power and regulatory limitations
on the rates that PG&E and SCE may charge their retail customers, caused both
PG&E and SCE to default in their payments to the California PX, the California
ISO and other suppliers, including us. In March 2001, the California PX filed
for bankruptcy under Chapter 11 of the Bankruptcy Code, and in April 2001, PG&E
filed for bankruptcy under Chapter 11 of the Bankruptcy Code.
In March 2001, certain affiliates of West Coast Power entered into a
four-year contract with the CDWR pursuant to which the affiliates agreed to sell
up to 1,000 MW to the CDWR for the remainder of 2001 and up to 2,300 MW from
January 1, 2002 through December 31, 2004, any of which may be resold
4
27
by the CDWR to utilities such as SCE, PG&E and SDG&E. The ability of the CDWR to
make future payments is subject to the CDWR having a continued source of
funding, whether from legislative or other emergency appropriations, from a bond
issuance or from amounts collected from SCE, PG&E and SDG&E for deliveries to
their customers. As a result of the present situation in California, all of our
interests in California are exposed to the heightened risk of delayed payments
and/or non payment regardless of whether the sales are made directly to PG&E,
SCE or SDG&E or to the California ISO or the CDWR.
Our share of the net amounts owed to our California affiliates by the
California PX, the California ISO, and the three major California utilities
totaled approximately $224 million as of April 30, 2001, based upon unaudited
financial information provided to us by such affiliates. This amount is a
reflection of our share of (a) total amounts owed to our California affiliates
of $365 million, less (b) amounts that are currently treated as "disputed
revenues" and are not recorded as accounts receivable in the financial
statements of our California affiliates, and reserves taken against accounts
receivable that have been recorded in such financial statements, both of which
together totaled $141 million. We believe that we will ultimately collect in
full the net amount of $224 million owed to our California affiliates; however,
if some form of financial relief or support is not provided to PG&E and SCE, the
collectibility of this amount will become more questionable in terms of both
timing and amount. With respect to disputed revenues, these amounts relate to
billing disputes arising in the ordinary course of business and to disputes that
have arisen as a result of the California ISO and the Federal Energy Regulatory
Commission ("FERC") imposing various revenue caps on the wholesale price of
electricity. None of these disputed revenues will be recorded until the
particular issue that caused them to be excluded from the financial statements
is resolved. Since the date of the PG&E bankruptcy filing, PG&E has been paying
our Crockett and Mt. Poso affiliates on a current basis.
Various legislative, regulatory and legal remedies to the liquidity crisis
faced by PG&E and SCE have been implemented or are being pursued. Assembly Bill
1X, which authorizes the California Department of Water Resources to enter into
contracts for the purchase of electric power through January 1, 2003 and to
issue revenue bonds to fund such purchases, was signed into law by the Governor
of California in February 2001. In May 2001, the Governor of California signed
SB 31X, which authorizes the issuance of $13.4 billion in revenue bonds for the
costs incurred by the CDWR for the purchase and delivery of power for customers
of PG&E, SCE and SDG&E. The bonds will repay $6.7 billion to the State of
California's general fund for power purchases since January 2001 and will
finance future power purchases, including those made by the CDWR. In addition,
in March, the California Public Utilities Commission ("PUC") approved an
approximately 40% increase in the energy component of the retail electric rates
paid by certain California rate payers. This increase is in addition to the 9%
increase approved in January 2001 and a 10% increase expected to take effect
next year.
The delayed collection of receivables owed to West Coast Power resulted in
a covenant default under its credit agreement. West Coast Power has entered into
a forbearance agreement with its lenders in connection with such covenant
default. In addition, our Crockett affiliate was recently notified by its
lenders that it has incurred a covenant default under its loan agreement. As a
result, we have reclassified the long-term portion of the Crockett debt to
current. Defaults under the Crockett and West Coast Power credit agreements do
not trigger defaults under any of our corporate-level financing debt securities
or borrowing arrangements.
FERC has jurisdiction over sales for resale of electricity in the
California wholesale power markets. In March 2001, FERC issued orders that
presumptively approved prices up to $273/MWh during January 2001 and $430/MWh
during February 2001. The orders direct electricity suppliers to either refund a
portion of their January and February sales or justify prices charged above
these approved prices. The orders, if finalized, could require West Coast Power
to refund approximately $45 million in revenues from January and February, of
which our share would be approximately $22.5 million. Dynegy Power Marketing,
Inc., as the power marketer for West Coast Power, has submitted information to
justify each component of the prices it charged that were in excess of the
presumptively approved prices.
5
28
OUR REVENUES ARE NOT PREDICTABLE BECAUSE MANY OF OUR POWER GENERATION
FACILITIES OPERATE, WHOLLY OR PARTIALLY, WITHOUT LONG-TERM POWER PURCHASE
AGREEMENTS.
Historically, substantially all revenues from independent power generation
facilities were derived under power purchase agreements having terms in excess
of 15 years, pursuant to which all energy and capacity was generally sold to a
single party at fixed prices. Because of changes in the industry, the percentage
of facilities, including ours, with these types of long-term power purchase
agreements has decreased, and it is likely that over time, most of our
facilities will operate without these agreements. Without the benefit of these
types of power purchase agreements, we cannot assure you that we will be able to
sell the power generated by our facilities or that our facilities will be able
to operate profitably.
BECAUSE WHOLESALE POWER PRICES ARE SUBJECT TO EXTREME VOLATILITY, THE
REVENUES THAT WE GENERATE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
We must sell all or a portion of the energy, capacity and other products
from many of our facilities into wholesale power markets. The prices of energy
products in those markets are influenced by many factors outside of our control,
including fuel prices, transmission constraints, supply and demand, weather,
economic conditions, and the rules, regulations and actions of the system
operators in those markets. In addition, unlike most other commodities, energy
products cannot be stored and therefore must be produced concurrently with their
use. As a result, the wholesale power markets are subject to significant price
fluctuations over relatively short periods of time and can be unpredictable.
WE HAVE A LIMITED HISTORY OF SELLING AND MARKETING PRODUCTS IN THE
WHOLESALE POWER MARKETS AND MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THE RISKS
ASSOCIATED WITH THIS ASPECT OF OUR BUSINESS.
We are exposed to market risks through our power marketing business, which
involves the establishment of trading positions in the energy, fuel and emission
allowance markets on a short-term basis. We sell forward contracts and options
and establish positions in, and sell on the spot market, our energy, capacity
and other energy products that are not otherwise committed under long-term
contracts. In addition, we use these trading activities to procure fuel and
emission allowances for our facilities on the spot market. We have been managing
risks associated with price volatility in this manner for only a limited amount
of time. We may not be able to effectively manage this price volatility, and may
not be able to successfully manage the other risks associated with trading in
energy markets, including the risk that counterparties may not perform.
RISKS RELATING TO OUR OPERATIONS
WE HAVE MADE SUBSTANTIAL INVESTMENTS IN OUR RECENT ACQUISITIONS AND OUR
SUCCESS DEPENDS ON THE APPROPRIATENESS OF THE PRICES WE PAID FOR THESE
ACQUISITIONS AS WELL AS ON OUR ABILITY TO SUCCESSFULLY INTEGRATE, OPERATE AND
MANAGE THE ACQUIRED ASSETS.
During the period from January 1, 1999 through June 1, 2001, we have
increased our net ownership interests in power generation facilities almost six
fold, expanding from 3,300 MW of net ownership interests in power generation
facilities to approximately 19,549 MW of net ownership interests. The prices we
paid in these acquisitions were based on our assumptions as to the economics of
operating the acquired facilities and the prices at which we would be able to
purchase fuel for them and sell energy, capacity and other products from them.
If any of the assumptions as to a given facility prove to be materially
inaccurate, it could have a significant impact on the financial performance of
that facility and possibly on our entire company. In connection with these
acquisitions, we have hired and will hire a substantial number of new employees.
We may not be able to successfully integrate all of the newly hired employees,
or profitably integrate, operate, maintain and manage our newly acquired power
generation facilities in a competitive environment. In addition, operational
issues may arise as a result of a lack of integration or our lack of familiarity
with issues specific to a particular facility.
6
29
OUR PROJECT DEVELOPMENT AND ACQUISITION ACTIVITIES MAY NOT BE SUCCESSFUL
WHICH WOULD IMPAIR OUR ABILITY TO EXECUTE OUR GROWTH STRATEGY.
We may not be able to identify attractive acquisition or development
opportunities or to complete acquisitions or development projects that we
undertake. If we are not able to identify and complete additional acquisitions
and development projects, we will not be able to successfully execute our growth
strategy. Factors that could cause our acquisition and development activities to
be unsuccessful include the following:
- competition,
- inability to obtain additional capital on acceptable terms,
- inability to obtain required governmental permits and approvals,
- cost-overruns or delays in development that make continuation of a
project impracticable,
- inability to negotiate acceptable acquisition, construction, fuel supply
or other material agreements,
- inability to hire and retain qualified personnel; and
- legislative and regulatory initiatives regarding deregulation, regulation
or restructuring of the electric utility industry.
WE INCUR SIGNIFICANT EXPENSES IN EVALUATING POTENTIAL PROJECTS, MOST OF
WHICH ARE NOT ULTIMATELY ACQUIRED OR COMPLETED.
In order to implement our growth strategy, we must continue to actively
pursue acquisition and development opportunities. Substantial expenses are
incurred in investigating and evaluating any potential opportunity before we can
determine whether the opportunity is feasible or economically attractive. In
addition, we expect to participate in many competitive bidding processes for
power generation facilities that require us to incur substantial expenses
without any assurance that our bids will be accepted. As a result, we expect
that our development expenses will increase in the future with no assurance that
we will be successful in acquiring or completing additional new projects.
CONSTRUCTION, EXPANSION, REFURBISHMENT AND OPERATION OF POWER GENERATION
FACILITIES INVOLVE SIGNIFICANT RISKS THAT CANNOT ALWAYS BE COVERED BY INSURANCE
OR CONTRACTUAL PROTECTIONS.
The construction, expansion and refurbishment of power generation, thermal
energy production and transmission and resource recovery facilities involve many
risks, including:
- supply interruptions,
- work stoppages,
- labor disputes,
- social unrest,
- weather interferences,
- unforeseen engineering, environmental and geological problems, and
- unanticipated cost overruns.
The ongoing operation of these facilities involves all of the risks
described above, in addition to risks relating to the breakdown or failure of
equipment or processes and performance below expected levels of output or
efficiency. New plants may employ recently developed and technologically complex
equipment, especially in the case of newer environmental emission control
technology. While we maintain insurance, obtain warranties from vendors and
obligate contractors to meet certain performance levels, the proceeds of such
insurance, warranties or performance guarantees may not be adequate to cover
lost revenues, increased expenses or liquidated damages payments. Any of these
risks could cause us to operate below
7
30
expected capacity levels, which in turn could result in lost revenues, increased
expenses, higher maintenance costs and penalties. As a result, a project may
operate at a loss or be unable to fund principal and interest payments under its
project financing agreements, which may result in a default under that project's
indebtedness.
WE ARE EXPOSED TO THE RISK OF FUEL COST INCREASES AND INTERRUPTION IN FUEL
SUPPLY BECAUSE OUR FACILITIES GENERALLY DO NOT HAVE LONG-TERM FUEL SUPPLY
AGREEMENTS.
Most of our domestic power generation facilities that sell energy into the
wholesale power markets purchase fuel under short-term contracts or on the spot
market. Even though we attempt to hedge some portion of our known fuel
requirements, we still may face the risk of supply interruptions and fuel price
volatility. The price we can obtain for the sale of energy may not rise at the
same rate, or may not rise at all, to match a rise in fuel costs. This may have
a material adverse effect on our financial performance.
WE OFTEN RELY ON SINGLE SUPPLIERS AND AT TIMES WE RELY ON SINGLE CUSTOMERS
AT OUR FACILITIES, EXPOSING US TO SIGNIFICANT FINANCIAL RISKS IF EITHER SHOULD
FAIL TO PERFORM THEIR OBLIGATIONS.
We often rely on a single supplier for the provision of fuel, water and
other services required for operation of a facility, and at times, we rely on a
single customer or a few customers to purchase all or a significant portion of a
facility's output, in some cases under long-term agreements that provide the
support for any project debt used to finance the facility. The failure of any
one customer or supplier to fulfill its contractual obligations to the facility
could have a material adverse effect on such facility's financial results.
Consequently, the financial performance of any such facility is dependent on the
continued performance by customers and suppliers of their obligations under
these long-term agreements and, in particular, on the credit quality of the
project's customers and suppliers.
OUR SIGNIFICANT BUSINESS OPERATIONS OUTSIDE THE UNITED STATES EXPOSE US TO
LEGAL, TAX, CURRENCY, INFLATION, CONVERTIBILITY AND REPATRIATION RISKS, AS WELL
AS POTENTIAL CONSTRAINTS ON THE DEVELOPMENT AND OPERATION OF OUR POTENTIAL
BUSINESS, ANY OF WHICH CAN LIMIT THE BENEFITS TO US OF EVEN A SUCCESSFUL FOREIGN
PROJECT.
A key component of our business strategy is the development and acquisition
of projects outside the United States in areas such as Australia, Europe and
Latin America. The economic and political conditions in many of the countries
where we have assets or in which we are or may be exploring development or
acquisition opportunities present many risks. These risks, such as delays in
permitting and licensing, construction delays and interruption of business, as
well as risks of war, expropriation, nationalization, renegotiation or
nullification of existing contracts and changes in law or tax policy are
generally greater than risks in the United States. The uncertainty of the legal
environment in certain foreign countries in which we may develop or acquire
projects could make it more difficult to obtain non-recourse project financing
on suitable terms and could impair our ability to enforce our rights under
agreements relating to these projects.
Operations in foreign countries also can present currency exchange,
inflation, convertibility and repatriation risks. In countries in which we may
develop or acquire projects in the future, economic and monetary conditions and
other factors could affect our ability to convert our earnings to United States
dollars or other acceptable currencies or to move funds offshore from such
countries. Furthermore, the central bank of any foreign country may have the
authority in certain circumstances to suspend, restrict or otherwise impose
conditions on foreign exchange transactions or to approve distributions to
foreign investors. Although we generally seek to structure our power purchase
agreements and other project revenue agreements to provide for payments to be
made in, or indexed to, United States dollars or a currency freely convertible
into United States dollars, we can offer no assurance that we will be able to
achieve this structure in all cases or that a power purchaser or other customer
will be able to obtain acceptable currency to pay their obligations to us.
8
31
As part of privatizations or other international acquisition opportunities,
we may make investments in ancillary businesses not directly related to power
generation, thermal energy production and transmission or resource recovery and
in which our management may not have had prior experience. In such cases, our
policy is to invest with partners having the necessary expertise. However, we
can offer no assurance that such persons will be available as co-venturers in
every case. In addition, as a condition to participating in privatizations and
refurbishments of formerly state-owned businesses, we may be required to
undertake transitional obligations relating to union contracts, employment
levels and benefits obligations for employees, which could prevent or delay the
achievement of desirable operating efficiencies and financial performance.
THE LOY YANG FACILITY IN WHICH WE HAVE INVESTED IS EXPERIENCING FINANCIAL
DIFFICULTIES BECAUSE OF LOWER THAN EXPECTED WHOLESALE POWER PRICES, WHICH COULD
RESULT IN AN EVENT OF DEFAULT UNDER ITS LOAN AGREEMENTS.
Energy prices in the Victoria region of the National Electricity Market of
Australia into which our Loy Yang facility sells its power have been
significantly lower than we had expected when we acquired our interest in that
facility. As a result, the Loy Yang partnership is currently prohibited by the
project loan agreements from making equity distributions to the project owners.
While energy prices in the Victoria region have improved in recent months as
compared to the comparable period last year, if they were to fall below our
current forecasted prices, the Loy Yang partnership could fail to meet required
coverage ratios under its loan agreements beginning in the first quarter of
2002, which would constitute an event of default. Although the Loy Yang
partnership would still then be able to service all of the senior debt
obligations, absent a restructuring, the project's lenders would be allowed to
accelerate the project's indebtedness. We could be required to write off all or
a significant portion of our current US$250 million investment in this project
as a result of such acceleration, or as a result of a determination by the Loy
Yang partnership that a write-down of its assets is required or our
determination that we would not be able to recover our investment in the
project.
In February 2000, CMS Energy announced its intention to divest its 49.6%
ownership in the Loy Yang project. CMS Energy indicated that it intended to sell
its interest because the project was no longer of strategic value to its
portfolio and had not met its financial expectations. No purchaser for this
interest has yet emerged. The remaining partners in the Loy Yang project have
rights of first refusal with respect to CMS Energy's sale of its interest.
RISKS RELATING TO OUR CORPORATE AND FINANCIAL STRUCTURE
BECAUSE WE OWN LESS THAN 100% OF SOME OF OUR PROJECT INVESTMENTS, WE CANNOT
EXERCISE COMPLETE CONTROL OVER THEIR OPERATIONS.
We have limited control over the development, construction, acquisition or
operation of some project investments and joint ventures because our investments
are in projects where we beneficially own less than 50% of the ownership
interests. A substantial portion of our future investments in international
projects may also take the form of minority interests. We seek to exert a degree
of influence with respect to the management and operation of projects in which
we own less than 50% of the ownership interests by negotiating to obtain
positions on management committees or to receive certain limited governance
rights such as rights to veto significant actions. However, we may not always
succeed in such negotiations. We may be dependent on our co-venturers to
construct and operate such projects. Our co-venturers may not have the level of
experience, technical expertise, human resources management and other attributes
necessary to construct and operate these projects. The approval of co-venturers
also may be required for us to receive distributions of funds from projects or
to transfer our interest in projects.
WE REQUIRE SIGNIFICANT AMOUNTS OF CAPITAL TO GROW OUR BUSINESS AND OUR
FUTURE ACCESS TO SUCH FUNDS IS UNCERTAIN.
We will require continued access to substantial debt and equity capital
from outside sources on acceptable terms in order to assure the success of
future projects and acquisitions. Our ability to arrange
9
32
debt financing, either at the corporate level or on a non-recourse project-level
basis, and the costs of such capital are dependent on numerous factors,
including:
- general economic and capital market conditions,
- credit availability from banks and other financial institutions,
- investor confidence in us, our partners and the regional wholesale power
markets,
- maintenance of acceptable credit ratings,
- the success of current projects,
- the perceived quality of new projects, and
- provisions of tax and securities laws that may impact raising capital in
this manner.
In order to access capital on a substantially non-recourse basis in the
future, we may have to make larger equity investments in, or provide more
financial support for, our project subsidiaries. We also may not be successful
in structuring future financing for our projects on a substantially non-recourse
basis.
The equity capital for our projects has been provided by
internally-generated cash flow from our projects and other borrowings and, prior
to completion of the merger of Northern States Power and New Century Energies,
Inc., equity contributions from Northern States Power. We cannot assure you that
Xcel Energy will continue to provide additional equity capital to us or permit
us to raise additional equity capital from others. Any inability to raise
additional equity capital will restrict our ability to execute our growth
strategy. Currently, regulatory restrictions under the Public Utility Holding
Company Act of 1935 ("PUHCA") prevent Xcel Energy from providing additional
equity to us. Although, Xcel Energy is in the process of applying for the
approvals necessary to lift the restrictions, we cannot assure you that such
approvals will be received.
WE HAVE SUBSTANTIAL INDEBTEDNESS, WHICH COULD LIMIT OUR ABILITY TO GROW AND
OUR FLEXIBILITY IN OPERATING OUR PROJECTS.
As of April 30, 2001 we had total recourse debt of $2.2 billion, exclusive
of $283 million of Equity Units issued in March 2001, with an additional $2.6
billion of non-recourse debt appearing on our balance sheet. The percentage of
our total recourse debt to recourse debt and equity was 52.5% as of April 30,
2001. The substantial amount of debt that we have and the debt of our project
subsidiaries and project affiliates presents the risk that we might not generate
sufficient cash to service our indebtedness, and that our leveraged capital
structure could limit our ability to finance the acquisition and development of
additional projects, to compete effectively, to operate successfully under
adverse economic conditions and to fully implement our strategy.
Our lenders may accelerate our credit facilities and public debt
instruments upon the occurrence of certain events of default. In addition, if we
undergo a change of control, our credit facilities may be accelerated, and our
public debt may also be accelerated if it is rated below investment grade by
certain rating agencies. Because Xcel Energy currently controls approximately
97% of the total voting power of our common stock and our class A common stock,
we have no ability to prevent a change of control. If our indebtedness is
accelerated, we could be forced into bankruptcy and you could lose your entire
investment.
WE HAVE GUARANTEED OBLIGATIONS AND LIABILITIES OF OUR PROJECT SUBSIDIARIES
AND AFFILIATES WHICH WOULD BE DIFFICULT FOR US TO SATISFY IF THEY ALL CAME DUE
SIMULTANEOUSLY.
In many of our projects, we have executed guarantees of the project
affiliate's indebtedness, equity or operating obligations. In addition, in
connection with the purchase and sale of fuel, emission allowances and power
generation products to and from third parties with respect to the operation of
some of our generation facilities, we are required to guarantee a portion of the
obligations of certain of our subsidiaries. These guarantees totaled
approximately $532 million as of May 31, 2001. We may not be able to satisfy
10
33
all of these guarantees and other obligations if they were to come due at the
same time, which would have a material adverse effect on us.
OUR HOLDING COMPANY STRUCTURE LIMITS OUR ACCESS TO THE FUNDS OF PROJECT
SUBSIDIARIES AND PROJECT AFFILIATES THAT WE WILL NEED IN ORDER TO SERVICE OUR
CORPORATE-LEVEL INDEBTEDNESS.
Substantially all of our operations are conducted by our project
subsidiaries and project affiliates. Our cash flow and our ability to service
our corporate-level indebtedness when due is dependent upon our receipt of cash
dividends and distributions or other transfers from our projects and other
subsidiaries. The debt agreements of our subsidiaries and project affiliates
generally restrict their ability to pay dividends, make distributions or
otherwise transfer funds to us. In addition, a substantial amount of the assets
of our project subsidiaries and project affiliates has been pledged as
collateral under their debt agreements.
Our project subsidiaries and project affiliates are separate and distinct
legal entities that have no obligation, contingent or otherwise, to pay any
amounts due under our indebtedness or to make any funds available to us, whether
by dividends, loans or other payments, and they do not guarantee the payment of
our corporate-level indebtedness. We own less than 50% of the ownership
interests in many of our foreign projects, and therefore we are unable to
unilaterally cause dividends or distributions to be made from these operations.
Any right we may have to receive assets of any of our subsidiaries or
project affiliates upon a liquidation or reorganization of such subsidiaries or
project affiliates will be effectively subordinated to the claims of any such
subsidiary's or project affiliate's creditors, including trade creditors and
holders of debt issued by such subsidiary or project affiliate.
There can be no assurance that cash available from our domestic operations
and the repayment to us of loans made by us to our foreign affiliates will be
sufficient to make corporate-level debt payments, as and when due. If we elect
to repatriate cash from foreign subsidiaries or affiliates to make these
payments in case of such a shortfall, then we may incur United States taxes, net
of any available foreign tax credits, on the repatriation of such foreign cash.
POTENTIAL CONFLICTS OF INTEREST WITH OUR CONTROLLING STOCKHOLDER MAY BE
RESOLVED IN A MANNER THAT IS ADVERSE TO US.
Xcel Energy, our controlling stockholder, and directors and officers of
Xcel Energy and its subsidiaries, some of whom are directors of ours, are in
positions involving the possibility of conflicts of interest with respect to
transactions in which both we and Xcel Energy have an interest. In addition,
Xcel Energy, subject to its fiduciary duties owed to our minority stockholders,
may compete with us for business opportunities that may be attractive to both us
and to Xcel Energy. We can offer no assurance that any such conflict will be
resolved in our favor.
THE MERGER OF NORTHERN STATES POWER AND NEW CENTURY ENERGIES, WHICH WAS
COMPLETED IN AUGUST 2000, CONSTRAINS THE CONDUCT OF OUR BUSINESS.
The merger of Northern States Power and New Century Energies was accounted
for as a "pooling of interests." In accordance with the "pooling of interests"
rules, neither company can alter their equity interests or dispose of a material
portion of their assets through the date of the merger and for a period of time
thereafter. These constraints may limit our flexibility to conduct our business
as we otherwise would absent such constraints.
The shares of our class A common stock that were owned by Northern States
Power prior to the completion of the merger are now owned by a wholly-owned
subsidiary of the surviving corporation in the merger, Xcel Energy. Xcel Energy
is subject to the provisions of various energy-related laws and regulations,
including PUHCA, and, in turn, we are subject to certain constraints imposed by
PUHCA.
11
34
OUR RISK MANAGEMENT ACTIVITIES MAY NEGATIVELY IMPACT OUR OPERATING RESULTS
AND FINANCIAL POSITION.
We engage in commodity-related marketing and price-risk management
activities in order to hedge our exposure to market risk with respect to
electricity purchases, emission allowances, and fuel utilized by our generation
assets. We generally attempt to balance our fixed-price physical and financial
purchases and sales commitments in terms of contract volumes and the timing of
performance and delivery obligations; however, we also take market positions
within pre-established guidelines. These derivatives do not qualify for hedge
accounting and accordingly changes in their fair values are reported in
earnings. In addition, various commodity derivatives considered to be economic
hedges have not been designated as accounting hedges due to burdensome
accounting related documentation requirements. To the extent an open position
exists, fluctuating commodity prices can impact our financial results and
financial position either favorably or unfavorably. As a result, we are unable
to predict the impact that our risk management decisions may have on our
operating results or financial position.
RISKS RELATING TO OUR INDUSTRY
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL GOVERNMENTAL REGULATION AND
PERMITTING REQUIREMENTS AND MAY BE ADVERSELY AFFECTED BY ANY FUTURE INABILITY TO
COMPLY WITH EXISTING OR FUTURE REGULATIONS OR REQUIREMENTS.
In General. Our business is subject to extensive energy, environmental and
other laws and regulations of federal, state and local authorities. We generally
are required to obtain and comply with a wide variety of licenses, permits and
other approvals in order to operate our facilities. We may incur significant
additional costs because of our compliance with these requirements. If we fail
to comply with these requirements, we could be subject to civil or criminal
liability and the imposition of liens or fines. In addition, existing
regulations may be revised or reinterpreted, new laws and regulations may be
adopted or become applicable to us or our facilities, and future changes in laws
and regulation may have a detrimental effect on our business. Furthermore, with
the continuing trend toward stricter standards, greater regulation, more
extensive permitting requirements and an increase in the assets we operate, we
expect our environmental expenditures to be substantial in the future.
Energy Regulation. PUHCA and the Federal Power Act ("FPA") regulate public
utility holding companies and their subsidiaries and place certain constraints
on the conduct of their business. The Public Utility Regulatory Policies Act of
1978 ("PURPA") provides to qualifying facilities ("QFs") exemptions from federal
and state laws and regulations, including PUHCA and most provisions of the FPA.
The Energy Policy Act of 1992 also provides relief from regulation under PUHCA
to exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs").
Maintaining the status of our facilities as QFs, EWGs or FUCOs is conditioned on
their continuing to meet statutory criteria, and could be jeopardized, for
example, by the making of retail sales by an EWG in violation of the
requirements of the Energy Policy Act. We are subject to regulation as a
subsidiary of a registered holding company under PUHCA. These regulations
include restrictions imposed upon aggregate investment by registered holding
companies in EWGs and FUCOs that are financed by contributions or guarantees by
the parent holding company. These investment restrictions, issued pursuant to
SEC regulations, limit registered holding company investment in EWGs and FUCOs
without prior SEC approval to 50% of the registered holding company's
consolidated retained earnings. The existence of such investment cap and the
potential need to request SEC waivers of or increases in the cap could delay or
prevent any infusions of capital from Xcel Energy that it may otherwise desire
to make.
We are continually in the process of obtaining or renewing federal, state
and local approvals required to operate our facilities. Additional regulatory
approvals may be required in the future due to a change in laws and regulations,
a change in our customers or other reasons. We may not always be able to obtain
all required regulatory approvals, and we may not be able to obtain any
necessary modifications to existing regulatory approvals or maintain all
required regulatory approvals. If there is a delay in obtaining any required
regulatory approvals or if we fail to obtain and comply with any required
regulatory approvals, the operation of our facilities or the sale of electricity
to third parties could be prevented or subject to additional costs.
12
35
Environmental Regulation. In acquiring many of our facilities, we assumed
on-site liabilities associated with the environmental condition of those
facilities, regardless of when such liabilities arose and whether known or
unknown, and in some cases agreed to indemnify the former owners of those
facilities for on-site environmental liabilities. We may not at all times be in
compliance with all applicable environmental laws and regulations. Steps to
bring our facilities into compliance could be prohibitively expensive, and may
cause us to be unable to pay our debts when due. Moreover, environmental laws
and regulations can change.
For example, in October 1999, Governor Pataki of New York announced that he
was ordering the New York Department of Environmental Conservation ("DEC") to
require further reductions of sulfur dioxide ("SO(2)") and nitrogen oxides
("NO(x)") emissions from New York power plants, beyond that which is required
under current federal and state law. These reductions would be phased in between
January 1, 2003 and January 1, 2007. Compliance with these emission reductions
requirements, if they become effective, could have a material adverse impact on
the operation of some of our facilities located in the State of New York. Over
the past year, we and other stakeholders have provided input to DEC staff with
the hope of helping to formulate a rule that can achieve the reductions
specified by the Governor and maintain the reliability of the State's
electricity supplies.
In December 2000, the Connecticut Department of Environmental Protection
("CDEP") promulgated regulations applicable to power plants and other major
sources of air pollution, requiring them to reduce emissions of NO(x) and SO(2).
The regulations require phased reductions in SO(2) emission rates in January 1,
2002 (Phase I) and January 1, 2003 (Phase II) and require reductions in
non-ozone season NO(x) emission rates beginning October 1, 2003; the regulations
provide flexibility in how such reductions can be accomplished. The ultimate
SO(2) emission rate reductions required at our Connecticut facilities represent
a 40% to 70% decrease from our current emission rates; non-ozone season NO(x)
emission rate reductions represent a 25% to 65% decrease from our current
emission rates. During the 2001 legislative session, the Connecticut legislature
passed legislation eliminating the ability after December 31, 2004 to use
emissions reduction trading as an option for complying with SO(2) emission
limits. This legislation has been forwarded to the Governor of Connecticut for
signature. We are evaluating our compliance options, and we have a September 3,
2001 deadline to submit, if desired, a request for a delay in the implementation
of the SO(2) limitations. We expect that we will be able to comply with the new
regulations in accordance with the schedule for compliance; however, such
compliance could put our Connecticut facilities at a significant competitive
disadvantage that could have a material adverse impact on such facilities.
We are subject to environmental investigations and lawsuits both on the
state and federal level. For instance, in May 2000, the New York Department of
Environmental Conservation issued a Notice of Violation to us and the prior
owner of our Huntley and Dunkirk facilities relating to physical changes made at
those facilities prior to our assumption of ownership. The Notice of Violation
alleges that these changes represent major modifications undertaken without
obtaining the required permits. Although we have a right to indemnification by
the previous owner for fines, penalties, assessments and related losses
resulting from the previous owner's failure to comply with environmental laws
and regulations, if these facilities did not comply with the applicable permit
requirements, we could be required, among other things, to install specified
pollution control technology to further reduce pollutant emissions from the
Dunkirk and Huntley facilities, and we could become subject to fines and
penalties associated with the current and prior operation of the facilities. In
May 2001, we received a Notice of Intent to Sue from the New York Attorney
General, notifying us pursuant to Section 304 of the Clean Air Act of the
State's intent to file suit against us and Niagara Mohawk Power Corporation in
federal district court for violations of the Clean Air Act, unless a settlement
is reached within 60 days. We are actively participating in discussions with the
Attorney General and the DEC in an attempt to settle this matter.
In addition, in November 1999, the United States Department of Justice
filed suit against seven electric utilities for alleged violations of Clean Air
Act requirements related to modifications of existing sources at seventeen
utility generation stations located in the southern and midwestern regions of
the United States. The EPA also issued administrative notices of violation
alleging similar violations at eight
13
36
other power plants owned by some of the electric utilities named as defendants
in the lawsuit, and also issued an administrative order to the Tennessee Valley
Authority for similar violations at seven of its power plants. To date, no
lawsuits or administrative actions have been brought against us or any of our
subsidiaries or affiliates or the former owners of our facilities alleging
similar violations, although a subsidiary of Conectiv has received information
requests from the EPA regarding the Deepwater and BL England facilities that we
have agreed to purchase, and the current owner of the Bridgeport Harbor station
in Connecticut that we have agreed to purchase has already received such an
information request. Lawsuits or administrative actions alleging similar
violations at our facilities could be filed in the future and if successful,
could have a material adverse effect on our business.
The Massachusetts Department of Environmental Protection has recently
finalized regulations requiring emissions reductions from certain coal-fired
power plants in the state, including our Somerset facility. The new rules impose
phased deadlines for achieving annual and monthly emission rate reductions of
SO(2) and NO(x). We believe the new regulations require us by October 1, 2006 to
reduce annual SO(2) emission rates by about 50% of our current emission rate; by
October 1, 2008 we would be required to reduce our annual emission rates by
about 75% of our current emission rate. The new regulations allow flexibility in
determining how to best meet such requirements. The new rules require that we
reduce by October 1, 2006 our annual NO(X) emission rate by about 60% of our
current emission rate. In the case of NO(x), we do not anticipate having
problems meeting monthly emission rate limits; however, to meet the monthly
SO(2) emission rate limits, we will likely need to purchase more expensive fuel
that has a lower sulfur content and make modifications to our facilities in
order to burn such fuel. The new Massachusetts regulations starting in 2006 also
cap annual emissions of carbon dioxide ("CO(2)") at historical levels and the
rate at which CO(2) is emitted; the new regulations allow flexibility in
achieving compliance with the reductions required. The annual CO(2) emission
rate reduction required represents approximately a 20% decrease from current
levels. We are evaluating our compliance options under the new regulations. Such
compliance could have a material adverse impact on our Massachusetts facilities.
In May 2001, the South Coast Air Quality Management District of California
("AQMD") amended existing rules that govern the operation of the Regional Clean
Air Incentive Market ("RECLAIM") program. Under the amendments, once our RECLAIM
trading credit allocations are depleted, we must pay the AQMD a mitigation fee
of $7.50 per pound for any excess NO(x) emissions. The amendments may restrict
our ability to purchase sufficient NO(x) emissions credits for our Long Beach
and El Segundo plants. The price of power sold to the CDWR from our Long Beach
and El Segundo plants will include excess emissions costs. We and the CDWR are
evaluating the compliance options under the amended rules, and such compliance
could have a material adverse impact on these facilities.
OUR COMPETITION IS INCREASING.
The independent power industry is characterized by numerous strong and
capable competitors, some of which may have more extensive operating experience,
more extensive experience in the acquisition and development of power generation
facilities, larger staffs or greater financial resources than we do. Many of our
competitors also are seeking attractive power generation opportunities, both in
the United States and abroad. This competition may adversely affect our ability
to make investments or acquisitions. In recent years, the independent power
industry has been characterized by increased competition for asset purchases and
development opportunities.
In addition, regulatory changes have also been proposed to increase access
to transmission grids by utility and non-utility purchasers and sellers of
electricity. Industry deregulation may encourage the disaggregation of
vertically integrated utilities into separate generation, transmission and
distribution businesses. As a result, significant additional competitors could
become active in the generation segment of our industry.
14
37
WE FACE ONGOING CHANGES IN THE UNITED STATES UTILITY INDUSTRY THAT COULD
AFFECT OUR COMPETITIVENESS.
The United States electric utility industry is currently experiencing
increasing competitive pressures, primarily in wholesale markets, as a result of
consumer demands, technological advances, greater availability of natural
gas-fired generation that is more efficient than our generation facilities and
other factors. FERC has implemented and continues to propose regulatory changes
to increase access to the nationwide transmission grid by utility and
non-utility purchasers and sellers of electricity. In addition, a number of
states are considering or implementing methods to introduce and promote retail
competition. Recently, some utilities have brought litigation aimed at forcing
the renegotiation or termination of power purchase agreements requiring payments
to owners of QF projects based upon past estimates of avoided cost that are now
substantially in excess of market prices. In the future, utilities, with the
approval of state public utility commissions, could seek to abrogate their
existing power purchase agreements.
Proposals have been introduced in Congress to repeal PURPA and PUHCA, and
FERC has publicly indicated support for the PUHCA repeal effort. If the repeal
of PURPA or PUHCA occurs, either separately or as part of legislation designed
to encourage the broader introduction of wholesale and retail competition, the
significant competitive advantages that independent power producers currently
enjoy over certain regulated utility companies would be eliminated or sharply
curtailed, and the ability of regulated utility companies to compete more
directly with independent power companies would be increased. To the extent
competitive pressures increase and the pricing and sale of electricity assumes
more characteristics of a commodity business, the economics of domestic
independent power generation projects may come under increasing pressure.
Deregulation may not only continue to fuel the current trend toward
consolidation among domestic utilities, but may also encourage the
disaggregation of vertically-integrated utilities into separate generation,
transmission and distribution businesses.
In addition, the independent system operators who oversee most of the
wholesale power markets have in the past imposed, and may in the future continue
to impose, price limitations and other mechanisms to address some of the
volatility in these markets. For example, the independent system operator for
the New York Power Pool and the California independent system operator have
recently imposed price limitations. These types of price limitations and other
mechanisms in New York, California, the New England Power Pool and elsewhere may
adversely impact the profitability of our generation facilities that sell energy
into the wholesale power markets. Finally, the regulatory and legislative
changes that have recently been enacted in a number of states in an effort to
promote competition are novel and untested in many respects. These new
approaches to the sale of electric power have very short operating histories,
and it is not yet clear how they will operate in times of market stress or
pressure. Given the extreme volatility and lack of meaningful long-term price
history in many of these markets and the imposition of price limitations by
independent system operators, we can offer no assurance that we will be able to
operate profitably in all wholesale power markets.
THE COMPANY
NRG Energy, Inc. is a leading global energy company primarily engaged in
the acquisition, development, ownership and operation of power generation
facilities and the sale of energy, capacity and related products. We believe we
are one of the three largest independent power generation companies in the
United States and the fifth largest independent power generation company in the
world, measured by our net ownership interest in power generation facilities. As
of June 1, 2001, we owned all or a portion of 67 generation projects that had a
total generating capacity of 29,378 megawatts ("MW"); our net ownership interest
in those projects as of June 1, 2001 was 19,549 MW, of which 14,820 MW were
located in the United States. In addition, we have an active acquisition and
development program through which we are pursuing additional generation
projects.
We have also expanded our power marketing activities, which allow us to
optimize the value of our power generation assets and enable us to better meet
our customers' energy requirements. By linking our power generation capabilities
and access to fuel supplies with our power marketing and risk management
expertise, we believe that we can secure favorable pricing for our fuel
purchases and power sales.
15
38
In addition to our power generation projects and power marketing
activities, we also have interests in district heating and cooling systems and
steam transmission operations. We also believe we are one of the largest
landfill gas generation companies in the United States, extracting methane from
landfills to generate electricity.
We were established in 1989 and are a majority-owned subsidiary of Xcel
Energy, Inc. Our headquarters and principal executive offices are located at 901
Marquette Avenue, Suite 2300, Minneapolis, Minnesota 55402-3265. Our telephone
number is (612) 373-5300.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, we will
use the net proceeds from the sale of the securities described in this
prospectus for general corporate purposes, which may include financing the
development and construction of new facilities, additions to working capital,
reductions of our indebtedness and the indebtedness of our subsidiaries,
financing of capital expenditures and pending or potential acquisitions. We may
invest funds not immediately required for such purposes in short-term investment
grade securities. The amount and timing of sales of the securities described in
this prospectus will depend on market conditions and the availability to us of
other funds.
EARNINGS TO FIXED CHARGES RATIO
The following table sets forth the ratio of our earnings to our fixed
charges for the periods indicated:
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ ------------------
1996 1997 1998 1999 2000 2001
----- ----- ---- ----- ----- ------------------
Ratio of earnings to fixed charges(1)..... 1.75x 1.16x (2) 1.04x 1.77x 1.24x
-------------------------
(1) The ratio of earnings to fixed charges is calculated by dividing earnings by
fixed charges. For this purpose "earnings" means income (loss) before income
taxes, less undistributed equity in our share of operating earnings of
unconsolidated affiliates and equity in gain from project termination
settlements, plus cash distributions from project termination settlements
and fixed charges. "Fixed charges" means interest expense, plus interest
capitalized, plus amortization of debt issuance costs, plus one-third of our
annual rental expense, which the Securities and Exchange Commission defines
as a reasonable approximation of rental expense interest.
(2) Due primarily to undistributed equity from unconsolidated affiliates,
earnings did not cover fixed charges by $7.3 million.
DESCRIPTION OF DEBT SECURITIES
This prospectus describes the general terms and provisions of our debt
securities. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in a prospectus supplement to
this prospectus. We will also indicate in the applicable prospectus supplement
whether the general terms and provisions described in this prospectus apply to a
particular series of debt securities. We may also sell hybrid or novel
securities now existing or developed in the future that combine certain features
of debt securities and other securities described in this prospectus.
The debt securities will be issued under an indenture as amended or
supplemented from time to time, between us and The Bank of New York, as trustee.
The following summaries of certain provisions of the indenture do not purport to
be complete. We have also filed the indenture as an exhibit to the registration
statement. Except to the extent set forth in a prospectus supplement with
respect to a particular issue of debt securities, the indenture, as amended or
supplemented from time to time, for the debt securities will be substantially
similar to the one filed as an exhibit to the registration statement and
described below.
16
39
GENERAL
The debt securities will be our direct, unsecured obligations. Because we
conduct substantially all of our business through numerous subsidiaries and
affiliates, all existing and future liabilities of our direct and indirect
subsidiaries and affiliates will be effectively senior to the debt securities.
The debt securities will not be guaranteed by, or otherwise be obligations of,
our project subsidiaries and project affiliates, or our other direct and
indirect subsidiaries and affiliates or Xcel Energy.
A prospectus supplement relating to a series of debt securities being
offered will include specific terms relating to the offering. These terms will
include some or all of the following:
- the title of the series of debt securities;
- the aggregate principal amount (or any limit on the aggregate principal
amount) of the series of debt securities and, if any debt securities of a
series are to be issued at a discount from their face amount, the method
of computing the accretion of such discount;
- the interest rate or method of calculation of the interest rate;
- the date from which interest will accrue;
- the record dates for interest payable on debt securities of the series;
- the dates when, places where and manner in which principal and interest
are payable;
- the securities registrar if other than the trustee;
- the terms of any mandatory (including any sinking fund requirements) or
optional redemption by us;
- the terms of any repurchase or remarketing rights of third parties;
- the terms of any redemption at the option of holders of debt securities
of a series;
- the denominations in which debt securities are issuable;
- whether debt securities will be issued in registered or bearer form and
the terms of any such forms of debt securities;
- whether any debt securities will be represented by a global security and
the terms of any such global security;
- the currency or currencies (including any composite currency) in which
principal or interest or both may be paid;
- if payments of principal or interest may be made in a currency other than
that in which debt securities are denominated, the manner for determining
such payments;
- provisions for electronic issuance of debt securities or issuance of debt
securities in uncertificated form;
- any events of default, covenants and/or defined terms in addition to or
in lieu of those set forth in the indenture;
- whether and upon what terms debt securities may be defeased if different
from the provisions set forth in the indenture;
- the form of the debt securities;
- any terms that may be required by or advisable under applicable law;
- the percentage of the principal amount of the debt securities which is
payable if the maturity of the debt securities is accelerated in the case
of debt securities issued at a discount from their face amount;
17
40
- whether any debt securities will have guarantees; and
- any other terms in addition to or different from those contained in the
indenture.
The debt securities will bear interest at a fixed rate or a floating rate.
Debt securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate may be sold or deemed to be sold at
a discount below their stated principal amount. With respect to any debt
securities as to which we have the right to defer interest, the holders of such
debt securities may be allocated interest income for federal and state income
tax purposes without receiving equivalent, or any, interest payments. Any
material federal income tax considerations applicable to any such discounted
debt securities or to certain debt securities issued at par that are treated as
having been issued at a discount for federal income tax purposes will be
described in a prospectus supplement.
GLOBAL DEBT SECURITIES
If any debt securities are represented by one or more global securities,
the applicable supplement will describe the terms of the depositary arrangement
with respect to such global securities.
REDEMPTION
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will provide that, we, at any time, may redeem a
series of debt securities, in whole or in part (if in part, by lot or by such
other method as the trustee shall deem fair or appropriate) at the redemption
price of 100% of principal amount of such debt securities, plus accrued interest
on the principal amount, if any, to the redemption date, plus the applicable
"Make-Whole Premium" (as discussed below).
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will provide that, to determine the applicable
Make-Whole Premium for any debt security, an independent investment banking
institution of national standing that we select will compute, as of the third
business day prior to the redemption date, the sum of the present values of all
of the remaining scheduled payments of principal and interest from the
redemption date to maturity on such debt security computed on a semiannual basis
by discounting such payments (assuming a 360-day year consisting of twelve
30-day months) using a rate to be set forth in the applicable prospectus
supplement. If the sum of these present values of the remaining payments as
computed above exceeds the aggregate unpaid principal amount of the debt
security that we will redeem plus any accrued but unpaid interest thereon, the
difference will be payable as a premium upon redemption of such debt security.
If the sum is equal to or less than such principal amount plus accrued interest,
we will pay no premium with respect to such debt security.
CERTAIN COVENANTS OF THE COMPANY
AFFIRMATIVE COVENANTS
In addition to such other covenants, if any, as may be described in an
accompanying prospectus supplement and except as may otherwise be set forth
therein, the indenture will require us, subject to certain limitations described
therein, to, among other things, do the following:
- deliver to the trustee copies of all reports filed with the Securities
and Exchange Commission;
- deliver to the trustee annual officers' certificates with respect to our
compliance with our obligations under the indenture;
- maintain our corporate existence subject to the provisions described
below relating to mergers and consolidations; and
- pay our taxes when due except where we are contesting such taxes in good
faith.
The indenture may also, as set forth in an accompanying prospectus
supplement, restrict our business or operations or that of our subsidiaries or
limit our indebtedness.
18
41
RESTRICTIONS ON LIENS
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will provide that, so long as any of the debt
securities are outstanding, we will not pledge, mortgage, hypothecate or permit
to exist any mortgage, pledge or other lien upon any property at any time
directly owned by us to secure any indebtedness for money borrowed which is
incurred, issued, assumed or guaranteed by us ("Indebtedness"), without making
effective provisions whereby the debt securities shall be equally and ratably
secured with any and all such Indebtedness and with any other Indebtedness
similarly entitled to be equally and ratably secured; provided, however, that,
with respect to any series of debt securities, this restriction shall not apply
to or prevent the creation or existence of: (i) liens existing at the original
date of issuance of such series of debt securities; (ii) purchase money liens
that do not exceed the cost or value of the purchased property; (iii) other
liens not to exceed 10% of our "Consolidated Net Tangible Assets" (defined
below) and (iv) liens granted in connection with extending, renewing, replacing
or refinancing in whole or in part the Indebtedness (including, without
limitation, increasing the principal amount of such Indebtedness) secured by
liens described in the foregoing clauses (i) through (iii). Except as may
otherwise be provided in an accompanying prospectus supplement, "Consolidated
Net Tangible Assets" will be defined as the following: as of the date of any
determination thereof, the total amount of all our assets determined on a
consolidated basis in accordance with GAAP as of such date less the sum of (a)
our consolidated current liabilities determined in accordance with GAAP and (b)
assets properly classified as intangible assets, in accordance with GAAP.
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will further provide that, in the event we propose to
pledge, mortgage or hypothecate any property at any time directly owned by us to
secure any Indebtedness, other than as permitted by clauses (i) through (iv) of
the previous paragraph, we will agree to give prior written notice thereof to
the trustee, who shall give notice to the holders of debt securities, and we
will further agree, prior to or simultaneously with such pledge, mortgage or
hypothecation, effectively to secure all the debt securities equally and ratably
with such Indebtedness.
The foregoing covenant will not restrict the ability of our subsidiaries
and affiliates to pledge, mortgage, hypothecate or permit to exist any mortgage,
pledge or lien upon their assets, in connection with project financings or
otherwise.
CHANGE OF CONTROL
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will provide that, if a Change of Control occurs, we
will be obligated to offer to purchase all outstanding debt securities of a
series to which the Change of Control applies. We will conduct any offer to
purchase debt securities upon a Change of Control in compliance with applicable
regulations under the federal securities laws, including Exchange Act Rule
14e-1. Any limitations on our financial ability to purchase debt securities upon
a Change of Control will be described in an accompanying prospectus supplement.
Except as may otherwise be provided in an accompanying prospectus
supplement, a "Change of Control" will be defined in the indenture as any of the
following:
- a person or group of persons (other than Xcel Energy) becomes the
beneficial owner, directly or indirectly, or has the absolute power to
direct the vote of more than 35% of our outstanding voting stock; or
- during any one year period, individuals who at the beginning of such
period constitute our board of directors cease to be a majority of the
board of directors (unless approved by a majority of the current
directors then in office who were either directors at the beginning of
such period or who were previously so approved).
With respect to a series of debt securities , a Change of Control shall be
deemed not to have occurred if, following such an event described above, the
debt securities of such series are rated "BBB-" or better by Standard & Poor's
Ratings Group and "Baa3" or better by Moody's Investors Service, Inc. Except as
19
42
may otherwise be set forth in an accompanying prospectus supplement, our failure
to comply with the Change of Control covenant as to the debt securities will be
an "Event of Default" (as defined below) under the indenture. See "Events of
Default" below.
Except as may be provided otherwise in an accompanying prospectus
supplement, the Change of Control provisions may not be waived by the trustee or
the board of directors, and any modification thereof must be approved by each
holder of a debt security. We cannot assure you that we would have sufficient
liquidity to effectuate any required repurchase of debt securities upon a Change
of Control.
Except as may be provided otherwise in an accompanying prospectus
supplement, within 30 days following any Change of Control with respect to a
series of debt securities, we will be required to mail a notice to each debt
security holder of such series (with a copy to the trustee) stating:
- that a Change of Control has occurred and that such holder has the right
to require us to repurchase such holder's debt securities at a repurchase
price in cash equal to 101% of the principal amount thereof plus accrued
interest, if any (the "Change of Control Offer");
- the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control);
- the repurchase date (which shall be a business day and be not earlier
than 30 days or later than 60 days from the date such notice is mailed
(the "Repurchase Date"));
- that interest on any debt security tendered will continue to accrue;
- that interest on any debt security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue after the Repurchase Date;
- that debt security holders electing to have a debt security purchased
pursuant to a Change of Control Offer will be required to surrender the
debt security, with the form entitled "Option to Elect Purchase" on the
reverse of the debt security completed, to the trustee at the address
specified in the notice prior to the close of business on the Repurchase
Date;
- that debt security holders will be entitled to withdraw their election if
the trustee receives, not later than the close of business on the third
business day (or such shorter periods as may be required by applicable
law) preceding the Repurchase Date, a telegram, telex, facsimile or
letter setting forth the name of the debt security holder, the principal
amount of debt securities the holder delivered for purchase and a
statement that such debt security holder is withdrawing its election to
have such debt securities purchased; and
- that debt security holders that elect to have their debt securities
purchased only in part will be issued new debt securities in a principal
amount equal to the unpurchased portion of the debt securities
surrendered.
MERGER, CONSOLIDATION, SALE, LEASE OR CONVEYANCE
Except as may otherwise be provided in an accompanying prospectus
supplement, the indenture will provide that we will not merge or consolidate
with or into any other person and we will not sell, lease or convey all or
substantially all of our assets to any person, unless we are the continuing
corporation, or the successor corporation or the person that acquires all or
substantially all of our assets is a corporation organized and existing under
the laws of the United States or a State thereof or the District of Columbia and
expressly assumes all of our obligations under the debt securities and the
indenture, and, immediately after such merger, consolidation, sale, lease or
conveyance, such person or such successor corporation is not in default in the
performance of the covenants and conditions in the indenture. The meaning of the
term "all or substantially all of the assets" has not been definitely
established and is likely to be interpreted by reference to applicable state law
if and at the time the issue arises and will be dependent on the facts and
circumstances existing at the time.
20
43
Except as may be provided otherwise in an accompanying prospectus
supplement, the indenture will provide that, except for a sale of our assets
substantially as an entirety as provided above, and other than assets we are
required to sell to conform with governmental regulations, we may not sell or
otherwise dispose of any assets (other than short-term, readily marketable
investments purchased for cash management purposes with funds not representing
the proceeds of other asset sales) if on a pro forma basis, the aggregate net
book value of all such sales during the most recent 12-month period would exceed
10% of our Consolidated Net Tangible Assets computed as of the end of the most
recent quarter preceding such sale; provided, however, that any such sales shall
be disregarded for purposes of this 10% limitation if the proceeds are invested
in assets in similar or related lines of our business and, provided further,
that we may sell or otherwise dispose of assets in excess of such 10% if we
retain the proceeds from such sales or dispositions, which are not reinvested as
provided above, as cash or cash equivalents or we use the proceeds to purchase
and retire the debt securities.
REPORTING OBLIGATIONS
Except as may be provided otherwise in an accompanying prospectus
supplement, the indenture will provide that we will furnish or cause to be
furnished to holders of debt securities copies of our annual reports and of the
information, documents and other reports that we are required to file with the
Securities and Exchange Commission pursuant to Section 13 or 15(d) of the
Exchange Act within 15 days after we file them with the Securities and Exchange
Commission.
EVENTS OF DEFAULT
Except as may be described in an accompanying prospectus supplement, an
"Event of Default" with respect to a series of debt securities will be defined
under the indenture as being:
(a) our failure to pay any interest on any debt security of such
series when due, which failure continues for 30 days;
(b) our failure to pay all or any part of the principal or purchase
price in connection with a Change of Control when due on any debt
securities of such series;
(c) our failure to perform any other covenant relative to the debt
securities of such series or the indenture for a period of 30 days after
the trustee gives us written notice or we receive written notice by the
holders of at least 25% in aggregate principal amount of the debt
securities of such series;
(d) an event of default occurring under any of our instruments under
which there may be issued, or by which there may be secured or evidenced,
any indebtedness for money borrowed that has resulted in the acceleration
of such indebtedness, or any default occurring in payment of any such
indebtedness at final maturity (and after the expiration of any applicable
grace periods), other than (i) indebtedness which is payable solely out of
the property or assets of a partnership, joint venture or similar entity of
which we or any of our subsidiaries or affiliates is a participant, or
which is secured by a lien on the property or assets owned or held by such
entity, without further recourse to us or (ii) indebtedness not exceeding
$50,000,000; and
(e) certain events of bankruptcy, insolvency or reorganization in
respect of us.
Except to the extent otherwise stated in an accompanying prospectus
supplement, the indenture will provide that if an Event of Default (other than
an Event of Default due to certain events of bankruptcy, insolvency or
reorganization) has occurred and is continuing, either the trustee or the
holders of not less than 25% in principal amount of the debt securities of a
series, or such other amount as may be specified in the applicable prospectus
supplement, may then declare the principal of all debt securities of such series
and interest accrued thereon to be due and payable immediately.
Except to the extent otherwise stated in an accompanying prospectus
supplement, the indenture will contain a provision entitling the trustee,
subject to the duty of the trustee during a default to act with the required
standard of care, to be indemnified by the holders of debt securities before
proceeding to exercise
21
44
any right or power under the indenture at the request of such holders. Subject
to such provisions in the indenture for the indemnification of the trustee and
certain other limitations, the holders of a majority in principal amount of the
debt securities then outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee.
Except to the extent otherwise stated in an accompanying prospectus
supplement, the indenture will provide that no holder of debt securities of a
series may institute any action against us under the indenture (except actions
for payment of overdue principal or interest) unless:
- such holder previously has given the trustee written notice of the
default and continuance thereof;
- the holders of not less than 25% in principal amount of the debt
securities of such holder's series have requested the trustee to
institute such action and offered the trustee reasonable indemnity;
- the trustee has not instituted such action within 30 days of the request;
and
- the trustee has not received direction inconsistent with such written
request from the holders of a majority in principal amount of the debt
securities of such series.
DEFEASANCE AND COVENANT DEFEASANCE
DEFEASANCE
Except to the extent otherwise stated in an accompanying prospectus
supplement, the indenture will provide that we will be deemed to have paid and
will be discharged from any and all obligations in respect of the debt
securities, on the 123rd day after the deposit referred to below has been made,
and the provisions of the indenture will cease to be applicable with respect to
the debt securities (except for, among other matters, certain obligations to
register the transfer of or exchange of the debt securities, to replace stolen,
lost or mutilated debt securities, to maintain paying agencies and to hold funds
for payment in trust) if (A) we have deposited with the trustee, in trust, money
and/or U.S. Government Obligations (as defined in the indenture) that, through
the payment of interest and principal in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the debt securities, at the time such
payments are due in accordance with the terms of the indenture, (B) we have
delivered to the trustee (i) an opinion of counsel to the effect that debt
security holders will not recognize income, gain or loss for federal income tax
purposes as a result of our exercise of our option under the defeasance
provisions of the indenture and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred, which opinion
of counsel must be based upon a ruling of the Internal Revenue Service to the
same effect or a change in applicable federal income tax law or related treasury
regulations after the date of the indenture and (ii) an opinion of counsel to
the effect that the defeasance trust does not constitute an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the U.S. Bankruptcy Code or Section 15
of the New York Debtor and Creditor Law, (C) immediately after giving effect to
such deposit, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred and
be continuing on the date of such deposit or during the period ending on the
123rd day after the date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which we are a party or by which we are bound and (D) if at such
time the debt securities are listed on a national securities exchange, we have
delivered to the trustee an opinion of counsel to the effect that the debt
securities will not be delisted as a result of such deposit and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
Except to the extent otherwise stated in an accompanying prospectus
supplement, the indenture for the debt securities will further provide that the
provisions of the indenture will cease to be applicable with
22
45
respect to (i) the covenants described under "Change of Control" and (ii) clause
(c) under "Events of Default" with respect to such covenants and clause (d)
under "Events of Default" upon the deposit with the trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the debt securities, the satisfaction of the conditions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and our delivery to the
trustee of an opinion of counsel to the effect that, among other things, the
holders of the debt securities will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
Except to the extent otherwise stated in an accompanying prospectus
supplement, the indenture will provide that if we exercise our option to omit
compliance with certain covenants and provisions of the indenture with respect
to the debt securities as described in the immediately preceding paragraph and
the debt securities are declared due and payable because of the occurrence of an
Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the trustee will be sufficient to pay
amounts due on the debt securities at the time of their stated maturity, but may
not be sufficient to pay amounts due on the debt securities at the time of
acceleration resulting from such Event of Default. In such event, we shall
remain liable for such payments.
MODIFICATIONS TO THE INDENTURE
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will contain provisions permitting us and the trustee,
with the consent of the holders of not less than a majority in principal amount
of the debt securities of each series affected by a proposed amendment or
modification, to modify the indenture or the rights of the debt security holders
of such series, except that no such modification may, without the consent of
each debt security holder of such series, (i) extend the final maturity of any
of the debt securities or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce any amount
payable on redemption thereof, or impair or affect the right of any debt
security holder to institute suit for the payment thereof or make any change in
the covenant regarding a Change of Control or (ii) reduce the percentage of debt
securities, the consent of the holders of which is required for any such
modification.
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will provide that we and the trustee without the
consent of any debt security holder may amend the indenture and the debt
securities for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective provision thereof, or in any manner which we and the
trustee may determine is not inconsistent with the debt securities and will not
adversely affect the interest of any debt security holder, including
establishing the form or terms of a series of debt securities under the
indenture.
BOOK-ENTRY, DELIVERY AND FORM
Except as may otherwise be set forth in an accompanying prospectus
supplement, the indenture will provide that the debt securities will initially
be issued in the form of one or more registered notes in global form (the
"Global Notes"). Each Global Note will be deposited on the date of the closing
of the sale of the debt securities with, or on behalf of, The Depository Trust
Company ("DTC"), as depositary, and registered in the name of Cede & Co., as
DTC's nominee.
DTC is a limited-purpose trust company created to hold securities for its
participants (the "Participants") and to facilitate the clearance and settlement
of transactions in those securities between Participants through electronic
book-entry changes in accounts of the Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other
23
46
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchase of each security held by or on
behalf of DTC are recorded on the records of the Participants and Indirect
Participants.
We expect that pursuant to procedures established by DTC, (i) upon deposit
of the Global Notes, DTC will credit the accounts of Participants designated by
the underwriters with portions of the principal amount of the Global Notes and
(ii) ownership of such interests in the Global Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of some
states require that certain persons take physical delivery in certificated form
of securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants and certain banks, the ability of a person having
beneficial interests in a Global Note to pledge such interest to persons that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interests. For certain other restrictions on the transferability of the debt
securities, see "-- Exchange of Book-Entry Debt Securities for Certificated Debt
Securities" below.
Except as described below, owners of interests in the Global Notes will not
have debt securities registered in their name, will not receive physical
delivery of debt securities in certificated form and will not be considered the
registered owners or holders thereof under the indenture for any purpose.
Payments in respect of the Global Notes registered in the name of DTC or
its nominee will be payable by the trustee to DTC in its capacity as the
registered holder under the indenture. Under the terms of the indenture, the
trustee will treat the persons in whose names the debt securities, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all purposes whatsoever. Consequently, neither the
trustee nor any agent thereof has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Note or
(ii) any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC's current practice, upon receipt of
any payment in respect of securities such as the debt securities, is to credit
the accounts of the relevant Participants with the payment on the payment date,
in amounts proportionate to their respective holdings in principal amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the trustee or
us. Neither we nor the trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the debt securities, and we
and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except as may otherwise be set forth in an accompanying prospectus
supplement, DTC will take any action permitted to be taken by a holder of the
debt securities only at the direction of one or more Participants to whose
account with DTC interests in the Global Notes are credited and only in respect
of
24
47
such portion of the Notes as to which such Participant or Participants has or
have given such direction. However, if there is an Event of Default, DTC
reserves the right to exchange the Global Notes for debt securities in
certificated form and to distribute such debt securities to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that we believe to be reliable, but we have not
independently determined the accuracy thereof. We will not have any
responsibility for the performance by DTC or its Participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK ENTRY DEBT SECURITIES FOR CERTIFICATED DEBT SECURITIES
Except as may otherwise be set forth in an accompanying prospectus
supplement, a Global Note is exchangeable for debt securities in registered
certificated form if (i) DTC notifies us that it is unwilling or unable to
continue as clearing agency for the Global Note or has ceased to be a clearing
agency registered under the Exchange Act and we thereupon fail to appoint a
successor clearing agency within 90 days, (ii) we in our sole discretion elect
to cause the issuance of definitive certificated debt securities or (iii) there
has occurred and is continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default under the
indenture. In addition, beneficial interests in a Global Note may be exchanged
for certificated debt securities upon request but only upon at least 20 days,
prior written notice given to the trustee by or on behalf of DTC in accordance
with customary procedures. In all cases certificated debt securities delivered
in exchange for any Global Note or beneficial interest therein will be
registered in the names, and issued in denominations of $100,000 and integral
multiples of $1,000 in excess thereof, requested by or on behalf of the clearing
agency (in accordance with its customary procedures).
CONCERNING THE TRUSTEE
Unless stated in the applicable prospectus supplement, (i) the trustee may
also be the trustee under any other indenture for debt securities and (ii) any
trustee or its affiliates may lend money to us, including under our principal
credit facility, and may from time to time have lender or other business
arrangements with us. The indenture will contain certain limitations on the
rights of the trustee, should it or its affiliates then be our creditors, to
obtain payment of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. The trustee and
its affiliates will be permitted to engage in other transactions; however, if
they acquire any conflicting interest, the conflict must be eliminated or the
trustee must resign.
GOVERNING LAW
Unless otherwise specified in an accompanying prospectus supplement, the
indenture and the debt securities will be governed by New York law.
DESCRIPTION OF STOCK
We may issue, from time to time, shares of one or more series or classes of
our common or preferred stock. The following summary description sets forth some
of the general terms and provisions of the stock. We will describe the specific
terms of any series of stock that we issue as part of this offering in an
applicable prospectus supplement. To the extent the description contained in the
prospectus supplement differs from this summary description, you should rely on
the information in the prospectus supplement. Because this is a summary
description, it does not contain all of the information that may be important to
you. For a more detailed description of the stock, you should refer to the
provisions of our certificate of incorporation, bylaws and the applicable
prospectus supplement before you purchase these securities.
25
48
GENERAL
Under our certificate of incorporation, we are authorized to issue
550,000,000 shares of common stock, 250,000,000 shares of class A common stock
and 200,000,000 shares of preferred stock. As of April 26, 2001, 50,897,097
shares of common stock were issued and outstanding, 147,604,500 shares of class
A common stock, all of which are owned by Xcel Energy, were issued and
outstanding, and no shares of preferred stock were issued and outstanding. No
other classes of capital stock are authorized under our certificate of
incorporation. The issued and outstanding shares of common stock and class A
common stock are duly authorized, validly issued, fully paid and non-assessable.
COMMON STOCK
COMPARISON OF COMMON STOCK AND CLASS A COMMON STOCK
The following table compares our common stock and class A common stock:
COMMON SHARES CLASS A COMMON SHARES
------------- ---------------------
Public Market The common stock is listed on None.
the New York Stock Exchange.
Voting Rights One vote per share on all Ten votes per share on all
matters voted upon by our matters voted upon by our
stockholders. stockholders.
Transfer Restrictions None. None, but will convert to
common stock on a share-for-
share basis upon certain
transfers as described below.
Conversion Not convertible. Convertible at any time, in
whole or in part, into shares
of common stock on a
share-for-share basis.
Automatically converts into
common stock on a share-for-
share basis upon any transfer
to a non-affiliate of Xcel
Energy (including by way of
merger, consolidation or
reorganization) or if Xcel
Energy or its affiliates own
less than 30% of the
outstanding shares of class A
common stock and common stock
on a combined basis.
Reissuance Additional shares may be No additional shares may be
issued and redeemed shares issued, and shares redeemed
may be reissued. or repurchased will be
canceled and may not be
reissued.
Holders of common stock have no preemptive rights. They are entitled to
such dividends as may be declared by our board of directors out of funds legally
available for such purpose. The common stock is not entitled to any sinking
fund, redemption or conversion provisions. On our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in our net
assets remaining after the payment of all creditors and liquidation preferences
of preferred stock, if any. The outstanding shares of common stock are duly
authorized, validly issued, fully paid and nonassessable. There will be a
prospectus supplement relating to any offering of common stock offered by this
prospectus.
If we in any manner split, subdivide or combine the outstanding shares of
common stock or class A common stock, the outstanding shares of the other class
of common stock will be proportionally subdivided
26
49
or combined in the same manner and on the same basis. In all other respects,
whether as to dividends, upon liquidation, dissolution or winding up, or
otherwise, the holders of record of common stock and the holders of record of
class A common stock have identical rights and privileges on the basis of the
number of shares held.
OTHER PROVISIONS RELATING TO COMMON STOCK
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders must provide timely notice of their proposal in
writing to the corporate secretary. To be timely, a stockholder's notice must be
delivered or mailed and received at our principal executive offices not less
than 120 days in advance of the anniversary date of our proxy statement in
connection with our previous year's annual meeting. Our bylaws also specify
requirements as to the form and content of a stockholder's notice. These
provisions may impede stockholders' ability to bring matters before an annual
meeting of stockholders or make nominations for directors at an annual meeting
of stockholders. So long as Xcel Energy or its successors by way of merger or
consolidation own at least 50% of the outstanding shares of common stock and
class A common stock on a combined basis, it will be exempt from these
provisions.
Holders of our common stock may not call a special meeting of stockholders;
only our board of directors may call such a meeting.
We are not be subject to the business combination provisions of Section 203
of the Delaware General Corporation Law, but our certificate of incorporation
contains provisions substantially similar to Section 203. In general, these
provisions prohibit us from engaging in various business combination
transactions with any interested stockholder for a period of two years after the
date of the transaction in which the person became an interested stockholder
unless one of the following three sets of conditions are satisfied:
- the business combination transaction is approved by a majority of the
members of our board of directors who either are unaffiliated with the
interested stockholder and were members prior to the date the interested
stockholder obtained this status or were nominated and elected by a
majority of such unaffiliated members,
- several conditions are met including that the aggregate amount of cash
and the fair market value as of the date of the consummation of the
transaction of non-cash consideration to be received per share by a
holder of our capital stock is at least equal to the highest of
-- the highest per share price paid by the interested stockholder within
the previous two years or in the transaction in which the interested
stockholder obtained this status;
-- the fair market value per share of the relevant class of capital
stock on the date the transaction was announced; and
-- the fair market value per share of the relevant class of capital
stock on the date the interested stockholder obtained this status;
and
a proxy or information statement describing the proposed business
combination has been mailed to our stockholders at least 30 days prior to
the consummation of such business combination; or
- the business combination is approved by our board of directors and
authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 80% of our outstanding shares entitled to
vote for the election of directors.
Under our certificate of incorporation, a business combination is defined
to include mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. In general, an interested stockholder is a person who,
together with affiliates and associates, owns or, within two years, did own, 10%
or more of our common stock. Xcel Energy and its affiliates is exempt from these
provisions.
27
50
Under our certificate of incorporation, our certificate of incorporation
may only be amended:
- prior to the first date that Xcel Energy, together with its respective
affiliates, ceases to beneficially own at least 30% of the outstanding
shares of common stock and class A common stock on a combined basis, by
the affirmative vote of the holders of a majority of the outstanding
shares of common stock and class A common stock on a combined basis; or
- after the first date that Xcel Energy, together with its respective
affiliates, ceases to beneficially own at least 30% of the outstanding
shares of common stock and class A common stock on a combined basis (at
which point the class A common shares will automatically convert into an
equal number of common stock shares), by the affirmative vote of the
holders of at least 80% of the outstanding shares of common stock.
Under our certificate of incorporation and bylaws, our bylaws may only be
amended:
- at any time by the affirmative vote of directors constituting not less
than a majority of the entire board of directors;
- prior to the first date that Xcel Energy, together with its affiliates,
ceases to beneficially own at least 50% of the outstanding shares of the
outstanding shares of common stock and class A common stock on a combined
basis, by the affirmative vote of the holders of a majority of the
outstanding shares of common stock and class A common stock on a combined
basis; or
- after that date, by the affirmative vote of the holders of a least 80% of
the outstanding shares of common stock and class A common stock on a
combined basis.
PREFERRED STOCK
We can issue shares of preferred stock in series with such preferences and
designations as our board of directors may determine. Our board can, without
stockholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights. This could dilute the voting strength of the holders of
common stock and may help our management impede a takeover or attempted change
in control.
Our board is authorized to determine for each series of preferred stock,
and the applicable prospectus supplement will set forth with respect to any such
series:
- the designation of such shares and the number of shares that constitute
such series;
- the dividend rate (or the method of calculation thereof), if any, on the
shares of such series and the priority as to payment of dividends with
respect to other classes or series of our capital stock;
- the dividend periods (or the method of calculating the dividend period);
- the voting rights of the shares, if any;
- the liquidation preference and the priority as to payment of such
liquidation preference with respect to the classes or series of preferred
stock and any other rights of the shares of such series if we liquidate
or wind-up our affairs;
- whether or not and on what terms we can redeem or repurchase the shares
from you;
- whether and on what terms you may convert or exchange the shares for
other debt or equity securities; and
- any other material terms.
The shares of a series of preferred stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the applicable prospectus supplement, the
certificate of incorporation or the applicable certificate of designation or as
otherwise required by law.
28
51
Except as set forth in the applicable prospectus supplement, no series of
preferred stock will be convertible into, or exchangeable for, other securities
or property and no series of preferred stock will be redeemable or receive the
benefit of a sinking fund. If we voluntarily or involuntarily liquidate,
dissolve or wind up our affairs, the holders of each series of preferred stock
will be entitled to receive the liquidation preference per share specified in
the prospectus supplement plus any accrued and unpaid dividends. Holders of
preferred stock will be entitled to receive these amounts before any
distribution is made to the holders of common stock or class A common stock, but
only after the liquidation preference has been fully paid on any shares of
senior ranking preferred stock, if any. Neither the par value nor the
liquidation preference is indicative of the price at which the preferred stock
will actually trade on or after the date of issuance.
We will designate the transfer agent for each series of preferred stock in
the applicable prospectus supplement.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred stock
or common stock. Warrants may be issued independently or together with our debt
securities, preferred stock or common stock and may be attached to or separate
from any offered securities. Each series of warrants will be issued under a
separate warrant agreement to be entered into between us and a bank or trust
company, as warrant agent. The warrant agent will act solely as our agent in
connection with the warrants and will not have any obligation or relationship of
agency or trust for or with any holders or beneficial owners of warrants. A copy
of the warrant agreement will be filed with the Securities and Exchange
Commission in connection with the offering of warrants.
DEBT WARRANTS
The prospectus supplement relating to a particular issue of warrants to
issue debt securities will describe the terms of those warrants, including the
following:
- the title of the warrants;
- the offering price for the warrants, if any;
- the aggregate number of the warrants;
- the designation and terms of the debt securities purchasable upon
exercise of the warrants;
- if applicable, the designation and terms of the debt securities that the
warrants are issued with and the number of warrants issued with each debt
security;
- if applicable, the date from and after which the warrants and any debt
securities issued with them will be separately transferable;
- the principal amount of debt securities that may be purchased upon
exercise of a warrant and the price at which the debt securities may be
purchased upon exercise;
- the dates on which the right to exercise the warrants will commence and
expire;
- if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;
- whether the warrants represented by the warrant certificates or debt
securities that may be issued upon exercise of the warrants will be
issued in registered or bearer form;
- information relating to book-entry procedures, if any;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
29
52
- if applicable, a discussion of material United States federal income tax
considerations;
- anti-dilution provisions of the warrants, if any;
- redemption or call provisions, if any, applicable to the warrants;
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants; and
- any other information we think is important about the warrants.
STOCK WARRANTS
The prospectus supplement relating to a particular issue of warrants to
issue common stock or preferred stock will describe the terms of the warrants,
including the following:
- the title of the warrants;
- the offering price for the warrants, if any;
- the aggregate number of the warrants;
- the designation and terms of the common stock or preferred stock that may
be purchased upon exercise of the warrants;
- if applicable, the designation and terms of the securities that the
warrants are issued with and the number of warrants issued with each
security;
- if applicable, the date from and after which the warrants and any
securities issued with the warrants will be separately transferable;
- the number of shares of common stock or preferred stock that may be
purchased upon exercise of a warrant and the price at which the shares
may be purchased upon exercise;
- the dates on which the right to exercise the warrants commence and
expire;
- if applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
- if applicable, a discussion of material United States federal income tax
considerations;
- antidilution provisions of the warrants, if any;
- redemption or call provisions, if any, applicable to the warrants;
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants; and
- any other information we think is important about the warrants.
DESCRIPTION OF DEPOSITARY SHARES
The following description of the depositary shares we may offer, together
with the additional information included in any prospectus supplements,
describes the material terms and provisions of this type of security but is not
complete. For a more complete description of the terms of the depositary shares,
please refer to the Deposit Agreement relating to the depositary shares and the
depositary receipt relating to the preferred stock that is attached to the
Deposit Agreement. We will file these documents with the Securities and Exchange
Commission in connection with an offering of depositary shares.
30
53
We will describe in a prospectus supplement the specific terms of any
depositary shares we may offer pursuant to this prospectus. If indicated in a
prospectus supplement, the terms of such depositary shares may differ from the
terms described below.
GENERAL
If we elect to offer fractional interests in shares of preferred stock, we
will provide for the issuance of receipts for depositary shares to any holder of
such fractional interests. Each depositary share will represent fractional
interests of preferred stock. We will deposit the shares of preferred stock
underlying the depositary shares under a Deposit Agreement between us and a bank
or trust company selected by us. The bank or trust company must have its
principal office in the United States and a combined capital and surplus of at
least $50,000,000. The depositary receipts will evidence the depositary shares
issued under the Deposit Agreement.
The Deposit Agreement will contain terms applicable to the holders of
depositary shares in addition to the terms stated in the depositary receipts.
Each owner of depositary shares will be entitled to all the rights and
preferences of the preferred stock underlying the depositary shares in
proportion to the applicable fractional interest in the underlying shares of
preferred stock. The depositary will issue the depositary receipts to
individuals purchasing the fractional interests in shares of the related
preferred stock according to the terms of the offering described in a prospectus
supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received for the preferred stock to the entitled record holders of
depositary shares in proportion to the number of depositary shares that the
holder owns on the relevant record date (provided, however, that if we or the
depositary is required by law to withhold an amount on account of taxes, then
the amount distributed to the holders of depositary shares shall be reduced
accordingly). The depositary will distribute only an amount that can be
distributed without attributing to any holder of depositary shares a fraction of
one cent. The depositary will add the undistributed balance to and treat it as
part of the next sum received by the depositary for distribution to holders of
depositary shares.
If there is a non-cash distribution, the depositary will distribute
property received by it to the entitled record holders of depositary shares, in
proportion, insofar as possible, to the number of depositary shares owned by the
holders, unless the depositary determines, after consultation with us, that it
is not feasible to make such distribution. If this occurs, the depositary may,
with our approval, sell such property and distribute the net proceeds from the
sale to the holders. The Deposit Agreement also will contain provisions relating
to how any subscription or similar rights that we may offer to holders of the
preferred stock will be available to the holders of the depositary shares.
CONVERSION, EXCHANGE AND REDEMPTION
If any series of preferred stock underlying the depositary shares may be
converted or exchanged, each record holder of depositary receipts representing
the shares of preferred stock being converted or exchanged will have the right
or obligation to convert or exchange the depositary shares represented by the
depositary receipts.
Whenever we redeem or convert shares of preferred stock held by the
depositary, the depositary will redeem or convert, at the same time, the number
of depositary shares representing the preferred stock to be redeemed or
converted. The depositary will redeem the depositary shares from the proceeds it
receives from the corresponding redemption of the applicable series of preferred
stock. The depositary will mail notice of redemption or conversion to the record
holders of the depositary shares which are to be redeemed between 30 and 60 days
before the date fixed for redemption or conversion. The redemption price per
depositary share will be equal to the applicable fraction of the redemption
price per share on the applicable series of preferred stock. If less than all
the depositary shares are to be redeemed, the depositary will select
31
54
which shares are to be redeemed by lot on a pro rata basis or by any other
equitable method as the depositary may decide.
After the redemption or conversion date, the depositary shares called for
redemption or conversion will no longer be outstanding. When the depositary
shares are no longer outstanding, all rights of the holders will end, except the
right to receive money, securities or other property payable upon redemption or
conversion.
VOTING
When the depositary receives notice of a meeting at which the holders of
the preferred stock are entitled to vote, the depositary will mail the
particulars of the meeting to the record holders of the depositary shares. Each
record holder of depositary shares on the record date may instruct the
depositary on how to vote the shares of preferred stock underlying the holder's
depositary shares. The depositary will try, if practical, to vote the number of
shares of preferred stock underlying the depositary shares according to the
instructions. We will agree to take all reasonable action requested by the
depositary to enable it to vote as instructed.
AMENDMENTS
We and the depositary may agree at any time to amend the Deposit Agreement
and the depositary receipt evidencing the depositary shares. Any amendment that
(a) imposes or increases certain fees, taxes or other charges payable by the
holders of the depositary shares as described in the Deposit Agreement or that
(b) otherwise materially adversely affects any substantial existing rights of
holders of depositary shares, will not take effect until such amendment is
approved by the holders of at least a majority of the depositary shares then
outstanding. Any holder of depositary shares that continues to hold its shares
after such amendment has become effective will be deemed to have agreed to the
amendment.
TERMINATION
We may direct the depositary to terminate the Deposit Agreement by mailing
a notice of termination to holders of depositary shares at least 30 days prior
to termination. The depositary may terminate the Deposit Agreement if 90 days
have elapsed after the depositary delivered written notice of its election to
resign and a successor depositary is not appointed. In addition, the Deposit
Agreement will automatically terminate if:
- the depositary has redeemed all related outstanding depositary shares;
- all outstanding shares of preferred stock have been converted into or
exchanged for common stock; or
- we have liquidated, terminated or wound up our business and the
depositary has distributed the preferred stock of the relevant series to
the holders of the related depositary shares.
PAYMENT OF FEES AND EXPENSES
We will pay all fees, charges and expenses of the depositary, including the
initial deposit of the preferred stock and any redemption of the preferred
stock. Holders of depositary shares will pay taxes and governmental charges and
any other charges as are stated in the Deposit Agreement for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
At any time, the depositary may resign by delivering notice to us, and we
may remove the depositary at any time. Resignations or removals will take effect
upon the appointment of a successor depositary and its acceptance of the
appointment. The successor depositary must be appointed within 90 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
32
55
REPORTS AND OBLIGATIONS
The depositary will forward to the holders of depositary shares all reports
and communications from us that are delivered to the depositary and that we are
required by law, the rules of an applicable securities exchange or our amended
and restated certificate of incorporation to furnish to the holders of the
preferred stock. Neither we nor the depositary will be liable if the depositary
is prevented or delayed by law or any circumstances beyond its control in
performing its obligations under the Deposit Agreement. The Deposit Agreement
limits our obligations to performance in good faith of the duties stated in the
Deposit Agreement. The depositary assumes no obligation and will not be subject
to liability under the Deposit Agreement except to perform such obligations as
are set forth in the Deposit Agreement without negligence or bad faith. Neither
we nor the depositary will be obligated to prosecute or defend any legal
proceeding connected with any depositary shares or preferred stock unless the
holders of depositary shares requesting us to do so furnish us with a
satisfactory indemnity. In performing our obligations, we and the depositary may
rely and act upon the advice of our counsel or accountants, on any information
provided to us by a person presenting shares for deposit, any holder of a
receipt, or any other document believed by us or the depositary to be genuine
and to have been signed or presented by the proper party or parties.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and us to sell to the holders, a specified number
of shares of common stock or preferred stock at a future date or dates, which we
refer to herein as "stock purchase contracts." The price per share of common
stock or preferred stock and the number of shares of common stock or preferred
stock may be fixed at the time the stock purchase contracts are issued or may be
determined by reference to a specific formula set forth in the stock purchase
contracts. The stock purchase contracts may be issued separately or as part of
units consisting of a stock purchase contract and debt securities, preferred
stock or debt obligations of third parties, including U.S. treasury securities,
securing the holders' obligations to purchase the common stock or preferred
stock under the stock purchase contracts, which we refer to herein as "stock
purchase units." The stock purchase contracts may require us to make periodic
payments to the holders of the stock purchase units or vice versa, and such
payments may be unsecured or refunded on some basis. The stock purchase
contracts may require holders to secure their obligations thereunder in a
specified manner.
The applicable prospectus supplement will describe the terms of the stock
purchase contracts or stock purchase units. The description in the prospectus
supplement will not necessarily be complete, and reference will be made to the
stock purchase contracts, and, if applicable, collateral or depositary
arrangements, relating to the stock purchase contracts or stock purchase units.
Material United States federal income tax considerations applicable to the stock
purchase units and the stock purchase contracts will also be discussed in the
applicable prospectus supplement.
PLAN OF DISTRIBUTION
We may offer, sell or exchange the securities described in this prospectus:
- through agents,
- through one or more underwriters,
- through one or more dealers,
- directly to one or more purchasers (through a specific bidding or auction
process or otherwise),
- through a combination of any such methods of sale, or
- at a fixed exchange ratio in return for other of our securities.
33
56
The distribution of the securities described in this prospectus may be
effected from time to time in one or more transactions either:
- at a fixed price or prices, which may be changed,
- at market prices prevailing at the time of sale,
- at prices relating to such prevailing market prices, or
- at negotiated prices.
Offers to purchase or exchange the securities may be solicited by agents
designated by us from time to time. Any such agent will be named, and any
commissions payable by us to such agent will be set forth, in the applicable
prospectus supplement. Unless otherwise indicated in the applicable prospectus
supplement, any such agent will be acting on a best efforts basis for the period
of its appointment. Any such agent may be deemed to be an underwriter, as that
term is defined in the Securities Act, of the securities so offered and sold.
If an underwriter or underwriters are utilized in the sale of the
securities, we will execute an underwriting agreement with such underwriter or
underwriters at the time an agreement for such sale is reached. The names of the
specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transactions, including compensation of the
underwriters and dealers, which may be in the form of discounts, concessions or
commissions, if any, will be set forth in the applicable prospectus supplement,
which will be used by the underwriters to make resales of the securities.
If a dealer is utilized in the sale of the securities, we or an underwriter
will sell such securities to the dealer, as principal. The dealer may then
resell such securities to the public at varying prices to be determined by such
dealer at the time of resale. The name of the dealer and the terms of the
transactions will be set forth in the applicable prospectus supplement relating
thereto.
Offers to purchase or exchange the securities may be solicited directly by
us and sales or exchanges thereof may be made by us directly to institutional
investors or others. The terms of any such sales, including the terms of any
bidding or auction process, if utilized, will be described in the applicable
prospectus supplement relating thereto.
We may enter into agreements with agents, underwriters and dealers under
which we may agree to indemnify them against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments they may be
required to make in respect thereof. The terms and conditions of such
indemnification or contribution will be described in the applicable supplement.
Certain of the agents, underwriters or dealers, or their affiliates may be
customers of, engage in transactions with or perform services for us in the
ordinary course of business.
LEGAL MATTERS
Gibson, Dunn & Crutcher LLP will issue an opinion to us relating to the
legality of the securities being offered by this prospectus. If legal matters in
connection with offerings made by this prospectus are passed on by counsel for
the underwriters of an offering of the securities, that counsel will be named in
the prospectus supplement relating to that offering.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 2000 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
34
57
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$
NRG ENERGY, INC.
$ % SENIOR NOTES DUE
$ % SENIOR NOTES DUE
NRG LOGO
------------------
PROSPECTUS SUPPLEMENT
JULY , 2001
------------------
Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC DEUTSCHE BANC ALEX. BROWN
------------------
Co-Managers
ABN AMRO INCORPORATED
BARCLAYS CAPITAL
TD SECURITIES
TOKYO-MITSUBISHI INTERNATIONAL PLC
WILLIAMS CAPITAL GROUP, L.P.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------