ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
This item is not applicable to ESI Tractebel Funding or the Partnerships.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
This item is not applicable to ESI Tractebel Funding or the Partnerships.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected combined financial data for Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership for each of the five years in the period ended December 31, 1997. The selected combined financial data for these years have been derived from the Partnerships' audited combined financial statements. This data should be read in conjunction with "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
- ------------------------- (1) Power sales to utilities are net of change in Energy Bank principal balance. Energy Bank principal balances represent cumulative payments made to the Partnerships by Power Purchasers under certain Power Purchase Agreements in excess of rates scheduled or specified in such agreements. Under the terms of these agreements, such excess constitutes a liability of the applicable Partnership to the applicable Power Purchaser, which will be reduced by subsequent sales of electric power to such Power Purchaser to the extent in later periods that the scheduled or specified rate has risen above the contract rate, and must be repaid under certain circumstances in cash. (2) On December 1, 1994, the Partnerships refinanced their existing borrowings by means of a placement of securities to institutional investors as defined in Rule 144A of the Securities Act of 1933, as described in Note 5 of Notes to Combined Financial Statements. (3) In connection with the refinancing, total unamortized financing costs related to the Project Loan and Credit Agreement were written off during 1994, as described in Note 5 of Notes to Combined Financial Statements. (4) Energy Bank principal balances plus accrued interest thereon. (5) Loans payable balances at December 31, 1994, 1995, 1996 and 1997 represent loans payable to ESI Tractebel Funding Corp. ESI Tractebel Funding Corp., formerly known as IEC Funding Corp., is a Delaware corporation established in 1994 for the purpose of issuing debt securities for the financing of the Partnerships.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Combined Financial Statements of the Partnerships and the notes thereto included elsewhere herein.
General
The Partnerships commenced commercial operations in the second half of 1991. The Partnerships' consolidated revenues are derived from, and costs are incurred in connection with, the generation and sale of electricity and, to a much lesser extent, the production and sale of thermal energy (steam).
Revenue from sales of electricity is recognized based on electricity delivered at rates stipulated in the Power Purchase Agreements, except that revenue recognition is deferred to the extent that such rates are in excess of rates scheduled or specified in such agreements above which payment is subject to recovery by certain of the Power Purchasers under certain circumstances. The portion subject to deferred revenue recognition, which is referred to as the "Energy Bank," is recorded as a liability of the applicable Partnership for financial statement purposes. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Power Purchase Agreements."
The capitalized costs of the Projects include initial acquisition costs, increased by subsequent development and construction costs, including test period operations, construction management fees and interest during construction. The capitalization period ceased when construction of each Project was complete and satisfactorily tested. Capitalized costs are depreciated over the estimated useful life of each Project. Costs incurred during the development and construction period that were not directly related and incremental to project development and construction were expensed in the period incurred.
The Acquisitions
The Partners acquired all of the partnership interests in each of the Partnerships on January 14, 1998, pursuant to the Purchase Agreement. In connection with the acquisition of all of the partnership interests in the Partnerships, ESI Funding and Tractebel Power each acquired a thirty-seven and one-half percent (37.5%) interest in ESI Tractebel Funding. The Partners paid the purchase price for all of the partnership interests in the Partnerships and for seventy-five percent (75%) of the outstanding shares of capital stock in ESI Tractebel Funding from contributions made by each of ESI GP, Tractebel GP, ESI LP and Tractebel LP, the partners of NE LP. The Acquisitions will be accounted for under the purchase method; accordingly, the carrying value of the assets acquired and liabilities assumed of the Partnerships will be adjusted based upon the final purchase price allocation, including an allocation to above-market power purchase contracts.
Results of Operations
The following table sets forth the combined results of the Partnerships' operations and the percentage of gross operating revenues and receipts represented by certain components of operating costs and income for the three years ended December 31, 1997.
Years Ended December 31, ----------------------------------------------------- 1995 1996 1997 ---- ---- ---- Gross operating revenues and receipts(1)........... $296,449 100% $285,456 100% $304,363 100% Operating costs......... 157,538 53% 161,581 57% 177,165 58% Depreciation............ 24,904 8% 24,978 9% 24,992 8% General and administrative........ 12,010 4% 14,424 5% 15,984 5% -------- -------- -------- Operating income plus Energy Bank accruals(1)........... 101,997 34% 84,473 30% 86,222 29% -------- -------- -------- Amortization of financing costs...... 2,305 1% 2,373 1% 2,163 1% Interest expense(2).... 50,930 17% 49,841 17% 47,673 16% Interest income........ (10,652) (4%) (10,534) (4%) (9,931) (3%) -------- ------- -------- Net income (loss) plus Energy Bank accruals and interest thereon..... $ 59,414 $42,793 $46,317 ======== ======= ======= - ---------- (1) Gross operating revenue and receipts represents total revenues plus (less), as applicable, annual change in Energy Bank principal balances.
(2) Interest expense excludes interest on Energy Bank principal balances.
Calendar Year 1997 Compared to Calendar Year 1996
Gross Operating Revenue and Receipts. Gross operating revenue and receipts for the year ended December 31, 1997 of $304.4 million increased by $18.9 million (6.6%) as compared to the year ended December 31, 1996. This increase was primarily due to higher generation and increased prices. The increase in generation was primarily a result of no scheduled major maintenance outages at the NEA Project (during the second quarter of 1996 a major inspection and maintenance program, scheduled at five year intervals, was conducted at the NEA Project) and fewer curtailment hours requested by JCP&L.
Operating Costs. Cost of power and steam sales was $151.5 million, or 49.8% of gross operating revenue and receipts for the year ended December 31, 1997 as compared to $138.7 million, or 48.6% of gross operating revenues and receipts for the year ended December 31, 1996. The increased cost is primarily due to price increases under a fuel supply contract that services both facilities. Partially offsetting the increase in natural gas prices was a reduction in extended gas services rights exercised by a NJEA fuel supplier during the first quarter of 1997 as compared to 1996.
Operation and maintenance (O&M) costs increased $2.8 million (12.4%) as compared to the same period in 1996. The primary cause of the increased cost was the performance bonus (which is directly related to higher generation) payable to the Operator under the NEA O&M Agreement. Escalation of the O&M Agreement of approximately 4% also contributed to the increased costs.
General and Administrative Expenses. General and administrative expenses for the year ended December 31, 1997 increased $1.6 million or 11% as compared to the year ended December 31, 1996. The primary cause for this increase was the write-off of approximately $1.5 million in accounts receivable. Other increases included annual escalation of management fees as well as increased consulting and overhead costs.
Interest Expenses and Interest Income. Interest expense for the year ended December 31, 1997 decreased $2.1 million, or 4.3% as compared to the year ended December 31, 1996. Interest on debt decreased as a result of declining principal balances. During 1997, the Partnerships' average amount of debt outstanding was $508.3 million at an average rate of 9.31%. During 1996, the Partnerships' average amount of debt outstanding was $533.3 million at an average rate of 9.26%. These decreases were a result of changes in the underlying amounts accrued for Energy Bank balances. Interest income during 1997 totaled approximately $9.9 million as compared to approximately $10.5 million in 1996, decreasing $.6 million. As discussed below, interest income is expected to decrease materially beginning in 1998.
Calendar Year 1996 Compared to Calendar Year 1995
Gross Operating Revenues and Receipts. Gross operating revenues and receipts for the year ended December 31, 1996 of $285.5 million decreased by $11.0 million (3.7%) as compared to the year ended December 31, 1995. This decrease was primarily due to lower availability as a result of scheduled maintenance outages. Availability was approximately 91% in 1996 versus approximately 95% in 1995. During the second quarter of 1996 a major inspection and maintenance program (scheduled at five-year intervals) took place at the NEA Project. During the fourth quarter of 1996 a scheduled overhaul and inspection took place at the NJEA Project. Power purchase rates, on a combined basis, increased slightly over the prior year.
Operating Costs. Cost of power and steam sales was $138.7 million, or 48.6% of gross operating revenues and receipts for the year ended December 31, 1996 as compared to $132.8 million, or 44.8% of gross operating revenues and receipts in the prior year. The increased costs were primarily attributable to increases in fuel costs, including higher market prices of Spot Gas and additional charges applicable under NJEA's extended gas service arrangement with a fuel supplier. Extended gas service occurs when temperatures are below 22 degrees F. There were sixteen such days during the first quarter of 1996 compared with four days in the first quarter of 1995. A portion of these increases was offset by gains on natural gas swap agreements (which were entered into in an attempt to limit exposure to market price fluctuations).
Operation and maintenance expenses in 1996 decreased by $1.8 million (7.5%) as compared to 1995. This decrease was a result of a lower performance bonus payable to the Operator in 1996 as a result of scheduled maintenance outages and a 1995 water franchise fee. Offsetting these cost decreases were normal and expected escalations under the O&M Agreements.
General and Administrative Expenses. General and administrative expenses in 1996 increased by $2.4 million (20.1%) as compared to 1995. The increase was primarily due to increased management costs, insurance premiums and legal and consulting costs related to potential industry restructuring.
Interest Expense and Interest Income. Interest expense for the year ended December 31, 1996 decreased by $1.1 million (2.1%) as compared to the year ended December 31, 1995. During 1995, the Partnerships' average amount of debt outstanding was $554.9 million at an average rate of 9.23%. During 1996, the Partnerships' average amount of debt outstanding was $533.3 million at an average rate of 9.26%. Interest income in 1996 totaled $10.5 million as compared to $10.7 million in 1995. This decrease was primarily a result of reduced cash collateral being held in support of letters of credit.
Year 2000
The Partnerships are working to resolve the potential impact of the year 2000 on the processing of information by its computer systems. An assessment of identified software, including vendor-supplied software, has been completed and work has begun to make the necessary modifications. The estimated cost of addressing year 2000 issues in software applications is not expected to have a material adverse effect on the Partnership's financial statements. The Partnerships continue to assess the potential financial and operational impacts of computerized processes embedded in operating equipment.
Liquidity and Capital Resources
To date, the Partnerships have obtained cash from their operations and from proceeds of nonrecourse project financing. The Partnerships have utilized this cash to develop and construct the Projects and the Carbon Dioxide Plant, service debt obligations, fund operations and fund distributions to partners.
As of December 31, 1997, the Partnerships' cash and cash equivalents totaled approximately $61.2 million, as compared to $49.9 million at December 31, 1996. The increase in cash and cash equivalents was the net effect of $82.2 million provided by operations, offset by investing and financing activities including debt principal payments of $24.1 million and $46.4 million in distributions to partners.
As of December 31, 1997, there were no outstanding loans under the Sanwa Working Capital Facility. NE LP terminated the Sanwa Working Capital Facility and the Sanwa Credit Agreement in February 1998. NE LP does not anticipate the need to arrange for a new Working Capital Facility. Debt Service Reserve Requirements were fully funded as of December 31, 1997.
Non-operating income for periods prior to the Acquisitions included investment income received from the Cash Collateral Proceeds that secured the Partnerships' obligations to Sanwa Bank under the Sanwa Credit Agreement and investment income received from investments in the Debt Service Reserve Fund held by the Project Trustee. As permitted under the Project Indenture, NE LP in January 1998, arranged for the release of, and distributed to the Partners, cash in the amount of $33,270,000 from the Debt Service Reserve Fund following the issuance of Substitute Letters of Credit by BankBoston and Bank Brussels Lambert. In February 1998, NE LP also arranged for the release of cash in the amount of $69,156,000, constituting the Cash Collateral Proceeds, following the issuance of the FPL Group Capital Guaranty. Such cash was distributed to the Partners upon its release. As a result, NE LP expects that the Partnerships' investment income will be materially reduced in future years.
Working Capital Facility. The Project Indenture permits the Partnerships to enter into revolving credit arrangements from time to time with financial institutions with maximum available borrowings of up to $20 million to provide for the working capital requirements of the Partnerships (the "Working Capital Facility"). Pursuant to the Sanwa Credit Agreement, the Partnerships entered into the Sanwa Working Capital Facility, which provided for maximum available borrowings of up to $15 million subject to a borrowing base calculated based on outstanding receivables and fuel. The Sellers have advised NE LP that the Working Capital Facility has never been utilized. In February 1998, NE LP terminated the Working Capital Facility and the Sanwa Credit Agreement and does not anticipate the need to arrange for a new Working Capital Facility.
Project Letter of Credit Facility. The Partnerships are required by the terms of certain of the Power Purchase Agreements to provide the letters of credit to the Power Purchasers thereunder to support the Partnerships' Energy Bank Obligations. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Power Purchase Agreements." Under the Project Indenture, the Partnerships have agreed to provide such Energy Bank Letters of Credit and to secure the Partnerships' obligations to reimburse the Project Letter of Credit Banks with cash collateral, one or more back-up letters of credit (each a "Back-up Letter of Credit") and/or a FPL Group Capital Guaranty. In addition, the Partnerships may require letters of credit for certain other purposes in the ordinary course of business.
Pursuant to the Sanwa Credit Agreement, Sanwa Bank delivered the Project Letters of Credit in an aggregate amount up to $82,000,000 for the purpose of supporting the Partnerships' Energy Bank Obligations and for certain other purposes. The aggregate amount of Energy Bank Letters of Credit issued and outstanding as of December 31, 1997 was $67,656,000. In February 1998, NE LP arranged for the delivery of letters of credit of BankBoston and NationsBank in face amounts of $12.656 million and $54.0 million, respectively, in substitution for the letters of credit of Sanwa Bank and terminated the Sanwa Credit Agreement and the Sanwa Letters of Credit.
Swaps. In connection with the initial variable-rate financing of the Projects under the Original Project Credit Agreement, the Partnerships entered into certain interest rate swap agreements (the "Swaps") with certain financial institutions (the "Swap Banks"), providing for payments thereunder on a notional principal amount of indebtedness to be made by the Partnerships at fixed interest rates in exchange for payments to be made by the Swap Banks at floating interest rates.
Such Swaps remained in effect after the issuance of the fixed-rate Project Securities. In connection with the issuance of the Project Securities, the Partnerships entered into counter swap agreements to hedge the obligations of the Partnerships under such existing Swaps. As a result of the foregoing arrangements, after giving effect to the net payments to be made and received by the Partnerships pursuant to all of the Swaps (including the counter swaps), the Partnerships' net payments are equivalent to a fixed net interest rate of approximately 1.5% on the specified notional principal amount, which is scheduled to decline periodically until the scheduled expiration of the Swaps in 1999. After giving effect to the counter swaps, the Partnerships' net payments under the Swaps will total approximately $718,275 in 1998 and approximately $195,535 in 1999 (the scheduled year of termination of the Swaps).
The following table sets forth the notional principal amount and related fair value of the Swaps as of the dates shown together with the additional interest incurred for the years ended December 31, 1995, 1996 and 1997.
- ---------- (1) The estimated fair value of each existing Swap is the estimated amount that the applicable Swap Bank would receive to terminate such Swap at the respective dates, taking into account current interest rates and the current creditworthiness of the Swap counter-parties.
(2) Represents the net effect of the Swaps on the interest expenses in the statement of operations. The interest expense on the Swaps is reduced by the change in the fair value of the Swaps.
Natural Gas Hedging Instruments
Approximately 20% of the fuel supply for the Projects must be provided from sources other than the Long-term Gas Arrangements. To mitigate the price risk associated with spot purchases of natural gas, the Partnerships may, from time to time, enter into certain hedging transactions either through public exchanges such as the NYMEX, or by means of over-the-counter transactions with specific counterparties pursuant to the Fuel Management Agreements or otherwise. These hedging transactions include (a) natural gas call options that give the Partnerships the right, but not the obligation, to purchase specified quantities of natural gas at a predetermined price, (b) gas purchase swap agreements that require the Partnerships to pay a fixed price in return for a variable price on a notional specified quantity of natural gas, and (c) forward purchases of natural gas.
The effect of these transactions is to fix the price of natural gas purchases made on the open market and, as such, these transactions have not had a material effect on total fuel costs.
Industry Deregulation
On November 25, 1997, the Massachusetts legislature passed a comprehensive electric deregulation bill, the purpose of which is to establish a comprehensive framework for the restructuring of the electric utility industry. Additionally, industry restructuring efforts are also underway in New Jersey. While the Partnerships do not expect electric utility industry restructuring to result in material adverse changes to the Partnerships' Power Purchase Agreements, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain. See "Business - Regulation - Utility Industry Restructuring."
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The combined financial statements of the Partnerships and the financial statements of ESI Tractebel Funding are filed as part of this Form 10-K and are set forth on pages to.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Directors and Executive Officers Until January 14, 1998
Directors and Executive Officers of IEC
All management functions of the Partnerships are the responsibility of IEC. The following table sets forth the names, ages and positions of the directors and executive officers of IEC and their positions with IEC.
NAME AGE POSITION ---- --- --------
Stephen B. Roy 51 President and Director Peter A. Roy 47 Executive Vice President and Director Jane L. Roy 42 Executive Vice President, Treasurer, Chief Financial Officer and Director Ellen S. Roy 38 Senior Vice President, Clerk and Director Luciano Lauretti 35 Senior Vice President Maureen P. Herbert 39 Vice President George Briden 45 Vice President Bruce A. Herzfelder 38 Senior Vice President Leah Taylor Roy 37 Vice President James Blakey 45 Vice President and General Counsel Stephen R. Pritchard 40 Vice President
Stephen B. Roy has been President of IEC since it was formed in March, 1986. From 1973 to 1986, he held construction and management positions in various predecessor companies and, among other things, was responsible for work on the Doha West Power Station in Kuwait. He holds a B.A. degree from Harvard University and an M.B.A. degree from Harvard Business School.
Peter A. Roy has been an Executive Vice President of IEC since it was formed in March, 1986. From 1974 to 1986, he held several positions in various predecessor companies, where he was responsible for marketing and daily operations. He attended Harvard University from 1971 to 1974.
Jane L. Roy has been Vice President, Chief Financial Officer and Treasurer of IEC since it was formed in March, 1986. In 1992 she became an Executive Vice President. From 1984 to 1986, Ms. Roy worked for The Chase Manhattan Bank, N.A. where she was an Assistant Treasurer. She holds a B.A. degree from Harvard University and an M.P.A. degree from Harvard University's John F. Kennedy School of Government.
Ellen S. Roy has been a Vice President of IEC since it was formed in March, 1986 and is responsible for managing government relations. In 1996 she became a Senior Vice President. Prior to joining IEC, Ms. Roy worked at Prudential Venture Capital, Inc. She holds a B.A. degree from Harvard University, an M.P.P. degree from Harvard University's John F. Kennedy School of Government and an M.B.A. degree from Massachusetts Institute of Technology.
Luciano Lauretti has been a Vice President of IEC since 1990. In 1996 he became a Senior Vice President. From 1989 to 1990, Mr. Lauretti was an officer in Corporate Finance at Manufacturers Hanover Trust Company. Prior to 1988 he was an associate in corporate lending for The Chase Manhattan Bank, N.A. He holds a B.A. degree in Economics from Universidade de Sao Paulo and an M.B.A. degree from Columbia University.
Maureen P. Herbert joined IEC in 1987 and served as Controller until 1991, at which time she became Vice President of Finance. Prior to joining IEC, Ms. Herbert was a senior consultant at Price Waterhouse. Ms. Herbert is a Certified Public Accountant and holds a B.S. degree in accounting and finance from Northeastern University.
George Briden joined IEC in 1990 and served as Fuel Supply Manager until 1991, at which time he became a Vice President of Fuel Supply. From 1989 to 1990, Mr. Briden was employed by Equitrans, Inc., where he directed gas supply acquisitions. He holds a B.A. degree in economics from Michigan State University and a Ph.D. degree in economics from Brown University.
Bruce A. Herzfelder has been a Vice President of IEC since 1991. In 1996 he became a Senior Vice President. From 1988 to 1991, he was an associate at the New York law firm of Davis, Polk & Wardwell. Prior to that, he clerked for a judge on the U.S. Court of Appeals. He holds a B.A. degree from Harvard University and a J.D. and an M.B.S. degree from the University of Chicago. He is a member of the bar in Massachusetts and New York.
Leah Taylor Roy has been a Vice President of IEC since 1992. From 1986 to 1992, Ms. Roy was a consultant at McKinsey & Company. Ms. Roy holds a B.C. degree from the University of Toronto and an M.P.P. degree from Harvard University's John F. Kennedy School of Government.
James Blakey joined IEC in 1992 and served as Corporate Counsel until 1995, at which time he became Vice President and General Counsel. From 1976 to 1992, Mr. Blakey was associated with the New York law firm of Kronish, Lieb, Weiner & Hellman, becoming a partner in 1987. Mr. Blakey holds an A.B. degree from Dartmouth College and a J.D. degree from Boston University. He is a member of the bar in Massachusetts, New York and Connecticut.
Stephen R. Pritchard joined IEC in 1994 and served as Operations Manager until 1995, at which time he became Vice President of Operations. From 1981 to 1994, Mr. Pritchard held several responsible positions for the design, operations and maintenance of fossil power plants at Baltimore Gas and Electric Company. Mr. Pritchard holds a B.S. - Mechanical Engineering degree from Northeastern University and an M.B.A. degree from Loyola College. He is a registered Professional Engineer in the State of Maryland.
Directors are elected annually and each elected director holds office until a successor is elected. The Board of Directors consists of three persons: Stephen B. Roy, Peter A. Roy and Ellen S. Roy. Officers are chosen from time to time by vote of the Board of Directors.
Certain Relationships. Stephen, Peter, Jane and Ellen Roy are siblings. Peter, Jane and Ellen Roy are married, respectively, to Leah Taylor Roy, Luciano Lauretti and Bruce Herzfelder.
Directors and Executive Officers of IEC Funding Corp.
The following table sets forth the names, ages and positions of the directors and executive officers of IEC Funding Corp. and their positions with IEC Funding Corp. Directors are elected annually and each elected director holds office until a successor is elected. Officers are chosen from time to time by vote of the Board of Directors.
NAME AGE POSITION ---- --- --------
Stephen B. Roy 51 President, Assistant Treasurer, Assistant Secretary and Director Ellen S. Roy 38 Vice President, Secretary, Assistant Treasurer and Director Jane L. Roy 42 Vice President, Treasurer, Assistant Secretary and Director Peter A. Roy 47 Vice President, Assistant Secretary and Assistant Treasurer Maureen P. Herbert 39 Vice President James Blakey 45 Vice President and General Counsel
For biographical information on each of the above listed persons, see "Management -- Directors and Executive Officers of IEC.
Directors and Executive Officers Since January 14, 1998
All management functions of ESI Tractebel Funding and the Partnerships are the responsibility of NE LP. Pursuant to the NE LP Partnership Agreement, such functions are performed by the Management Committee of NE LP.
The following table lists the names and ages of the members of the Management Committee of NE LP.
Name Age Affiliation ---- --- -----------
Glenn E. Smith 40 FPL Energy Kenneth P. Hoffman 46 FPL Energy Timothy R. Dunne 46 Tractebel Power Paul J. Cavicchi 45 Tractebel Power
Glenn E. Smith was appointed to the NE LP Management Committee by ESI GP in November, 1997. Mr. Smith joined ESI Energy in June 1997 as its Vice President of Project Development and is currently a Vice President of FPL Energy. From May 1995 until joining ESI Energy, Mr. Smith was the Director of Business Development of Nations Energy Corporation where he directed Greenfield project development and investment in operating energy assets. From August 1992 until May 1995, Mr. Smith was Vice President of BOT Financial Corp. He holds a B.S. degree from Pennsylvania State University.
Kenneth P. Hoffman was appointed to the NE LP Management Committee by ESI GP in November, 1997. Mr. Hoffman joined ESI Energy in June 1989, and since 1993 has been the Vice President of Business Management. Mr. Hoffman is currently a Vice President of FPL Energy. Prior to joining ESI Energy , Mr. Hoffman was employed by FPL. Mr. Hoffman holds an M.B.A. degree from Florida International University and a B.S. degree from Rochester Institute of Technology.
Timothy R. Dunne was appointed to the NE LP Management Committee by Tractebel GP in November, 1997. Mr. Dunne has been the Senior Vice President, General Counsel and Secretary of Tractebel Power since 1995. In such capacity, Mr. Dunne manages all of the legal services required by Tractebel Power and its affiliates. Prior to joining Tractebel Power in 1990, Mr. Dunne acted as in-house counsel for two major U.S. engineering and construction companies. He holds a J.D. degree from the University of Toledo and M.S. and B.S. degrees from the University of Notre Dame.
Paul J. Cavicchi was appointed to the NE LP Management Committee by Tractebel GP in November, 1997. Mr. Cavicchi has been an Executive Vice President of Tractebel Power since 1995. In such capacity, Mr. Cavicchi supervises and directs business development for energy asset investments in North America. Prior to joining Tractebel Power in 1995, Mr. Cavicchi served as a General Manager for American Tractebel, Inc., an affiliate of Tractebel Power. He holds an M.B.A. degree from the University of Virginia, an M.S. degree from the University of Massachusetts and a B.S. degree from Tufts University.
Pursuant to the Administrative Services Agreement, ESI GP has agreed to perform services on behalf of NE LP in connection with the management of NE LP, the Partnerships, and ESI Tractebel Funding. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Administrative Services Agreement."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
None of the executive officers or directors of ESI Tractebel Funding received any compensation for his or her services during 1997. The members of the Management Committee of NE LP are not entitled to any direct compensation from ESI Tractebel Funding or the Partnerships. The directors and executive officers of IEC were compensated by IEC and were not entitled to any direct compensation from the Partnerships. IEC was paid a management fee by the Partnerships and NE LP is to be paid a management fee by the Partnerships, as described under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Management Costs."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 25, 1998, the direct and indirect partnership interests in the Partnerships.
- ---------- (1) The address for each of Northeast Energy LP, Northeast Energy LLC, ESI GP and ESI LP is c/o FPL Energy, Inc., 11760 US Highway 1, Suite 600, North Palm Beach, Florida 33408. (2) ESI GP and ESI LP are wholly-owned, direct subsidiaries of ESI Energy. ESI Energy is a wholly-owned, indirect subsidiary of FPL Group, Inc. (3) The address for each of Tractebel GP and Tractebel LP is c/o Tractebel Power, Inc., 1177 West Loop South, Suite 900, Houston, Texas 77027. (4) Tractebel GP and Tractebel LP are wholly-owned, direct subsidiaries of Tractebel Power. Tractebel Power is a wholly-owned, indirect subsidiary of Tractebel, S.A.
The following table sets forth as of March 25, 1998, the number of shares and percentage owned of ESI Tractebel Funding's voting securities beneficially owned by each Person known by ESI Tractebel Funding to be the beneficial owner of more than five percent (5%) of ESI Tractebel Funding's voting securities.
- ---------- (1) The address for ESI Northeast Energy Funding, Inc. is c/o FPL Energy, Inc., 11760 US Highway 1, Suite 600, North Palm Beach, Florida 33408 and the address for Tractebel Power, Inc. is 1177 West Loop South, Suite 900, Houston, Texas 77027.
(2) Broad Street Contract Services, Inc. is located at Two Wall Street, New York, New York 10005 and is the nominee for the Project Trustee for the purpose of providing an independent director.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Costs
The Partnerships made direct or indirect payments to IEC and the Sponsor Members (excluding ratable distributions by the Partnerships to their Partners) aggregating approximately $6,480,000 during the year ended December 31, 1995, $8,719,000 during the year ended December 31, 1996 and $8,655,000 during the year ended December 31, 1997.
Fees payable by the Partnerships to NE LP are limited to the Management Costs permitted under the Project Indenture, which consists of four components: (i) out-of-pocket costs payable to third parties (including allocated rent and independent legal, consulting and accounting fees and expenses), (ii) general administrative expenses allocable to the Projects, (iii) compensation (including salary and related benefits) of individuals and (iv) for each calendar year, an amount equal to $3,500,000, $1,500,000 of which is the Subordinated Management Fee (each such amount inflated annually in accordance with the Project Indenture). All costs identified in clauses (i), (ii) and (iii) may be included as part of the Management Costs and paid from Project Revenues only to the extent such costs are certified by the Partnerships as being reasonably allocable to the Projects. The amounts described in clause (iv) for the year ending December 31, 1997 and 1996 were approximately $3,758,000 and $3,688,000, respectively, and are subject to escalation as set forth in the Project Indenture.
Administrative Services Fee
As compensation to ESI GP for the services it performs pursuant to the Administrative Services Agreement, NE LP has agreed to pay to ESI GP a fee, payable monthly, equal to $600,000 per annum, adjusted annually based on a producer price index (the "Administrative Services Fee"), provided that in no event is the Administrative Services fee to be decreased below $600,000. Neither of the Partnerships is liable for the Administrative Services Fee. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Administrative Services Agreement."
New O&M Fees
The New Operator, an Affiliate of NE LP, currently is providing certain oversight and transition services for the Projects and will provide operation and maintenance services for the Projects following the expiration or early termination of the O&M Agreements, pursuant to each of the New O&M Agreements. As compensation for such services, NE LP has agreed under each of the New O&M Agreements to pay to the New Operator a fee of $750,000 per annum ($1,500,000 per annum in the aggregate), payable monthly and adjusted annually based on a producer price index (the "New O&M Fees"). In addition, NE LP has agreed to pay to the New Operator all properly incurred costs and expenses of performing the transition services and the operation and maintenance services. NE LP expects that combined operations and maintenance costs for both Projects will be reduced by approximately $6.5 million per year after 2001, when the O&M Agreements for the Projects expire. Neither of the Partnerships is liable for the New O&M Fees prior to the applicable Operating Period Commencement Date. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- New O&M Agreements."
Fuel Management Fees
The Fuel Manager, an affiliate of FPL Energy, currently is providing certain fuel management services for the Projects, pursuant to each of the Fuel Management Agreements. As compensation for such services, each of NEA and NJEA has agreed to pay to the Fuel Manager a fee under the NEA Fuel Management Agreement and the NJEA Fuel Management Agreement, respectively, of $450,000 per annum, payable monthly and adjusted annually based on a producer price index (the "NEA Fuel Management Fee" and the "NJEA Fuel Management Fee," respectively), provided that neither of such Fuel Management Fees is to be decreased below $450,000. See "SUMMARY OF PRINCIPAL PROJECT AGREEMENTS -- Fuel Management Agreements."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Northeast Energy Associates, A Limited Partnership and North Jersey Energy Associates, A Limited Partnership
Report of Independent Accountants
Combined Balance Sheet at December 31, 1996 and 1997
Combined Statement of Operations for the years ended December 31, 1995, 1996 and 1997
Combined Statement of Partners' Deficit for the years ended December 31, 1995, 1996 and 1997
Combined Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997
Notes to Combined Financial Statements
ESI Tractebel Funding Corp.
Report of Independent Accountants
Balance Sheet at December 31, 1996 and 1997
Statement of Operations for the years ended December 31, 1995, 1996 and
Statement of Cash Flows for the years ended December 31, 1995, 1996 and
Notes to Financial Statements
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
3. Exhibits
Exhibit No. Description ----------- -----------
3.1* Certificate of Incorporation of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.)
3.1.1 Certificate of Amendment of Certificate of Incorporation of IEC Funding Corp as filed with the Secretary of State of the State of Delaware on February 3, 1998
3.2 By-laws of ESI Tractebel Funding Corp.
3.3 Amended and Restated Certificate of Limited Partnership of Northeast Energy Associates, A Limited Partnership, as filed with the Secretary of State of the Commonwealth of Massachusetts on March 31, 1986, as amended and restated on January 9, 1987 and November 6, 1987, as further amended on July 6, 1989 and as amended and restated on February 16,
3.4 Amended and Restated Certificate of Limited Partnership of North Jersey Energy Associates, A Limited Partnership, as filed with the Secretary of State of the State of New Jersey on November 3, 1986, as amended and restated on January 14, 1987, June 25, 1987, March 4, 1988 and February 16, 1998
3.5* Certificate of Incorporation of Intercontinental Energy Corporation, a Massachusetts corporation ("IEC"), the sole general partner of the Partnerships (the "General Partner")
3.6* By-laws of the General Partner
3.7 Amended and Restated Agreement of Limited Partnership of Northeast Energy Associates, A Limited Partnership, dated as of November 21, 1997
3.8 Amended and Restated Agreement of Limited Partnership of North Jersey Energy Associates, A Limited Partnership, dated as of November 21, 1997
3.9 Certificate of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, as filed with the Secretary of State of the State of Delaware on November 21, 1997
3.10 Agreement of Limited Partnership of Northeast Energy, LP, a Delaware limited partnership, dated as of November 21, 1997
4.1* Trust Indenture dated as of November 15, 1994, among the Partnerships, IEC Funding and State Street Bank and Trust Company, a Massachusetts banking corporation, as trustee (the "Trustee")
4.2* First Supplemental Indenture dated as of November 15, 1994, among the Partnerships, IEC Funding and the Trustee, including forms of the Securities
4.3* Credit Agreement dated as of December 1, 1994, among the Partnerships, each of the financial institutions referred to therein as a "Bank" (and collectively referred to as the "Banks") and Sanwa Bank Limited, New York Branch ("Sanwa"), as issuing bank (in such capacity, the "Issuing Bank") and as agent for the Banks and the Issuing Bank (in such capacity, the "Agent")
4.4* Collateral Agency Agreement dated as of December 1, 1994 (the "Collateral Agency Agreement"), among the Partnerships, IEC Funding, the Trustee, Sanwa, the Swap Providers (as defined therein) and State Street Bank and Trust Company, as Collateral Agent (in such capacity, the "Collateral Agent")
4.5* Amended and Restated Project Loan and Credit Agreement dated as of December 1, 1994, between the Partnerships and IEC Funding
4.6* Partnerships' Guarantee Agreement dated as of December 1, 1994, between the Partnerships and the Trustee
4.7* Registration Rights Agreement dated as of November 21, 1994, among the Partnerships, IEC Funding, Chase Securities, Inc., Merrill Lynch, Pierce Fenner & Smith, Incorporated and Salomon Brothers, Inc.
4.8* Pledge, Trust and Intercreditor Agreement dated as of December 1, 1994 (the "Pledge, Trust and Intercreditor Agreement"), among the Partnerships, Sanwa, as "Bank Agent," as a "Bank" and as a "Letter of Credit Bank" (each as defined therein), Sanwa Bank Trust Company of New York, as trustee, the Collateral Agent and the Trustee
4.9* Assignment and Security Agreement dated as of December 1, 1994, between IEC Funding and the Collateral Agent
4.10* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between the Partnerships, the General Partner and the Collateral Agent
4.11* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NEA and the Collateral Agent
4.12* Amended and Restated Assignment and Security Agreement dated as of December 1, 1994, between NJEA and the Collateral Agent
4.13* Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of December 1, 1994, made by NEA in favor of the Collateral Agent
4.14* Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Additional Properties) dated as of December 1, 1994, made by NEA in favor of the Collateral Agent
4.15* Amended and Restated Indenture of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of December 1, 1994, made by NJEA in favor of the Collateral Agent
4.16* Amended and Restated Stock Pledge Agreement dated as of December 1, 1994, between NJEA and the Collateral Agent
4.17* Assignment of Mortgage dated as of December 1, 1994, between The Chase Manhattan Bank (National Association) (the "Existing Agent") and the Collateral Agent with respect to the Bellingham Mortgage dated as of June 28, 1989
4.18* Assignment of Mortgage dated as of December 1, 1994, between the Existing Agent and the Collateral Agent with respect to the Bellingham Mortgage dated August 10, 1989
4.19* Assignment of Mortgage dated as of December 1, 1994, between the Existing Agent and the Collateral Agent with respect to the Sayreville Mortgage dated June 28, 1989
4.20* Assignment of Security Agreements dated as of December 1, 1994, among the Existing Agent, the Collateral Agent, the Partnerships, IEC Funding and the General Partner
4.21* Stock Pledge Agreement dated as of December 1, 1994, among Broad Street Contract Services, Inc., Stephen B. Roy, Ellen S. Roy, Jane L. Roy, Peter A. Roy, the Partnerships and the Collateral Agent
4.22 Second Supplemental Trust Indenture dated as of January 14, 1998 among IEC Funding Corp., Northeast Energy Associates, A Limited Partnership, North Jersey Energy Associates, A Limited Partnership and State Street Bank and Trust Company, as trustee.
4.23 Amendment to Amended and Restated Assignment and Security Agreement by and between NEA, NJEA, IEC and State Street Bank and Trust Company dated as of January 14, 1998
4.24 Termination of Pledge, Trust and Intercreditor Agreement dated as of January 30, 1998 among NJEA, NEA, the Sanwa Bank, Limited, New York Branch, as "Bank Agent," Sanwa Bank Trust Company of New York, as trustee and State Street Bank and Trust Company, as Collateral Agent and the Bond Trustee
10.1* Accommodation Agreement dated as of June 28, 1989, between NEA, Boston Edison Company, a Massachusetts corporation ("BECO"), Commonwealth Electric Company, a Massachusetts corporation ("Commonwealth"), Montaup Electric Company, a Massachusetts corporation ("Montaup"), and The Chase Manhattan Bank (National Association)
10.2.1* Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Sayreville O&M Agreement"), between NJEA and Westinghouse Electric Corporation, a Pennsylvania company ("Westinghouse")
10.2.2* Letter Agreement regarding the Sayreville Heat Rate dated June 23, 1993, between NJEA and Westinghouse
10.2.3* Letter Agreement regarding extension of the Sayreville O&M Agreement dated June 23, 1993, between Westinghouse and NJEA
10.2.4* Second Amended and Restated Operation and Maintenance Agreement dated as of June 28, 1989 (the "Bellingham O&M Agreement"), between NEA and Westinghouse
10.2.5* Letter Agreement regarding the Bellingham Heat Rate dated June 23, 1993, between NEA and Westinghouse
10.2.6* Letter Agreement regarding extension of the Bellingham O&M Agreement dated June 23, 1993, between NEA and Westinghouse
10.2.7** Amendment No. 1 to the Bellingham O&M Agreement, dated as of May 1, 1995, by and between NEA and Westinghouse
10.3.1* Power Purchase Agreement dated as of April 1, 1986 (the "BECO I Power Purchase Agreement"), between NEA and BECO
10.3.2* First Amendment to the BECO I Power Purchase Agreement dated as of June 8, 1987, between BECO and NEA
10.3.3* Second Amendment to the BECO I Power Purchase Agreement dated as of June 21, 1989, between BECO and NEA
10.3.4* Power Purchase Agreement dated as of January 28, 1988 (the "BECO II Power Purchase Agreement"), between NEA and BECO
10.3.5* First Amendment to the BECO II Power Purchase Agreement dated as of June 21, 1989, between NEA and BECO
10.3.6* Power Sale Agreement dated as of November 26, 1986 (the "Commonwealth I Power Purchase Agreement"), between NEA and Commonwealth
10.3.7* First Amendment to the Commonwealth I Power Purchase Agreement dated as of August 15, 1988, between Commonwealth and NEA
10.3.8* Second Amendment to the Commonwealth I Power Purchase Agreement dated as of January 1, 1989, between Commonwealth and NEA
10.3.9* Power Sale Agreement dated as of August 15, 1988 (the "Commonwealth II Power Purchase Agreement"), between NEA and Commonwealth
10.3.10* First Amendment to the Commonwealth II Power Purchase Agreement dated as of January 1, 1989, between NEA and Commonwealth
10.3.11* Power Purchase Agreement dated as of October 17, 1986 (the "Montaup Power Purchase Agreement"), between NEA and Montaup
10.3.12* First Amendment to the Montaup Power Purchase Agreement dated as of June 28, 1989, between Montaup and NEA
10.3.13* Power Purchase Agreement dated as of October 22, 1987 (the "JCP&L Power Purchase Agreement"), between NJEA and Jersey Central Power & Light Company, a New Jersey corporation ("JCP&L")
10.3.14* First Amendment to the JCP&L Power Purchase Agreement dated as of June 16, 1989, between JCP&L and NJEA
10.4.1* Firm Transportation Service Agreement dated as of February 28, 1994, among CNG Transmission Corporation, a Delaware corporation ("CNG"), NEA, ProGas U.S.A., Inc., a Delaware corporation ("ProGas USA") and ProGas Limited, a Canadian corporation ("ProGas")
10.4.2* Firm Gas Transportation Agreement (Rate Schedule X-320) dated as of February 27, 1991, between NEA and Transcontinental Gas Pipe Line Corporation, a Delaware corporation ("Transco")
10.4.3* Rate Schedule X-35 Firm Gas Transportation Agreement dated as of October 1, 1993, between NEA and Algonquin Gas Transmission Company, a Delaware corporation ("Algonquin")
10.4.4* Service Agreement for Rate Schedule FTS-5 dated as of February 16, 1994, between NEA and Texas Eastern Transmission Corporation, a Delaware corporation ("Texas Eastern")
10.4.5* ProGas/TransCanada NE Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada Pipelines Limited, an Ontario corporation ("TransCanada")
10.4.6* Northeast Gas Substitution Agreement dated as of July 30, 1993, among ProGas, NEA and TransCanada
10.4.7* Northeast Notice and Consent dated as of July 30, 1993, among NEA, ProGas and TransCanada
10.4.8* ProGas NE Producer Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada
10.4.9* Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA, ProGas USA and ProGas
10.4.10* Firm Gas Transportation Agreement (Rate Schedule X-319) dated as of February 27, 1991, between Transco and NJEA
10.4.11* Service Agreement for Rate Schedule FTS-5 dated as of February 16, 1994, between Texas Eastern and NJEA
10.4.12* ProGas/TransCanada NJ Assignment Agreement dated as of July 30, 1993, between ProGas and TransCanada
10.4.13* North Jersey Gas Substitution Agreement dated as of July 30, 1993, among ProGas, NJEA and TransCanada
10.4.14* North Jersey Notice and Consent dated as of July 30, 1993, among NJEA, ProGas and TransCanada
10.4.15* ProGas NJ Producer Assignment dated as of July 30, 1993, between ProGas and TransCanada
10.4.16* Gas Purchase and Sales Agreement dated as of May 4, 1989 (the "PSE&G Agreement"), between NJEA and Public Service Electric and Gas Company, a New Jersey corporation ("PSE&G")
10.5.1* Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NEA
10.5.2* Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NJEA
10.5.3** Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NEA
10.5.4** Service Agreement Applicable to Transportation of Natural Gas under Rate Schedule FT dated as of February 1, 1996, by and between CNG and NJEA
10.6.1* Gas Purchase Contract dated as of May 12, 1988 (the "Bellingham ProGas Agreement"), between ProGas and NEA
10.6.2* First Amending Agreement to the Bellingham ProGas Agreement dated as of April 17, 1989, between ProGas and NEA
10.6.3* Second Amending Agreement to the Bellingham ProGas Agreement dated as of June 23, 1989, between ProGas and NEA
10.6.4* Amending Agreement to the ProGas Agreements (as defined below) dated as of November 1, 1991, between ProGas, NEA and NJEA
10.6.5* Third Amending Agreement to the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA
10.6.6* Letter Agreement regarding the Bellingham ProGas Agreement dated as of September 14, 1992, between ProGas and NEA
10.6.7* Letter Agreement regarding the Bellingham ProGas Agreement dated as of July 30, 1993, between ProGas and NEA
10.6.8* Gas Purchase Contract dated as of May 12, 1988 (the "Sayreville ProGas Agreement," and together with the Bellingham ProGas Agreement, the "ProGas Agreements"), between ProGas and NJEA
10.6.9* First Amending Agreement to the Sayreville ProGas Agreement dated April 17, 1989, between ProGas and NJEA
10.6.10* Second Amending Agreement to the Sayreville ProGas Agreement dated June 23, 1989, between ProGas and NJEA
10.6.11* Third Amending Agreement to the Sayreville ProGas Agreement dated July 30, 1993, between ProGas and NJEA
10.6.12* Letter Agreement regarding the Sayreville ProGas Agreement dated as of September 14, 1992, between ProGas and NJEA, as amended as of April 22, 1994 by Letter Agreement between ProGas and NJEA
10.6.13* Letter Agreement regarding the Sayreville ProGas Agreement dated July 30, 1993, between ProGas and NJEA
10.7.1* Amended and Restated Steam Sales Agreement dated as of December 21, 1990, between NEA and NECO-Bellingham, Inc., a Massachusetts corporation ("NECO")
10.7.2* Industrial Steam Sales Contract dated as of June 5, 1989, between NJEA and Hercules Incorporated, a Delaware corporation ("Hercules")
10.8.1* Letter agreement regarding Bellingham Project power transmission arrangements dated June 29, 1989, between NEA and BECO
10.8.2* Letter agreement regarding Bellingham Project power transmission arrangements dated June 6, 1989, between NEA and Commonwealth
10.8.3* Letter agreement regarding Bellingham Project power transmission arrangements dated June 28, 1989, between NEA and Montaup
10.9* Amended and Restated Interconnection Agreement dated as of September 24, 1993, between BECO and NEA
10.10.1* Amended and Restated Lease Agreement dated as of December 21, 1990, between NEA and NECO
10.10.2* Carbon Dioxide Agreement dated as of December 21, 1990, between NECO and Praxair, Inc., as successor to Liquid Carbonic Carbon Dioxide Corporation ("Praxair")
10.10.3* BOC Gases Carbon Dioxide Agreement dated as of December 21, 1990, between NECO and the BOC Gases of the BOC Group, Inc., a Delaware corporation (BOC Gases)
10.10.4* Assignment and Security Agreement dated as of December 1, 1991, between NECO and NEA
10.10.5*** Operation and Maintenance Agreement by and between
NECO-Bellingham, Inc. as Lessee and Westinghouse Operating Services Company, Inc. as Operator for the Bellingham Project Carbon Dioxide Recovery Facility dated as of May 1, 1995
10.10.5.1**** Guaranty of Contract for Operation and Maintenance dated May 12, 1995 by Westinghouse Electric
10.10.6* Licensing Agreement for the Fluor Daniel Carbon Dioxide Recovery Process dated as of June 28, 1989, between Fluor Daniel Inc., a California corporation ("Fluor Daniel"), and NEA
10.11.1* Ground Lease Agreement dated as of June 28, 1989, between NJEA and IEC Urban Renewal Corporation, a New Jersey corporation ("URC")
10.11.2* Agreement of Sublease dated as of June 28, 1989, between URC and NJEA
10.11.3* Lease of Property dated as of June 1, 1986, between Prestwich Corporation and the General Partner
10.12.1* Investment Agreement dated as of December 1, 1994, between Sanwa and Sanwa Bank Trust Company of New York, as trustee under the Pledge, Trust and Intercreditor Agreement
10.12.2* Investment Agreement dated as of December 1, 1994, between Sanwa and Sanwa Bank Trust Company of New York, as trustee under the Pledge, Trust and Intercreditor Agreement
10.13* Agreement between the Water and Sewer Commissioners of the Town of Bellingham and NEA dated as of December 13, 1988 and December 30, 1988, respectively
10.14* Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated June 29, 1989, by NEA in favor of BECO, Commonwealth and Montaup
10.15*** Declaration of Easements, Covenants, and Restrictions dated as of June 28, 1989 by NEA
10.16 Operation and Maintenance Agreement dated as of November 21, 1997 by and between Northeast Energy, LP, a Delaware limited partnership and ESI Operating Services, Inc.
10.17 Operation and Maintenance Agreement dated as of November 21, 1997 by and between Northeast Energy, LP, a Delaware limited partnership and ESI Operating Services, Inc.
10.18 Fuel Management Agreement, dated as of January 20, 1998, by and between Northeast Energy, LP, a Delaware limited partnership and ESI Northeast Fuel Management, Inc., assigned by Northeast Energy, LP to Northeast Energy Associates, a limited partnership on January 20, 1998
10.19 Fuel Management Agreement, dated as of January 20, 1998, effective retroactive to January 14, 1998, by and between Northeast Energy, LP, a Delaware limited partnership and ESI Northeast Fuel Management, Inc.
10.20 Administrative Services Agreement dated as of November 21, 1997 between Northeast Energy, LP, a Delaware limited partnership and ESI Northeast Energy GP, Inc.
12* Statements regarding computation of ratios
21.1* Subsidiary of North Jersey Energy Associates, A Limited Partnership.
27.1 Financial Data Schedule - ESI Tractebel Funding Corp.
27.2 Financial Data Schedule - Northeast Energy Associates
27.3 Financial Data Schedule - North Jersey Energy Associates
-------------------
* Incorporated herein by reference from the Registration Statement on Form S-4, file no. 33-87902, filed with the Securities and Exchange Commission by IEC Funding on February 9, 1995, as amended.
** Incorporated herein by reference from the Annual Report on Form 10-K filed by IEC Funding and the Partnerships on April 1, 1996.
***Incorporated herein by reference from the Quarterly Report on Form 10-Q filed by IEC Funding and the Partnerships on November 14, 1996.
****Incorporated herein by reference from the Annual Report on Form 10-K filed by IEC Funding and the Partnerships on March 31, 1997.
(b) Reports On Form 8-K:
On December 2, 1997, IEC Funding Corp. and the Partnerships filed a report on Form 8-K dated December 2, 1997, in connection with the Acquisitions covering Item 5 (Other Events).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ESI Tractebel Funding Corp., has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized in the City of North Palm Beach, State of Florida, on March 25, 1998.
ESI TRACTEBEL FUNDING CORP.
By: /s/ Glenn E. Smith ----------------------- Glenn E. Smith Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1998.
Signature Title --------- -----
/s/ Glenn E. Smith - ------------------------------ Vice President Glenn E. Smith (Principal Executive Officer)
/s/ Peter D. Boylan - ------------------------------ Treasurer Peter D. Boylan (Principal Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, North Jersey Energy Associates, A Limited Partnership, has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized in the City of North Palm Beach, State of Florida on March 25, 1998.
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
By: NORTHEAST ENERGY LP, as General Partner
By: ESI NORTHEAST ENERGY GP, INC., as General Partner
By: /s/ Glenn E. Smith ------------------------- Glenn E. Smith Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1998.
Signature Title --------- -----
/s/ Glenn E. Smith - ------------------------------- Vice President Glenn E. Smith (Principal Executive Officer)
/s/ Peter D. Boylan - ------------------------------- Treasurer Peter D. Boylan (Principal Financial and Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Northeast Energy Associates, A Limited Partnership, has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized in the City of North Palm Beach, State of Florida on March 25, 1998.
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
By: NORTHEAST ENERGY, LP, as General Partner
By: ESI NORTHEAST ENERGY GP, INC., as General Partner
By: /s/ Glenn E. Smith ------------------------- Glenn E. Smith Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1998.
Signature Title --------- -----
/s/ Glenn E. Smith - ----------------------------- Vice President Glenn E. Smith (Principal Executive Officer)
/s/ Peter D. Boylan - ----------------------------- Treasurer Peter D. Boylan (Principal Financial and Accounting Officer)
APPENDIX A
Defined Terms
Unless the context requires otherwise, any reference in this Form 10-K to any agreement shall mean such agreement and all schedules, exhibits and attachments thereto as amended, supplemented or otherwise modified and in effect from time to time. Unless otherwise stated, any reference in this Form 10-K to any person or entity shall include its successors and assignees and, in the case of any government authority, any entity succeeding to its functions and capacities. All terms defined herein used in the singular shall have the same meanings when used in the plural and vice versa.
"Accommodation Agreement" means the Accommodation Agreement dated as of June 28, 1989, among NEA, Commonwealth, Boston Edison and Montaup.
"Acquisition Date" means January 14, 1998, the date of the consummation of the Acquisitions.
"Acquisitions" means the acquisition by NE LP and NE LLC of all of the partnership interests in NEA and NJEA and the acquisition by ESI Funding and Tractebel Power of seventy-five percent (75%) of the outstanding capital stock of ESI Tractebel Funding pursuant to the Purchase Agreement.
"Additional Project Securities" means any Debt of ESI Tractebel Funding issued, subject to certain conditions set forth in the Project Indenture, to provide a source of funds for (i) Required Improvements, (ii) cash collateral to support Energy Bank Obligations (or to secure obligations of the Partnerships under the Project Letter of Credit Facility with respect to Project Letters of Credit issued to secure such Energy Bank Obligations) arising as a result of Power Purchase Agreements (or amendments thereto) entered into after November 15, 1994 (iii) payment of fees and costs associated with the issuance of Additional Project Securities, or (iv) funding the Debt Service Reserve Fund to the extent that the balance in such Fund is less than the Debt Service Reserve Requirement.
"Administrative Services Agreement" means the Administrative Services Agreement, dated as of November 21, 1997, by and between NE LP and ESI GP.
"Administrative Services Fee" means a fee, payable monthly, equal to $600,000 per annum, adjusted annually based on a producer price index paid by NE LP to ESI LP as compensation for the services it performs pursuant to the Administrative Services Agreement.
"Affiliate," as used in the Project Indenture, means, as to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that the beneficial ownership of 20% or more of the Voting Stock of a Person shall be deemed to be control.
"Algonquin" means Algonquin Gas Transmission Company, a Delaware corporation.
"Avoided Cost Security" means the security granted, pursuant to the NEA Second Mortgage, with respect to all amounts paid under the respective Power Purchase Agreements for the NEA Project in excess of the particular mortgagee's actual Avoided Costs, with interest thereon at the prime rate of The First National Bank of Boston, N.A. in effect from time to time.
"Avoided Costs" means, the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from a qualifying facility, such utility would generate itself or purchase from some other source.
"BankBoston" means BankBoston, N.A.
"BOC Gases" means the BOC Cases Division of the BOC Group, Inc., a Delaware corporation.
"Boston Edison" means Boston Edison Company, a Massachusetts corporation.
"Boston Edison I Power Purchase Agreement" means the Power Purchase Agreement dated as of April 1, 1986, as amended on June 8, 1987 and June 21, 1989, between NEA and Boston Edison.
"Boston Edison II Power Purchase Agreement" means the Power Purchase Agreement dated as of January 28, 1988, as amended, between NEA and Boston Edison.
"Boston Edison Interconnection Agreement" means the Amended and Restated Interconnection Agreement dated as of September 24, 1993, between Boston Edison and NEA.
"Btu" means British thermal units, a unit of energy.
"Carbon Dioxide Plant" means the carbon dioxide production facility owned by NEA and located adjacent to the NEA Project on the NEA Site and all equipment and facilities ancillary thereto.
"Carbon Dioxide Sales Agreements" means those agreements between NECO and BOC Gases, and NECO and Praxair, respectively, for the purchase and sale of carbon dioxide.
"Cash Collateral Proceeds" means the cash collateral (and investments thereof) deposited by the Partnerships to secure the Partnerships' obligations to reimburse under the Project Letter of Credit Facility.
"Clean Air Act" means the Federal Clean Air Act of 1955, as amended.
"CNG" means CNG Transmission Corporation, a Delaware corporation.
"Collateral Agency Agreement" means the Collateral Agency Agreement, dated as of December 1, 1994, as amended, among the Collateral Agent, the Project Trustee, IEC Funding Corp. (now ESI Tractebel Funding), the Swap Banks, the Working Capital Banks and the Partnerships.
"Collateral Agent" when used in connection with the Project Securities, means State Street Bank, as collateral agent pursuant to the Collateral Agency Agreement.
"Commission" means the United States Securities and Exchange Commission.
"Commonwealth" means Commonwealth Electric Company, a Massachusetts corporation.
"Commonwealth I Power Purchase Agreement" means the Power Sale Agreement between Commonwealth and NEA dated as of November 26, 1986, and amended as of August 15, 1988 and as further amended as of January 1, 1989.
"Commonwealth II Power Purchase Agreement" means the Power Sale Agreement between Commonwealth and NEA dated as of August 15, 1988, and amended as of January 1, 1989.
"Commonwealth Power Purchase Agreements" means, collectively, the Commonwealth I Power Purchase Agreement and the Commonwealth II Power Purchase Agreement.
"Conrail" means Consolidated Rail Corporation.
"CRSS" means CRSS, Inc.
"Daily NEA Quantity" means 48,817 Dth of natural gas.
"Daily NJEA Quantity" means 22,019 Dth of natural gas.
"Debt" of any Person, as defined in the Project Indenture, means (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all obligations under capital leases of such Person, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person (vi) all Debt of others to the extent guaranteed by such Person, (vii) all obligations under letters of credit issued for the account of such Person, (viii) all obligations of such Person under trade or bankers' acceptances and (ix) all obligations of such Person under agreements providing for interest rate swaps, collars or caps.
"Debt Service Reserve Fund," as defined in the Project Indenture, means the Fund entitled "Debt Service Reserve Fund" established and maintained by the Project Trustee pursuant to the Project Indenture.
"Debt Service Reserve Requirement," as defined in the Project Indenture, means, as of any Monthly Transfer Date, an amount equal to 50% of the aggregate regularly scheduled interest, principal and fee payments to be made by the Partnerships in respect of the Project Notes (for
application to the payment of principal, interest and fees of the Project Securities and any Additional Project Securities) during the period commencing on (and including) such Monthly Transfer Date and ending on (but excluding) the twelfth (12th) Monthly Transfer Date thereafter; provided that the amount of the Debt Service Reserve Requirement as of the Closing Date and as of the date of issuance of any Additional Project Securities and for the period thereafter until the next succeeding Monthly Transfer Date shall be equal to the Debt Service Reserve Requirement calculated as of the Closing Date the date of issuance of any Additional Project Securities or such next succeeding Monthly Transfer Date, as the case may be.
"Dekatherm" or "Dth" means one MMBtu.
"Dollars" and "$" means lawful money of the United States.
"DTE" means Department of Telecommunications and Energy.
"Energy Bank" or "Energy Bank Obligations" means an account recording the liability of a Partnership to a Power Purchaser representing cumulative payments made to such Partnership by such Power Purchaser under the applicable Power Purchase Agreement in excess of such Power Purchaser's Avoided Costs, determined in accordance with such Power Purchase Agreement.
"Energy Bank Letters of Credit" means, collectively, any letter or letters of credit for the benefit of the Power Purchasers to secure the Energy Bank Obligations.
"Environmental Law" means any and all Government Rules relating to human health or the environment, or the release of Hazardous Materials into the indoor or outdoor environment including, without limitation, ambient air, surface water, groundwater, wetlands, land or subsurface strata or otherwise relating to the use of Hazardous Material, whether now or hereafter in effect. Environmental Laws shall include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Toxic Substances Control Act, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety and Health Act, as amended, and all analogous laws promulgated or issued by any state or other Governmental Authority.
"EPA" means the Environmental Protection Agency of the United States.
"ESI" or "ESI Energy" means ESI Energy, Inc., a Florida corporation.
"ESI Acquisition Funding" means ESI Northeast Energy Acquisition Funding, Inc., a Florida corporation.
"ESI Funding" means ESI Northeast Energy Funding, Inc., a Florida corporation.
"ESI GP" means ESI Northeast Energy GP, Inc., a Florida corporation.
"ESI LP" means ESI Northeast Energy LP, Inc., a Florida corporation.
"ESI Tractebel Funding" means ESI Tractebel Funding Corp., a Delaware corporation, formerly known as "IEC Funding Corp."
"Event of Loss" means any compulsory transfer or taking or transfer under threat of compulsory transfer or taking of all or any material part of either Project by any Government Authority, or any event which causes all or any material portion of either Project by any Government Authority, or any event which cause all or any material portion of either Project to be damaged, destroyed or rendered unfit for normal use for any reason whatsoever.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extended Gas Service" means the sale and delivery of gas to NJEA by PSE&G for days on which the mean daily temperature for Newark, New Jersey is between 22(o)F and 14(o)F.
"FERC" means the United States Federal Energy Regulatory Commission.
"Fluor Daniel" means Fluor Daniel Inc., a California corporation.
"Fluor Daniel Agreement" means the Design/Build Contract dated as of June 28, 1989 between NEA and Fluor Daniel.
"FPA" means the Federal Power Act, as amended.
"FPL" means Florida Power & Light Co., a Florida corporation.
"FPL Energy" means FPL Energy, Inc., a Florida corporation.
"FPL Group" means FPL Group, Inc., a Florida corporation.
"FPL Group Capital" means FPL Group Capital Inc., a Florida corporation.
"FPL Group Capital Guaranty" or "FPL Capital Guarantee" means a guaranty or an agreement made by FPL Group Capital in to reimburse Energy Bank Letter of Credit Banks and/or Substitute Letter of Credit Banks, issued pursuant to the Reimbursement Agreement.
"Fuel Management Agreements" means, collectively, the NEA Fuel Management Agreement and the NJEA Fuel Management Agreement.
"Fuel Management Fees" means the monthly fees required to be paid by NEA and NJEA to the Fuel Manager pursuant to the Fuel Management Agreements.
"Fuel Manager" means ESI Northeast Fuel Management, Inc., a Florida corporation.
"Funds" means the funds established and maintained by the Project Trustee pursuant to the Project Indenture.
"Gas Transmission Reserve Fund" means the Fund entitled "Gas Transmission Reserve Fund" established and maintained by the Project Trustee pursuant to the Project Indenture.
"Gas Transmission Reserve Requirement" means (a) as of any date occurring within the fifteen month period preceding the earliest expiration date of the Transco Agreements and which precedes the earliest expiration date of the Transco Agreements by a period that includes not less than three Monthly Transfer Dates, $5,300,000, (b) as of any other date thereafter, $10,600,000 and (c) prior to the date determined pursuant to clause (a), zero; provided that as of and subsequent to any extension or replacement of the Transco Agreements by agreements expiring on or after the final maturity date of the Project Securities and satisfying certain other conditions specified in the Project Indenture, the Gas Transmission Reserve Requirement shall be zero. The Gas Transmission Reserve Requirement has been determined based on the assumption that each Transco Agreement will expire on October 31, 2006, and will not be extended, in whole or in part, beyond such date. In the event that either or both Transco Agreements are extended or replaced by agreements satisfying certain conditions specified in the Project Indenture, the Gas Transmission Reserve Requirement will be adjusted pursuant to a formula specified in the Project Indenture.
"General Partner" means NE LP.
"Government Approval" means (i) any authorization, consent, approval, license, ruling, permit, certification, exemption, filing, variance, order, judgment, decree or publication of, by or with, (ii) any notice to, (ii) any declaration of or with or (iv) any registration by or with, any Government Authority required to be obtained or made by the Issuer, NE LP, ESI Tractebel Funding or a Partnership or, where the context requires, by any other Person party to a Project Document.
"Government Authority" means any United States federal, state, municipal, local, territorial or other governmental subdivision, department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body, domestic or foreign.
"Government Rule" means any statute, law, regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, code, license, directive, guideline, policy or rule of common law, requirement of, or other governmental restriction or any judicial or administrative order, consent decree or judgement or similar form of decision of or determination by, or any interpretation or administration of any of the foregoing by, any Government Authority, whether now or hereafter in effect.
"GSR Deficiency", as defined in the Project Indenture, is now zero.
"Guaranty", as defined in the Project Indenture, by any Person means any guaranty, surety, bond or other obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing in any manner any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person: (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other
obligation (whether arising by virtue of Partnership arrangements, by agreement to keep well, to purchase assets, goods, bonds or services, to take-or-pay, or to maintain financial statement conditions or otherwise), (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) or (iii) to reimburse any Person for the payment by such Person under any letter of credit, surety, bond or other guaranty issued for the benefit of such other Person, but excluding (x) endorsements for collection or deposit in the ordinary course of business, or (y) indemnity or hold harmless provisions included in contracts entered into in the ordinary course of business.
"Hazardous Material", as defined in the Project Indenture, means: (i) any petroleum or petroleum products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCBs), (ii) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants" or words of similar import under any Environmental Law and (iii) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated as such under any Environmental Law including the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 6901 et seq., or any similar state statute.
"Hercules" means Hercules Incorporated, a Delaware corporation.
"HRSG" means a heat recovery steam generator.
"IEC" means Intercontinental Energy Corporation, a Massachusetts corporation, the former general partner of each of the Partnerships.
"IEC Funding Corp." means the corporation now referred to as ESI Tractebel Funding Corp., a Delaware corporation.
"IECURC" means IEC Urban Renewal Corporation, a New Jersey corporation wholly-owned by NJEA.
"Import Point" means the point of interconnection between the TransCanada pipeline and CNG's pipeline at Niagara Falls, Ontario/Niagara Falls, New York.
"Insurance Proceeds" means all amounts and proceeds (including instruments) in respect of the proceeds of any casualty insurance policy or title insurance policy, except proceeds of delayed opening or business interruption insurance.
"Interest Fund," as defined in the Project Indenture, means the Interest Fund established and maintained by the Project Trustee pursuant to the Project Indenture.
"ISO Conditions" means a temperature of 59 degrees F and an atmospheric pressure of 29.92 inches of mercury absolute (i.e. sea level).
"JCP&L" means Jersey Central Power & Light Company, a New Jersey corporation.
"JCP&L Power Purchase Agreement" means the Power Purchase Agreement dated as of October 22, 1987, between NJEA and JCP&L, as amended.
"Kilowatt" or "KW" means one thousand watts.
"Kilowatt-hours" or "kWh" means a unit of electrical energy equal to one kilowatt of power supplied or taken from an electric circuit steadily for one hour.
"Lien", as defined in the Project Indenture, means, with respect to any property of any Person, any mortgage, lien, pledge, charge, lease, easement, servitude, right of others or security interest or encumbrance of any kind in respect of such property of such Person.
"Limited Partner" means NE LLC.
"Long-term Gas Arrangements" means, collectively, the Long-term Gas Supply Agreements, the Long-term Gas Transportation Agreements and the Long-term Gas Storage Agreements.
"Long-term Gas Storage Agreements" means the NEA Gas Storage Agreement and the NJEA Gas Storage Agreement.
"Long-term Gas Supply Agreements" means the NEA ProGas Agreement, the NJEA ProGas Agreement and the PSE&G Contract.
"Long-term Gas Transportation Agreements" means the NEA Gas Transportation Agreements and the NJEA Gas Transportation Agreements.
"Loss Proceeds" means all Insurance Proceeds, all condemnation awards, settlement payments and other amounts (other than proceeds of delayed opening or business interruption insurance or similar items) received or payable in respect of any Event of Loss.
"Major Overhaul Expenses" means expenses not covered by any operations and maintenance contractor and which are incurred by a Partnership in connection with scheduled major overhauls of a project in accordance with the maintenance recommendations of the applicable manufacturer or vendor pursuant to the Project Indenture.
"Major Overhaul Reserve Fund" means the Fund entitled "Major Overhaul Reserve Fund" established and maintained by the Project Trustee pursuant to the Project Indenture.
"Management Costs" means the management fee payable to NE LP, which fee shall be comprised of four components, without duplication: (i) third-party costs certified as being reasonably allocable to either or both of the Projects or either or both of the Partnerships or ESI
Tractebel Funding (including but not limited to any rent, independent legal, consulting and accounting fees and expenses that are certified as such), (ii) general and administrative expenses of NE LP reasonably allocable to either or both of the Projects or either or both of the Projects or either or both of the Partnerships or ESI Tractebel Funding, (iii) compensation (including salary and related benefits) of individuals that are not related by blood or marriage to the Original Project Sponsors certified as being reasonable allocable to either or both of the Projects or either or both of the Partnerships or the company and (iv) for each calendar year, an amount equal to $3,500,000, $1,500,000 of which shall constitute the Subordinated Management Fee (each such amount inflated annually commencing on January 1, 1995, in accordance with the Project Indenture, and adjusted ratably for each partial calendar year in which the Project Securities shall be outstanding).
"MBtu" means one thousand Btus.
"Mcf" means one thousand cubic feet of gas at 60(o)F and at a pressure of 14.73 pounds per square inch absolute.
"Medway Substation" means the Medway Substation of Boston Edison, located in Medway, Massachusetts.
"Megawatt" or "MW" means one million watts.
"Megawatt hour" or "MWH" means one thousand kilowatt-hours.
"MMBtu" means one million Btus.
"Montaup" means Montaup Electric Company, a Massachusetts corporation.
"Montaup Power Purchase Agreement" means the Power Purchase Agreement dated as of October 17, 1986, as amended on June 28, 1989, between NEA and Montaup.
"Monthly MOR Contribution Amount," as defined in the Project Indenture means, for each Monthly Transfer Date commencing with the first such date in calendar year 2001 (a) the applicable amount set forth in the Project Indenture as the aggregate required contribution to the Major Overhaul Reserve Fund for the calendar year of such Monthly Transfer Date (as such schedule may be revised, as set forth therein, by the Independent Engineer in the event that either O&M Agreement is amended or replaced to provide for the payment by a third party operator for either Project of all or a portion of any Major Overhaul Expenses) divided by (b) 12 (or, in the case of the calendar year in which the final maturity date for the Project Securities occurs, the number of Monthly Transfer Dates occurring in such calendar year prior to such date).
"Monthly Transfer Date," as defined in the Project Indenture means the first business day of each calendar month.
"Monthly Transfer Period" means the period commencing on (and including) a Monthly Transfer Date and ending on (but excluding) the immediately succeeding Monthly Transfer Date.
"Moody's" means Moody's Investors Service, Inc.
"MOR Deficiency," as defined in the Project Indenture, means, as of any date of determination subsequent to the first Monthly Transfer Date in calendar year 2001, the excess, if any, of (a) the aggregate Monthly MOR Contribution Amounts for all prior Monthly Transfer Dates over (b) the excess (if any) of (i) the aggregate amount of all prior transfers to the Major Overhaul Reserve Fund over (ii) the aggregate amount of all withdrawals from the Major Overhaul Reserve Fund made on or prior to such date of determination other than pursuant to the Project Indenture; provided, that the amount of any MOR Deficiency (i) shall be reduced by the amount of Major Overhaul Expenses previously paid by the Partnerships from funds other than disbursements from the Major Overhaul Reserve Fund, (ii) shall be subject to adjustment as provided in the Project Indenture and (iii) shall be equal to zero as of any date of determination prior to the first Monthly Transfer Date in calendar year 2001.
"MOU" means Memorandum of Understanding.
"NationsBank" means NationsBank of Texas.
"NE LLC" means Northeast Energy, LLC, a Delaware limited liability company.
"NE LP" means Northeast Energy, LP, a Delaware limited partnership.
"NE LP Partnership Agreement" means the Agreement of Limited Partnership of Northeast Energy, LP, dated as of November 21, 1997, by and among ESI GP, ESI LP, Tractebel GP and Tractebel LP.
"NEA" means Northeast Energy Associates, A Limited Partnership, a Massachusetts limited partnership.
"NEA Additional Properties Mortgage" means the Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing (Additional Properties) granted by NEA to the Collateral Agent with respect to certain real estate owned by NEA adjacent to the NEA Site.
"NEA Fuel Management Agreement" means the Fuel Management Agreement, dated as of January 20, 1998 (effective retroactively to January 14, 1998) by and between the Fuel Manager and NE LP, assigned by NE LP to NEA on January 20, 1998.
"NEA Fuel Management Fee" means $450,000, as compensation for certain fuel management services for the NEA Project pursuant to the NEA Fuel Management Agreement.
"NEA Gas Agreements" means the NEA ProGas Agreement, the NEA Gas Transportation Agreements and the NEA Gas Storage Agreement.
"NEA Gas Storage Agreement" means the Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NEA, as amended by the parties and in respect of changes in FERC approved tariffs.
"NEA Gas Supply Agreement" means the NEA ProGas Agreement.
"NEA Gas Transportation Agreements" means collectively, the Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NEA, ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate Schedule X-320) dated February 27, 1991, between Transco and NEA, the Rate Schedule X-35 Firm Gas Transportation Agreement dated October, 1993, between Algonquin and NEA and the Service Agreement for Rate Schedule FTS-5 dated February 16, 1994, between Texas Eastern and NEA, each as amended by the parties and in respect of changes in FERC approved tariffs.
"NEA O&M Agreement" means the Second Amended and Restated Operations and Maintenance Agreement dated as of June 28, 1989, between NEA and the Operator (as successor to Westinghouse Electric).
"NEA O&M Fee" means the monthly fee required to be paid by NEA to the Operator pursuant to the NEA O&M Agreement.
"NEA Partnership Agreement" means the Amended and Restated Agreement of Limited Partnership of Northeast Energy Associates, A Limited Partnership, dated as of November 21, 1997 by and between NE LP and NE LLC.
"NEA Power Purchase Agreements" means the Boston Edison I Power Purchase Agreement, the Boston Edison II Power Purchase Agreement, the Commonwealth I Power Purchase Agreement, the Commonwealth II Power Purchase Agreement and the Montaup Power Purchase Agreement.
"NEA Power Purchasers" means Boston Edison, Commonwealth and Montaup.
"NEA ProGas Agreement" means the Gas Purchase Contract dated as of May 12, 1988, between NEA and ProGas, as amended.
"NEA Project" means the nominal 300 MW natural gas-fired combined cycle cogeneration facility owned by NEA located on the NEA Site, including all electrical and steam generating components, and all electrical, steam and natural gas interconnection facilities and structures, associated materials, handling and environmental equipment and ancillary structures, equipment and systems.
"NEA Project Documents" means, individually and collectively, certain existing agreements and documents specified in the Project Indenture (which include the NEA Power Purchase Agreements, the NEA Gas Agreements, the NEA Steam Sales Agreement and the NECO Lease), as any of the same may from time to time be amended, modified or supplemented together with all Additional Project Documents (as defined in the Project Indenture) to which NEA is a party or which relate to all or any part of the NEA Project as to the Carbon Dioxide Plant.
"NEA Project Mortgage" means the Amended and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture Filing granted by NEA to the Collateral Agent with respect to the NEA Site and all related improvements and fixtures thereon owned by NEA.
"NEA Second Mortgage" means the Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of June 28, 1989, by NEA in favor of Boston Edison, Commonwealth and Montaup securing the performance by NEA of its obligations under each of the NEA Power Purchase Agreements.
"NEA Site" means the approximately 44-acre site on the upper Charles River in the town of Bellingham, Massachusetts, on which the NEA Project and the Carbon Dioxide Plant are located.
"NEA Steam Sales Agreement" means the Amended and Restated Steam Sales Agreement dated as of December 21, 1990, between NEA and NECO.
"NECO" means NECO-Bellingham, Inc., a special-purpose subsidiary of a privately held company based in Houston.
"NECO Lease" means the Amended and Restated Lease dated as of December 21, 1990, between NEA and NECO.
"NEPOOL" means the New England Power Pool.
"NEPOOL Agreement" means the NEPOOL Agreement dated September 1, 1971.
"Net Electrical Capability" means the sum of the nameplate rating of the generators for each Project, as designated by the manufacturer and expressed in megawatts, less allowance for station service, at which such Project is designed to operate continuously in a reasonable and prudent manner under ISO conditions in accordance with good utility practice.
"New NEA O&M Agreement" means the Operation and Maintenance Agreement, dated as of November 21, 1997, by and between NE LP and the New Operator, subsequently assigned by NE LP to NEA.
"New NEA O&M Fee" means the monthly fee required to be paid by NEA to the New Operator pursuant to the New NEA O&M Agreement.
"New NJEA O&M Agreement" means the Operation and Maintenance Agreement, dated as of November 21, 1997, by and between NE LP and the New Operator, subsequently assigned by NE LP to NJEA.
"New NJEA O&M Fee" means the monthly fee required to be paid by NJEA to the New Operator pursuant to the New NJEA O&M Agreement.
"New O&M Agreements" means the New NEA O&M Agreement and the New NJEA O&M Agreement.
"New O&M Fees" means the fees as compensation for the operation and maintenance services for the Projects under the New O&M Agreements.
"New Operator" means ESI Operating Services, Inc., a Florida corporation.
"1990 Amendments" means the 1990 Amendments to the Federal Clean Air Act of 1955.
"NJBPU" means the New Jersey Board of Public Utilities.
"NJEA" means North Jersey Energy Associates, A Limited Partnership, a New Jersey limited partnership.
"NJEA Fuel Management Agreement" means the Fuel Management Agreement, dated as of January 20, 1998 (effective retroactively to January 14, 1998) by and between the Fuel Manager and NE LP, assigned by NE LP to NJEA on January 20, 1998.
"NJEA Fuel Management Fee" means $450,000, as compensation for certain fuel management services for the NJEA Project pursuant to the NJEA Fuel Management Agreement.
"NJEA Gas Agreements" means, collectively, the NJEA ProGas Agreement, the PSE&G Contract, the NJEA Gas Transportation Agreements and the NJEA Gas Storage Agreement.
"NJEA Gas Storage Agreement" means the Service Agreement Applicable to the Storage of Natural Gas Under Rate Schedule GSS-II dated as of September 30, 1993, between CNG and NJEA.
"NJEA Gas Supply Agreements" means, collectively, the NJEA ProGas Agreement and the PSE&G Contract.
"NJEA Gas Transportation Agreements" means collectively, the Firm Transportation Service Agreement dated as of February 28, 1994, among CNG, NJEA, ProGas and ProGas U.S.A., Inc., the Firm Gas Transportation Agreement (Rate Schedule X-319) dated February 27, 1991, between Transco and NJEA and the Service Agreement for Rate Schedule FTS-5 dated February 16, 1994, between Texas Eastern and NJEA, each as amended by the parties and in respect of changes in FERC approved tariffs.
"NJEA O&M Agreement" means the Amended and Restated Operations and Maintenance Agreement dated as of June 28, 1989, between NJEA and the Operator (as successor to Westinghouse Electric).
"NJEA O&M Fee" means the monthly fee required to be paid by NJEA to the Operator pursuant to the NJEA O&M Agreement.
"NJEA Partnership Agreement" means the Amended and Restated Agreement of Limited Partnership of North Jersey Energy Associates, A Limited Partnership, dated as of November 21, 1997 by and between NE LP and NE LLC.
"NJEA Power Purchase Agreement" means the JCP&L Power Purchase Agreement.
"NJEA Power Purchaser" means JCP&L.
"NJEA ProGas Agreement" means the Gas Purchase Contract dated as of May 12, 1988, between NJEA and ProGas, as amended.
"NJEA Project" means the nominal 300 MW natural gas-fired combined cycle cogeneration facility owned by NJEA and located on the NJEA Site, including all electrical and steam generating components, and all electrical, steam and natural gas interconnection facilities and structures, associated materials handling and environmental control equipment and ancillary structures, equipment and systems.
"NJEA Project Documents" means, individually and collectively, certain existing agreements and documents specified in the Project Indenture (which include the JCP&L Power Purchase Agreement, the NJEA Gas Agreements and the NJEA Steam Sales Agreement), as any of the same may from time to time be amended, modified or supplemented, together with all Additional Project Documents (as defined in the Project Indenture) to which NJEA is a party or which relate to all or any part of the NJEA Project.
"NJEA Project Mortgage" means the Amended and Restated Indenture of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, dated as of December 1, 1994, granted by NJEA to the Collateral Agent with respect to the NJEA Site and all related improvements and fixtures thereon owned by NJEA.
"NJEA Site" means the approximately 49-acre site in the Borough of Sayreville, New Jersey, on which the NJEA Project is located.
"NJEA Steam Sales Agreement" means the Industrial Steam Sales Contract dated as of June 5, 1989, as amended, between NJEA and Hercules.
"Non-Material Project Document", as defined in the Project Indenture, means any Project Document (x) which shall be for a term (including any extensions provided therein, other than those that are optional to the applicable Partnership) not longer than 1 year or (y) under which such Partnership shall have obligations not in excess of $1,000,000, excluding, however, (a) any contract or agreement providing, directly or indirectly, for monetary or nonmonetary obligations of the Partnership the performance of which could reasonably be expected to have a material adverse effect and (b) any contract or agreement providing for the acquisition by either Partnership of property, or the delivery to the Partnership of services, that if no obtained could reasonably be expected to have material adverse effect (taking into consideration all available alternatives). For purposes of this definition, indemnity or similar obligations of a Partnership subject to a maximum dollar amount shall be limited to such amount, and, subject to any such limitation, shall be
computed at the maximum amount thereof which could, at the time such agreement is entered into, reasonably be expected to become due and payable.
"NOx" means oxides of nitrogen.
"NYMEX" means the New York Mercantile Exchange.
"O&M Agreements" means the NEA O&M Agreement and the NJEA O&M Agreement, as applicable, (including any extensions or modifications thereof).
"OASIS" means an open-access same-time information system, as defined in FERC Order No. 889.
"Operating Expenses," as defined in the Project Indenture means, for any period, the sum of the following costs and expenses (without duplication) paid or required to be paid during such period (or, in the case of any future period, projected to be paid or payable in such period): (a) the operating and maintenance expenses of the Projects including, without limitation, (i) amounts due from the applicable Partnership under any operations and maintenance agreement in respect of the operation and maintenance of either Project, (ii) fuel procurement, storage, transportation, management and associated costs for the Projects and costs of any fuel hedging arrangements, (iii) premiums for insurance including, without limitation, insurance required to be maintained pursuant to the Project Indenture or pursuant to any Project Document, (iv) franchise, licensing, excise, property and other similar taxes (other than federal and state income taxes and any other taxes imposed upon, or measured by, income or receipts, unless any such tax shall be imposed on the Partnerships solely by reason of the adoption of a Government Rule or the amendment of an existing Government Rule subsequent to the closing date with respect to the offering of the Project Securities) payable by or on behalf of the Partnerships, (v) all taxes payable by ESI Tractebel Funding, (vi) utilities, supplies and other services acquired in connection with the operation or maintenance of the Projects, (vii) maintenance costs with regard to the Projects, including the rebuilding, repair or replacement of any Project in connection with an Event of Loss (to the extent such costs are not paid from funds on deposit in the Major Overhaul Reserve Fund or the Capital Expenditure Fund), (viii) costs and fees incurred in connection with obtaining and maintaining in effect the Government Approvals relating to a Project, (ix) costs of the Partnerships and ESI Tractebel Funding relating to the settlement of pending or threatened litigation or other claims relating to a Project or any related fines, penalties, judgments and other costs (including, without limitation, legal fees and expenses) associated with such litigation or other claims, (x) rental expense of the Partnerships relating to the rental of any property associated with the Projects, (xi) fees and expenses of consultants and experts retained by or required to be paid by either of the Partnerships or ESI Tractebel Funding, including, without limitation, the Independent Experts, attorneys and accountants, (xii) indemnification payments made by either of the Partnerships or ESI Tractebel Funding to any Person pursuant to any bona fide obligation necessarily and reasonably incurred in connection with the operation or financing (including any financing contemplated pursuant to the Project Indenture) of the Projects and owed by such Partnership to such Person and (xiii) Management Costs (provided that the amount of Management Costs referred to in clause (iv) of the definition thereof payable as an Operating Expense during any Monthly Transfer Period shall not exceed the sum of (A) the quotient of (x) the then applicable annual
amount of such Management Costs over (y) 12 or, if applicable, the number of Monthly Transfer Periods in any partial year in which the Project Securities shall be outstanding and (B) the amount of Management Costs that were permitted to be paid as operating expenses pursuant to this proviso in any prior Monthly Transfer Period but not previously paid; provided further that, for purposes of the foregoing proviso, a portion of the amount determined pursuant to clause (A) for each Monthly Transfer Period shall be allocated ratably to the Subordinated Management Fee and amounts determined pursuant to clause (B) shall be allocated to the Subordinated Management Fee to the extent unpaid amounts are attributable to deficiencies in the Subordinated Management Fee Subfund of the Operating Fund); plus (b) fees and expenses of the Project Trustee and the Collateral Agent, plus (c) costs relating to the issuance of any Project Securities, including, without limitation, any exchange offer and any registration statement in respect of the Project Securities or any other costs incurred by ESI Tractebel Funding and the Partnerships in connection with the performance of any further assurance obligations hereunder and under the Project Indenture and the Project Security Documents; plus (d) amounts payable by the Partnerships in respect of guaranties permitted under the Project Indenture; plus (e) amounts payable to any entity (other than an affiliate of NE LP), either in the form of dividends or management or similar fees or reimbursement of expenses (in each case in reasonable amounts) that owns any of the outstanding capital stock of ESI Tractebel Funding, provided that all of the foregoing costs and expenses shall be determined on a cash basis and shall not include depreciation, amortization or other non-cash items.
"Operator" means Westinghouse Services.
"Original Banks" means the financial institutions party to the Original Project Credit Agreement.
"Original Project Credit Agreement" means the Project Loan and Credit Agreement dated as of June 28, 1989, as amended, among the Partnerships as borrowers, IEC, The Chase Manhattan Bank as issuing bank and as agent for the Original Banks, The Bank of New York (as successor to Irving Trust Company) as co-agent and the Original Banks.
"Original Project Indenture" means the Trust Indenture, dated as of November 15, 1994, among each of the Partnerships, IEC Funding Corp. (now ESI Tractebel Funding), and the Project Trustee, as supplemented by the First Supplemental Trust Indenture, dated as of November 15, 1994.
"Original Project Notes" means the notes issued by the Partnerships to the Original Banks pursuant to the Original Project Credit Agreement.
"Original Project Securities" means the 8.43% Senior Secured Notes Due 2000, the 9.16% Senior Secured Notes Due 2002, the 9.32% Senior Secured Bonds Due 2007 and the 9.77% Senior Secured Bonds Due 2010. The Original Project Securities were exchanged for Project Securities in May 1995.
"Partial Transportation Extension Event" means the occurrence of the following with respect to a Transco Agreement: (a) either (i) the extension of the term of such Transco Agreement on terms and conditions which would constitute a Transco Extension Event but for the fact that (A) the term
of such Transco Agreement (as so extended) is scheduled to expire prior to the final maturity date of the Project Securities and/or (B) the maximum daily quantity to be transported pursuant to such Transco Agreement is less than that in effect under such Transco Agreement on December 1, 1994 or (ii) the execution by either Partnership and one or more third parties of one or more gas transportation agreements providing for firm gas transportation service to such Partnership by such third party(ies) which would constitute a Transco Substitution Event but for the fact that (x) the term of such agreement is scheduled to expire prior to the final maturity date of the Project Securities and/or (y) the maximum daily quantity to be transported pursuant to such agreement(s) is less than that in effect for the applicable Transco Agreement on December 1, 1994; and (b) the receipt by the Project Trustee of a certificate of the Independent Gas Consultant to the effect of (a) above.
"Partners" means, collectively, NE LP and NE LLC.
"Partnership Distribution Fund" means the Fund entitled "Partnership Distribution Fund" established and maintained by the Project Trustee pursuant to the Project Indenture.
"Partnership Suspense Fund" means the Fund entitled "Partnership Suspense Fund" established and maintained by the Project Trustee pursuant to the Project Indenture.
"Partnerships" means NEA and NJEA.
"Peak Gas Service Credit" means the demand charge paid by PSE&G to NJEA in exchange for the right to retain NJEA's gas supplies on days when the mean daily temperature forecast for Newark, New Jersey drops below certain levels.
"Permitted Purchase Money Indebtedness," as defined in the Project Indenture, means purchase money or lease obligations incurred to finance items of equipment not comprising an integral part of either Project (and obligations in respect of Debt incurred to refinance any such obligations), provided that (a) if such obligations are secured, they are secured only by Liens upon the equipment being financed and (b) such obligations do not in the aggregate have annual scheduled interest, principal, lease and purchase price installment payments in excess of $5,000,000.
"Permitted Unsecured Indebtedness" means unsecured Debt in an aggregate outstanding principal amount at no time greater than $10,000,000.
"Person" means any individual, sole proprietorship, corporation, partnership, joint venture, limited liability company, trust, unincorporated association, institution, Government Authority or any other entity.
"PJM" or "PJM Interconnected Power Pool" means the Pennsylvania/New Jersey/Maryland interconnected Power Pool.
"PJM Agreement" means the PJM Agreement dated September 26, 1956, as amended.
"Policy Act" means the Energy Policy Act of 1992.
"Power Purchase Agreements" means individually and collectively, the Boston Edison I Power Purchase Agreement, the Boston Edison II Power Purchase Agreement, the Commonwealth I Power Purchase Agreement, the Commonwealth II Power Purchase Agreement, the Montaup Power Purchase Agreement and the JCP&L Power Purchase Agreement, and any Additional Project Document (as defined in the Project Indenture) (other than a Non-Material Project Document) providing for the sale of electric energy or capacity from the Projects.
"Power Purchasers" means Boston Edison, Commonwealth, JCP&L and Montaup and any other Person (other than the Partnerships) party to a Power Purchase Agreement.
"Praxair" means Praxair, Inc., the successor to Liquid Carbonic Carbon Dioxide Corporation.
"Principal Fund" means the Fund entitled "Principal Fund" described in, and pursuant to the Project Indenture.
"ProGas" means ProGas Limited, an Alberta corporation.
"ProGas Agreement Expiration Date" means, with respect to each ProGas Agreement, the later of (a) November 1, 2006 and (b) the scheduled expiration date of such ProGas Agreement after giving effect to any Partial ProGas Extension Events.
"ProGas Agreements" means the NEA ProGas Agreement and the NJEA ProGas Agreement.
"Project Accounts" means the accounts entitled "Project Accounts" maintained and used by the Project Trustee.
"Project Collateral," defined as "Collateral" in the Project Indenture, means, collectively, all of the collateral mortgaged, pledged or assigned to the Collateral Agent by any of ESI Tractebel Funding, each Partnership, NE LP, ESI Funding and Tractebel Power, in each case pursuant to the granting and assigning clauses of the applicable Project Security Documents.
"Project Credit Agreement" means the Amended and Restated Project Loan and Credit Agreement, dated as of December 1, 1994, by and among ESI Tractebel Funding and each of the Partnerships.
"Project Documents" means, collectively, the NEA Project Documents and the NJEA Project Documents.
"Project Guaranty" means the guaranty agreement, by and among the Project Trustee, NEA and NJEA, guaranteeing the obligations of ESI Tractebel Funding under the Project Indenture.
"Project Indebtedness," as used in this Offering Circular means, collectively, the existing Debt of the Partnerships and ESI Tractebel Funding in connection with the Project Securities, the existing Debt of the Partnerships in connection with the Sanwa Credit Agreement and the existing Debt of the Partnerships under the Swaps.
"Project Indenture" means the Trust Indenture dated as of November 15, 1994, entered into by ESI Tractebel Funding, the Partnerships and the Project Trustee providing for the issuance of the Project Securities, as supplemented by a First Supplemental Trust Indenture, dated as of November 15, 1994, and as amended and supplemented by the Second Supplemental Trust Indenture dated as of January 14, 1998.
"Project Letter of Credit Banks" means the financial institutions from time to time parties to a Project Letter of Credit Facility.
"Project Letter of Credit Facility" means any agreement or agreements from time to time in effect among the Partnerships and the Project Letter of Credit Banks, and any replacements thereof which satisfies the requirements under the Power Purchase Agreements, the Fluor Daniel Agreement and the Prestwich Lease providing for the issuance of the Project Letters of Credit. No Letters of Credit are currently outstanding in connection with the Fluor Daniel Agreement or the Prestwich Lease.
"Project Letters of Credit" means the Letters of Credit securing the Partnerships' obligations.
"Project Loans" means the loan made by ESI Tractebel Funding to each of the Partnerships in connection with the Project Credit Agreement and the Project Indenture.
"Project Notes" means (a) the promissory notes of the Partnerships issued to ESI Tractebel Funding on December 1, 1994 pursuant to the Project Credit Agreement, which notes were issued (x) to amend and restate the Original Project Notes and (y) to evidence the Project Loans together with (b) any promissory notes issued by the Partnerships to ESI Tractebel Funding subsequent to December 1, 1994 in accordance with the terms of the Project Credit Agreement.
"Project Partnership Agreements" means, collectively, the NEA Partnership Agreement and the NJEA Partnership Agreement.
"Project Revenues," as defined in the Project Indenture means, for any period, the sum of the following (without duplication) received by either of the Partnerships, or credited to the account of either of the Partnerships as described in clause (iii) below, on a cash basis during such period: (i) all revenues under the Power Purchase Agreements and the Steam Sales Agreements plus (ii) all other revenues, whether from the sale of electrical capacity or electricity, thermal energy or by-products of the operations of the Projects or otherwise plus (iii) investment earnings on amounts in the Funds and on the investment of the Cash Collateral Proceeds (and any substitute collateral for the Project Letter of Credit Facility), but only to the extent such investment earnings have been transferred to the Revenue Fund plus (iv) the proceeds of any business interruption insurance and other payments received for interruption of operations (excluding any proceeds of any physical damage or liability insurance) plus (v) refunds of deposits plus (vi) all rental and other payments received by either of the Partnerships from the lease or sale of any portion of either or both of the Project Sites plus (vii) all other income, proceeds or receipts, howsoever earned or received by either of the Partnerships during such period plus (viii) Cash Collateral Proceeds (and any substitute collateral for the Project Letter of Credit Facility) transferred to the Revenue Fund as a
result of any reduction in the Energy Bank Obligations. Project Revenues shall exclude, to the extent otherwise included, (a) proceeds of the Project Securities (including any such proceeds advanced to the Partnerships pursuant to the Project Credit Agreement), (b) proceeds of borrowings under the Working Capital Facility or any other permitted Debt, (c) Cash Collateral Proceeds (and any substitute collateral for the Project Letter of Credit Facility) released from the security of the Project Letter of Credit Banks or the Power Purchasers, as the case may be, which are not the result of any reduction in the Energy Bank Obligations and (d) Loss Proceeds.
"Project Secured Parties" include the holders of the Project Securities (represented by the Project Trustee), the Sanwa Working Capital Banks, the Swap Banks, if any, the Collateral Agent and the Project Trustee.
"Project Securities" means, collectively, the 8.43% Senior Secured Notes Due 2000, Series A, the 9.16% Senior Secured Notes Due 2002, Series A, the 9.32% Senior Secured Bonds Due 2007, Series A and the 9.77% Senior Secured Bonds Due 2010, Series A issued by ESI Tractebel Funding under the Project Indenture.
"Project Security Documents" means the mortgages and other security agreements pursuant to which the Partnerships, ESI Tractebel Funding and NE LP grant liens to the Collateral Agent for the benefit of the Project Secured Parties.
"Project Sites" means, collectively, the NEA Site and the NJEA Site.
"Project Trustee" means State Street Bank and Trust Company in its capacity as trustee under the Project Indenture.
"Projections" means certain projections of the Projects' revenues and the costs associated therewith including certain assumptions by NE LP.
"Projects" means, collectively, the NEA Project and the NJEA Project.
"Prudent Utility Practices" means the practices, methods and standards generally followed by the independent power and electric utility industry with respect to the design, construction, operation and maintenance of electric generating equipment of the type applicable to the Projects, and which practices, methods and standards generally conform to operation and maintenance standards recommended by the applicable Project's equipment suppliers and manufacturers.
"PSE&G Contract" means the Gas Purchase and Sales Agreement dated as of May 4, 1989, as amended, between NJEA and PSE&G.
"PTFs" means pool transmission facilities.
"PSE&G" means Public Service Electric and Gas Company, a New Jersey corporation. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"Purchase Agreement" means the Purchase Agreement, dated as of November 21, 1997, by and among the Sellers, the Partners, ESI Funding and Tractebel Power for the acquisition of all of the partnership interests in the Partnerships.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended, and the regulations promulgated thereunder.
"QF" or "Qualifying Facility" means a "qualifying cogeneration facility" in accordance with PURPA and the rules and regulations of FERC under PURPA relating thereto.
"Qualifying Facility Power Purchase Rate" means the energy rate filed from time to time by each of the NEA Power Purchasers and approved by the Massachusetts Department of Public Utilities.
"Quarterly Tax Payment Dates" means, collectively, January 15, April 15, June 15 and September 15 of each calendar year or, in the event that any tax payments contemplated by the definition of "Tax Requirements" shall become due on any date or dates other than those provided for immediately above, any such other date or dates on which such tax payments shall be due.
"Required Improvements" means improvements required to comply with any change in applicable Environmental Laws or other Government Rules (or interpretations thereof), or to maintain the status of a Project as a QF.
"Restricted Payments," as defined in the Project Indenture, means: (a) (i) the declaration or payment of distributions or dividends by, or the occurrence of any liability to make any such payment or distribution on account of, either Partnership in cash, property, obligations or other securities on, or (ii) other payments or distributions on account of, or (iii) the purchase, redemption, retirement or other acquisition of, or (iv) the setting apart of money for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any Partnership (whether general or limited) interest (or any share capital of any class or any preferred stock issued by any Permitted Successor (as defined in the Project Indenture), including redeemable preferred shares, or any warrant, option or other right to acquire such share capital or preferred stock, but excluding dividends or other distributions payable solely in ordinary common shares of such Permitted Successor (as defined in the Project Indenture)); and (b) any payment of the principal of or interest on any subordinated indebtedness; and (c) the making of any loans or advances from either Partnership or ESI Tractebel Funding to any Related Party (other than certain permitted Debt contemplated by the Project Indenture).
"Revenue Fund" means the Fund entitled "Revenue Fund" established and maintained by the Project Trustee pursuant to the Project Indenture.
"Rolling Prior Year" means, (i) as of December 1, 1994 and any date occurring prior to the delivery to the Project Trustee of financial statements of the Partnerships for any fiscal quarter ending after December 1, 1994, the most recent period of four consecutive fiscal quarters of the Partnerships ended prior to
such date, treated as a single accounting period and (ii) as of any other date, the most recent period of four consecutive fiscal quarters of the Partnerships ended prior to such date (or shorter period commencing on December 1, 1994), treated as a single accounting period, with respect to which financial statements shall have been delivered to the Project Trustee.
"S&P" means Standard & Poor's Ratings Services, a division of McGraw Hill.
"Sanwa Bank" means The Sanwa Bank, Limited, New York Branch.
"Sanwa Credit Agreement" means the Credit Agreement, dated as of December 1, 1994, by and among the Partnerships, Sanwa Bank as issuing bank and as agent, and the other banks named therein.
"Sanwa Letter of Credit Banks" means the financial institutions from time to time parties to the Sanwa Letter of Credit Facility,
"Sanwa Letters of Credit" means the letters of credit issued by the Sanwa Letter of Credit Banks to secure the Partnerships' Energy Bank Obligations.
"Sanwa Working Capital Banks" means the financial institutions from time to time parties to the Sanwa Working Capital Facility.
"Sanwa Working Capital Facility" means the Working Capital Facility provided by the Sanwa Working Capital Banks pursuant to the Sanwa Credit Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Second Supplemental Indenture" means the Second Supplemental Trust Indenture dated as of January 14, 1998 among IEC Funding Corp., Northeast Energy Associates, A Limited Partnership, North Jersey Energy Associates, A Limited Partnership and State Street Bank and Trust Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" means those Sellers identified on Schedule I to the Purchase Agreement.
"Sponsors" means ESI Energy, Inc. and Tractebel Power, Inc.
"Sponsor Members" means individually and collectively, (i) each of John R. Roy and Mary Lou Roy, (ii) any lineal descendant or any spouse of any of the foregoing (excluding Jack Roy and his spouse and their lineal descendants and their spouses) and (iii) the heirs, executors, legal representatives and administrators of any of the foregoing.
"Spot Gas" means any natural gas purchased by either Partnership pursuant to (a) arrangements and agreements having a term of one year or less, (b) either ProGas Agreement subsequent to the ProGas Agreement Expiration Date with respect thereto (i.e., during the period over which such ProGas Agreement shall be extended on terms not constituting a Partial ProGas Extension Event) or (c) any arrangements and agreements entered into after the date hereof and covering a period
subsequent to the earliest ProGas Agreement Expiration Date and having a term greater than one year in duration.
"State Street Bank" means State Street Bank and Trust Company, a Massachusetts banking corporation.
"Steam Sales Agreements" means, collectively, the NEA Steam Sales Agreement and the NJEA Steam Sales Agreement.
"Subfunds" means the subfunds established and maintained by the Project Trustee pursuant to the Project Indenture.
"Subordinated Debt" means all Debt of the Partnerships or ESI Tractebel Funding subordinated in right of payment to the Project Securities in accordance with certain requirements specified in the Project Indenture.
"Subordinated Management Fee" means, for each calendar year commencing with the year in which the closing date occurs a portion of the Management Costs referred to in clause (iv) of the definition thereof in an amount equal to $1,500,000 (inflated annually commencing on January 1, 1999 and adjusted ratably for each partial calendar year in which the Project Securities are outstanding).
"Substitute Debt Service Coverage Ratio" means, for any period, the ratio of (a) the sum of (i) Operating Cash Flow for such period plus (ii) the balance held in the Partnership Suspense Fund as of the date of determination of the Substitute Debt Service Coverage Ratio to (b) Mandatory Debt Service for such period.
"Substitute Letter of Credit" means an irrevocable standby letter of credit (a) issued by a commercial bank whose long-term unsecured debt obligations are rated (or whose bank holding company has long-term unsecured debt obligations rated) at least "A" by S&P, "A2" by Moody's or "A" by Fitch (or an equivalent rating by another nationally recognized credit rating agency of similar standing if two or more of such corporations are not in the business of rating long-term obligations of commercial banks) at the time of issuance, (b) in a form reasonably acceptable to the Project Trustee, (c) with a minimum term of one year (or shorter period ending on or after the final maturity date of the Project Securities), (d) for the benefit of the Project Trustee, (e) which shall not be a Debt of either ESI Tractebel Funding or either Partnership and shall not be secured by or otherwise encumber any of the Project Collateral and (f) providing for the amount thereof to be available to the Project Trustee in multiple drawings, including a final drawing at any time within 30 days prior to the expiration of such letter of credit for the full face amount thereof in the event such letter of credit is not renewed or substituted with one or more other Substitute Letters of Credit at such time, conditioned only upon presentation of sight drafts accompanied by the applicable certificate in the form attached to such letter of credit (and reasonably acceptable in form to the Project Trustee).
"Substitute Letter of Credit Bank" means BankBoston, Bank Brussels Lambert or any other financial institutions providing a Substitute Letter of Credit.
"Swap Banks" means the financial institutions that are parties to the Swaps.
"Swaps" means (i) the interest rate exchange agreements entered into by the Partnerships with various financial institutions in connection with the Original Project Credit Agreement and (ii) the interest rate exchange agreements entered into by the Partnerships on December 1, 1994, in connection with the issuance of the Original Project Securities.
"Tax Requirements," as defined in the Project Indenture, means, for each Quarterly Tax Payment Date, the aggregate amount of Federal, New Jersey (in the case of a partner of NJEA) and Massachusetts (in the case of a partner of NEA) income taxes (including estimated tax payments thereof) estimated to be payable by the partners on such Quarterly Tax Payment Date, computed based upon and in accordance with the following assumptions: (a) each partner shall be considered an unmarried individual without dependents subject to tax on all income at the highest marginal rate of Federal and, as applicable, New Jersey and/or Massachusetts income taxes whose only asset and only source of income, gain, loss, deduction or credit is the Partnership(s) (taking into account net operating loss, capital loss and any other loss or credit carryforwards or carrybacks that would be available to such partner, and that arise solely as a result of the income, gains, losses, deductions and credits of the Partnerships and the deductibility of state income taxes for Federal income tax purposes); (b) all income of the Partnerships subject to Massachusetts income tax shall be treated as ordinary income, interest income, dividend income or net capital gain in accordance with the relevant provisions of Massachusetts income tax law; and (c) except as otherwise contemplated pursuant to the next succeeding sentence, each partner pays its taxes for a given calendar year in quarterly installments on the applicable Quarterly Tax Payment Date; provided, that any such computation shall not give effect to, and the term "Tax Requirements" shall not include, any income taxes payable as a result of a dissolution of one or both Partnerships to the extent that such income taxes exceed the amount of income taxes which would have been payable if such dissolution had not occurred. The Tax Requirements, as of any date of determination (the "Tax Determination Date"), shall be increased or reduced, as the case may be, to reflect any difference between (x) the Tax Requirements for any preceding Quarterly Tax Payment Date as originally computed (after giving effect to any previous increase or reduction relating thereto) and (y) the Tax Requirements for such preceding Quarterly Tax Payment Date as recomputed at the Tax Determination Date to reflect any change in the original computation, including, on an annual basis, any differences between any estimates of Partnership income and expenses for any fiscal year (or any period during such fiscal year) utilized in such computations and the actual Partnership income and expenses for such fiscal year. In the case of a reduction that exceeds the Tax Requirements amount calculated before giving effect to such reduction, each subsequent Tax Requirements amount shall be reduced to the extent of such excess until such excess has been fully offset against subsequent Tax Requirements. At any time during which either NJEA, NEA or any Permitted Successor (as defined in the Project Indenture) is itself an entity subject to Federal or, in the case of NJEA, New Jersey, or in the case of NEA, Massachusetts, income or franchise or similar taxes, the Tax Requirements attributable to NJEA, NEA or such Permitted Successor (as defined in the Project Indenture), as the case may be, shall be reduced by the amount of such Federal, New Jersey and Massachusetts taxes payable by NJEA, NEA or such successor entity; provided, however, that in the case of any such tax payable to New Jersey or Massachusetts, no
such reduction to the applicable Tax Requirements shall occur if the entity on which the tax is imposed is treated as a pass-through entity in such jurisdiction.
"Texas Eastern" means Texas Eastern Transmission Line Corporation, a Delaware corporation.
"Tractebel Belgium" means Tractebel S.A., a company organized under the laws of Belgium.
"Tractebel GP" means Tractebel Northeast Generation GP, Inc., a Delaware corporation.
"Tractebel LP" means Tractebel Associates Northeast LP, Inc., a Delaware corporation.
"Tractebel Power" means Tractebel Power, Inc., a Delaware corporation.
"Tractebel" means Tractebel, Inc., a Delaware corporation.
"TransCanada" means Trans Canada Pipelines Limited, an Ontario corporation.
"Transco" means Transcontinental Gas Pipe Line Corporation, a Delaware corporation.
"Transco Agreement Expiration Date" means, with respect to each Transco Agreement, the later of (a) October 31, 2006, and (b) the scheduled expiration date of such Transco Agreement after giving effect to any Partial Transportation Extension Events with respect to such Transco Agreement (it being understood that, in the event of the continuance of such Transco Agreement on terms not constituting a Partial Transportation Extension Event, the scheduled expiration date of such Transco Agreement for purposes of this clause (b) shall be deemed to be the last day through which such Transco Agreement was extended on terms constituting a Partial Transportation Extension Event.
"Transco Agreements" means the Firm Gas Transportation Agreement for Rate Schedule X-320 dated February 27, 1991 between Transco and NEA and the Firm Gas Transportation Agreement for Rate Schedule X-319 dated February 27, 1991 between Transco and NJEA.
"Transco Extension Event" means the occurrence of each of the following with respect to a Transco Agreement: (a) the extension of the term of such Transco Agreement resulting in a scheduled expiration date therefor that is on or after the final maturity date of the Project Securities and otherwise on substantially the same terms and conditions contained in such agreement on December 1, 1994, except for any changes to the charges for transportation service applicable to the period of any such extension; and (b) the receipt by the Project Trustee of a certificate of the Independent Gas Consultant to the effect of (a) above.
"Transco Substitution Event" means the occurrence of each of the following: (a) the execution by each Partnership and one or more third parties of one or more gas transportation agreements providing for firm gas transportation service to the Partnerships by such third party(ies) in substitution of the firm transportation service provided to the Partnerships by Transco under the Transco Agreements, which substitute firm gas transportation service shall (i) be furnished during the period form the expiration date of the Transco Agreements through a date no earlier than the
final maturity date of the Project Securities, (ii) cover volumes of gas for each Partnership not less than those covered on December 1, 1994 under the Transco Agreements to which such Partnership is (or was) party, and (iii) be on terms generally no less favorable to each Partnership than those contained on December 1, 1994 in the Transco Agreement to which such Partnership is (or was) party, except for changes to the charges for transportation service; and (b) the receipt by the Project Trustee of a certificate of the Independent Gas Consultant to the effect of (a) above (other than with respect to (a)(iii) above).
"Voting Stock" as defined in the Project Indenture means the Capital Stock of any Person as of any date that such Person is at the time entitled to vote in the election of the Board of Directors of such Person.
"Westinghouse Electric" means Westinghouse Electric Corporation, a Pennsylvania corporation.
"Westinghouse Services" means Westinghouse Operating Services Company, a Delaware corporation and a subsidiary of Westinghouse Electric.
"Working Capital Banks" means the financial institutions from time to time parties to a Working Capital Facility.
"Working Capital Facility" means any agreement or agreements from time to time in effect among the Partnerships and the Working Capital Banks providing for the availability of working capital loans to the Partnerships in an aggregate principal amount not to exceed $20 million.
"Working Capital Fund" means the Fund entitled "Working Capital Fund" established and maintained by the Project Trustee pursuant to the Project Indenture.
"Working Capital Loans" means loans provided under the Working Capital Facility.
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Report of Independent Accountants
To the Partners of Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership
In our opinion, the accompanying combined balance sheet and the related combined statements of operations, of partners' deficit and of cash flows present fairly, in all material respects, the financial position of Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership, at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnerships' managements; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts March 24, 1998
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Balance Sheet - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Operations - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Partners' Deficit - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Cash Flows - --------------------------------------------------------------------------------
Non-cash Investing Activities In 1996 and 1997, total capitalized facility costs which were accrued at year end for payment were approximately $165,000 and $240,000, respectively.
The accompanying notes are an integral part of these financial statements.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Combined Statement of Cash Flows (continued) - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
1. Nature of Business
The enactment in 1978 of the Public Utility Regulatory Policies Act ("PURPA") and the adoption of the regulations thereunder by the Federal Energy Regulatory Commission ("FERC") provided incentives for the independent development of power production facilities, such as cogeneration, by requiring electric utilities to purchase power generated by qualifying facilities.
Northeast Energy Associates, A Limited Partnership, ("NEA") and North Jersey Energy Associates, A Limited Partnership, ("NJEA") (or together, the "Partnerships") operate in the independent power industry. The Partnerships were organized to develop, finance, construct, own, manage and operate two 300 megawatt ("MW") natural gas-fueled cogeneration facilities, one in Bellingham, Massachusetts and one in Sayreville, New Jersey. The Partnerships have been granted permission by FERC to operate the cogeneration facilities as qualifying facilities defined in PURPA and as defined in federal regulations.
Through January 14, 1998, the general partner of each of the Partnerships was Intercontinental Energy Corporation ("IEC"), a Massachusetts corporation. IEC owned a one percent interest in each partnership and the individual stockholders of the general partner collectively owned the majority of the remaining partnership interests. On January 14, 1998, all of the partner interests in the Partnerships were acquired (Note 10).
The partners share profits and losses and have interests in assets and liabilities and cash flows in proportion to their tax basis capital accounts. Distributions to the partners may be made only after all required funds and subfunds have been fully funded, as described in the trust indenture (Note 5).
Cash Allocations Upon Disposition or Refinancing In the absence of any dissolution events, the Partnerships shall continue in existence until December 31, 2025 or thereafter, if so determined by the majority of partners. Proceeds upon liquidation or refinancing of partnership property would be apportioned on the following basis:
1. Expenses of liquidation; 2. Third party debts and obligations; 3. To partners in proportion to their designated interests in the Partnerships.
2. Summary of Significant Accounting Policies
Basis of Presentation The accompanying combined financial statements include the accounts of NEA and NJEA and are combined based on common ownership. All transactions between NEA and NJEA have been eliminated in these combined financial statements.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - --------------------------------------------------------------------------------
Cogeneration Facilities and Carbon Dioxide Facility
The cogeneration facilities and the carbon dioxide facility are stated at cost. Cost includes initial acquisition costs increased by subsequent development and construction costs, including developer fees and construction management fees, interest expense and amortization of project loan acquisition costs incurred during the construction period, and continuing facility improvements. Capitalized facility costs are being depreciated using the straight-line method over the estimated useful life of each facility of 20 years.
Unamortized Financing Costs Unamortized financing costs consist primarily of investment banking fees, legal fees and other costs associated with the placement of securities (Note 5). In May 1995, the Partnerships paid a $5,600,000 restructuring fee, out of excess cash flow, to the general partner in connection with the refinancing (Note 5) equal to 1% of the total refinancing. These costs are being amortized over the approximate 15-year term of the securities using the interest method. Unamortized financing costs are net of accumulated amortization of $4,845,000 and $7,008,000 at December 31, 1996 and 1997, respectively.
Other Fixed Assets Other fixed assets consist primarily of furniture, office equipment and leasehold improvements and are depreciated using the straight-line method over estimated useful lives ranging from 3-7 years.
Inventories Inventories consist of natural gas and fuel oil and are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market.
Interest Rate Swap Agreements Notional principal amounts in contracts and related settlement gains and losses on interest rate swap agreements are allocated to the Partnerships based on the relative amounts of outstanding borrowings of each partnership on the date on which the swap agreements were contracted. Prior to the refinancing (Note 5), gains and losses, based on the amount the Partnerships were entitled to receive or required to pay for additional interest, were determined at each calendar quarter-end based on the outstanding notional balance and the amount by which the contractual fixed rate exceeded or was less than the contractual variable rate. Such gains and losses were recognized as adjustments to interest expense. Subsequent to the refinancing (Note 5), the net payments required pursuant to all swap agreements and the change in the fair value of the swap agreements are recognized as adjustments to interest expense. The fair value of the swap agreements is recorded as a current liability. See Notes 5 and 9 for further disclosure regarding interest rate swap agreements.
Natural Gas Hedging Instruments Premiums paid for natural gas call options are deferred within other current assets and are accounted for in conjunction with the underlying natural gas purchases at which point the premiums are written off to, and any resultant gains credited to, cost of power and steam sales. Gains and losses on natural gas purchase swap agreements are recognized as adjustments to cost of power and steam sales at monthly settlement dates. Purchases of natural gas under forward purchase agreements are accounted for as cost of power and steam sales at their contract price at the time of delivery. See Note 9 for further disclosure regarding natural gas hedging instruments.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
Revenue Recognition Revenue from power sales is recognized in accordance with Emerging Issues Task Force Issue No. 91-6, "Revenue Recognition of Long-Term Power Sales Contacts." Revenue is recognized based on power delivered at rates stipulated in power sales agreements, except that revenue is deferred to the extent that stipulated rates are in excess of amounts, either scheduled or specified, in the agreements. The excess amounts deferred are accumulated in energy banks and are reflected as amounts due utilities for energy bank balances on the combined balance sheet. Revenue from steam sales is recognized upon delivery of the steam.
Income Taxes The partners are required to report their respective shares of the Partnerships' taxable income or losses in their income tax returns and are liable for any related taxes thereon. Accordingly, no provision for income taxes is made in the combined financial statements of the Partnerships.
The Partnerships' net assets and liabilities for financial reporting purposes exceeded the net assets and liabilities for tax purposes by approximately $41.6 million and $41.5 million at December 31, 1996 and 1997, respectively.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. Cash and Cash Equivalents and Restricted Cash
The Partnerships consider all investments purchased with an original maturity of three months or less to be cash equivalents. The Partnerships invest excess cash in high grade money market accounts and commercial paper with original maturities less than three months. Accordingly, the investments are subject to minimal credit and market risk and are considered by the Partnerships to be cash equivalents. At December 31, 1996 and 1997, all of the Partnerships' cash equivalents are classified as held-to-maturity and recorded at amortized cost, which approximates fair value.
Restricted cash at December 31, 1996 and 1997 represents cash reserved as collateral for letters of credit related to energy bank balances (Note 6). This cash is invested with a bank in a fixed-rate investment agreement. Subsequent to the acquisition on January 14, 1998 of all of the partner interests in the Partnerships, the cash collateral requirement related to the energy bank balances was terminated in exchange for the guarantee of one of the acquiring entities (Note 10).
4. Cogeneration Facilities and Carbon Dioxide Facility
Cogeneration Facilities Cogeneration facilities consist of costs incurred to develop and construct two gas-fueled cogeneration plants with maximum output capacities of any combination of electricity and steam equivalent to approximately 600 MW in the aggregate.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - --------------------------------------------------------------------------------
Facility Sites The facility owned by NEA is constructed on four parcels of land of approximately 44 acres in Bellingham, Massachusetts. Three of the parcels were acquired under various purchase and sale agreements. The remaining parcel of land was acquired under a 26-year operating lease agreement entered into in 1986 between NEA and a local developer. The lease may be extended for another 25 years at the option of NEA. The agreement provides for an annual lease payment of $60,000 from the date of the agreement increasing annually thereafter by $12,000 (Note 6).
The facility owned by NJEA is constructed on two parcels of land of approximately 49 acres acquired under various purchase and sale agreements.
Power Sale Agreements Commencing in 1986, NEA entered into five power sale agreements with three major Massachusetts utilities to sell approximately 290 MW at initial floor prices per kilowatt hour ("Kwh"), subject to adjustment based on actual volumes of electricity purchased, escalation factors and other conditions. Performance under certain of these power sale agreements is secured by a second mortgage on the Bellingham facility. In 1987, NJEA entered into an agreement with a major New Jersey utility to sell 250 MW at an initial fixed price per Kwh subject to adjustments, as defined in the agreement. These power sale agreements have terms ranging from 20 to 30 years. All of the Partnerships' power sales to utilities are generated through these arrangements. As such, the Partnerships are directly affected by changes in the power generation industry. Substantially all of the Partnerships' accounts receivable are with utilities located in the Northeast portion of the United States. The Partnerships do not require collateral or other security to support their receivables. However, management does not believe significant credit risk exists at December 31, 1997. Sales to significant customers are as follows:
During the year ended December 31, 1995, revenue from two different utilities totaled approximately $132.1 million and $118.3 million, or approximately 47% and 42% of revenue, respectively.
During the year ended December 31, 1996, revenue from two different utilities totaled approximately $122.3 million and $121.5 million, or approximately 45% and 44% of revenue, respectively.
During the year ended December 31, 1997, revenue from two different utilities totaled approximately $142.4 million and $123.6 million, or approximately 46% and 40% of revenue, respectively.
Certain agreements require the establishment of suspense accounts ("energy banks") to record cumulative payments made by the utilities in excess of avoided cost rates scheduled or specified in such agreements. Some energy banks bear interest at various rates specified in the agreements. A positive energy bank balance represents a liability of the applicable Partnership to the applicable power purchaser which will be reduced by subsequent sales of electric power to such power purchaser to the extent that in later periods the avoided cost rates scheduled or specified in such agreements rise above contract rates. For certain agreements requiring the establishment of energy banks, the Partnerships are required to provide collateral based on energy bank balances (Note 6).
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
On November 25, 1997, the Massachusetts legislature passed a comprehensive electric deregulation bill, the purpose of which is to establish a comprehensive framework for the restructuring of the electric utility industry. Additionally, industry efforts are also underway in New Jersey. While the Partnerships' do not expect electric utility industry restructuring to result in material adverse changes to the Partnerships' Power Purchase Agreements, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain.
Steam Sales Agreements and Carbon Dioxide Facility In order for the Partnerships' facilities to maintain the status as qualifying facilities under PURPA, the facilities are required to generate five percent of total energy output as steam for sale to unrelated third parties.
In 1989, NEA entered into a 25-year steam sales contract with a processor and seller of carbon dioxide. Pursuant to this agreement, NEA sells all the steam generated by the Bellingham facility at a price which fluctuates based on changes in the price of a specified grade of fuel oil.
This agreement can be extended at the option of the steam user. In conjunction with this contract, NEA has constructed a carbon dioxide facility and, in 1989, entered into a 15-year agreement to lease the facility to the steam user. Base rent under the terms of the lease is $100,000 per month, adjusted by the operating results of the carbon dioxide facility for each month as outlined in the lease agreement. Additionally, NEA pays the steam user $100,000 annually for administrative services rendered related to the operation of the carbon dioxide facility. NEA does not operate the carbon dioxide facility.
In 1989, NJEA entered into a 20-year steam sales contract with a steam user adjacent to the Sayreville facility. Under the terms of this agreement, NJEA sells a specified maximum quantity of steam at a floor price which can increase based on changes in prices of coal. This agreement automatically renews for two consecutive five year terms unless either party gives notice not to renew two years before the expiration of each of the prior terms.
Fuel Supply, Transportation and Storage Agreements Natural gas is provided to the facilities primarily under long-term contracts for supply, transportation and storage. The remaining fuel requirements of the facilities are provided under short-term "spot" arrangements. The long-term natural gas supply is provided under contracts with ProGas Limited ("ProGas"), a Canadian gas marketing company, and Public Service Electric and Gas Company ("PSE&G"), a domestic retail gas distribution company. Transportation of the natural gas is provided by various pipeline companies, including CNG Transmission Company ("CNG"), Transcontinental Gas Pipe Line Corporation ("Transco") and Algonquin Gas Transmission Company ("Algonquin"). Gas storage agreements provide contractual arrangements for the storage of limited volumes of natural gas with third parties for future delivery to the projects.
The ProGas contracts commenced in 1991. The initial terms of these contracts of 15 years were extended an additional seven years effective in 1994. Under the ProGas contracts, ProGas is required to arrange for the aggregation, gathering and transportation of gas from Alberta, Canada to the U.S. pipeline at Niagara, New York. The maximum total volumes of gas to be delivered under these contracts are approximately 48,800 and 22,000 MMBtu per day for NEA and NJEA,
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
respectively. The contract price of the ProGas supply delivered to the import point, inclusive of transportation costs to that point, is determined with reference to a "base price" in 1990, redetermined annually thereafter based on specified inflation indices. The PSE&G contract commenced in 1991. Under the PSE&G agreement, PSE&G will sell and deliver to NJEA up to 25,000 MMBtu per day of gas for a term of 20 years. The contract price of the PSE&G fuel is established monthly using a contractually specified mechanism.
With the exception of the PSE&G arrangement, all of the Partnerships' long-term contractual arrangements call for monthly "demand charge" payments. These demand charge payments, which are to reserve certain pipeline transportation capacity, are made regardless of the facilities' specific fuel requirements in any month and regardless of whether the facilities utilize the capacity reserved under the contracts. These demand charges totaled approximately $49 million, $48 million and $46 million in 1995, 1996 and 1997, respectively, and total payments under such contracts were approximately $98.3 million, $100.5 million and $112.5 million in 1995, 1996 and 1997, respectively, inclusive of demand charges. Under 1997 pricing conditions, the demand charge payments would be approximately $46 million under these contracts for each of the next five years and approximately $723 million over the remaining life of these contracts. Total charges under the contract with PSE&G, including transportation costs, during 1995, 1996 and 1997, were approximately $24.3 million , $32.4 million and $28.1 million, respectively. In the event that the available capacity under these agreements is not utilized by the operations of the facilities, the Partnerships have the opportunity under certain of these contractual agreements to sell unused capacity to third parties, but have not yet done so.
NEA's facility also has the capability to burn #2 fuel oil. Fuel oil was obtained and is stored on site for contingency supply for the facility.
5. Loans Payable
In 1989, as amended in 1990, 1991 and 1992, the Partnerships, together with the general partner, executed a project loan and credit agreement with a group of banks for a maximum commitment of $600,000,000 for the construction and development of the Bellingham and Sayreville facilities and initial working capital and letters of credit facility.
On December 1, 1994, the Partnerships refinanced their existing borrowings by means of a placement of securities to qualified institutional investors as defined in Rule 144A of the Securities Act of 1933 ("Rule 144A"). Borrowings outstanding are as follows:
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
The above securities were issued through a special purpose funding corporation, IEC Funding Corp., established solely for the purpose of issuing the securities, and are unconditionally guaranteed, jointly and severally, by the Partnerships. Effective February 10, 1995, IEC Funding Corp. filed a Registration Statement on Form S-4 with the Securities and Exchange Commission for purposes of effecting a public exchange offer whereby the securities listed above were exchanged for a new issue of securities (the "Securities"). The Securities have terms identical to the securities issued in accordance with Rule 144A. Subsequent to the acquisition discussed in Note 10, IEC Funding Corp. changed its name to ESI Tractebel Funding Corp.
Interest on the Securities is payable semiannually on each June 30 and December 30, commencing December 30, 1994. Principal repayments, which commenced on June 30, 1995, are made semiannually in amounts stipulated in the trust indenture. Future principal payments are as follows:
Year ending December 31, 1998 $ 21,563,000 1999 23,511,000 2000 26,333,000 2001 20,160,000 2002 22,688,000 Thereafter 376,032,000 ------------ $490,287,000 ============
The Securities are not subject to optional redemption but are subject to mandatory redemption in certain limited circumstances involving the occurrence of an event of loss, as defined in the trust indenture, for which the Partnerships fail to or are unable to restore a facility. Additionally, the Partnerships may, at their option, repurchase all or part of the Securities with proceeds received from the release of cash collateral maintained as security for letters of credit (Note 6).
The proceeds of the Securities were used (a) to purchase the notes outstanding under the original loan and credit agreement and (b) to make loans to the Partnerships. In connection with these two transactions, the notes outstanding under the loan and credit agreement were surrendered and new notes of the Partnerships were issued to ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) in an aggregate principal amount equal to the aggregate principal amount of the Securities (the "New Notes") and the loan and credit agreement was assigned to ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) and amended and restated (the "Amended and Restated Credit Agreement").
Borrowings are secured by a lien on, and a security interest in, substantially all of the assets of the Partnerships. Under the Amended and Restated Credit Agreement, the Partnerships are jointly and severally required to make scheduled payments on the New Notes on dates and in amounts identical to the scheduled payments of principal and interest on the Securities. The Securities, the guarantees thereon provided by the Partnerships and the New Notes are nonrecourse to the partners of the Partnerships and are payable solely from the collateral pledged as security.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
Under the terms of the trust indenture governing the Securities, the Partnerships are required to establish certain funds and subfunds, which must be fully funded before any distributions can be made to partners. The funding requirements of these funds are defined in the trust indenture. Cash within these funds can be drawn currently if funds in the Partnerships' other cash accounts are insufficient to meet operational cash requirements. The order in which these funds may be drawn is described in the trust indenture. Funds available for distribution to partners as of December 31, 1997 have been paid.
The trust indenture contains certain restrictions on certain activities of the Partnerships, including the incurrence of additional indebtedness or liens, the payment of distributions to the partners, the cancellation of power sale and fuel supply agreements, the use of proceeds from the issuance of the Securities and the execution of mergers, consolidations and sales of assets.
The trust indenture allows the Partnerships to enter into revolving credit agreements of up to $20 million in order to provide for working capital requirements. The Partnerships have entered into an initial working capital facility of $15 million with a bank. Available borrowings under the working capital facility are calculated based on outstanding receivables and fuel inventories. The Partnerships are required to pay an annual agency fee of $25,000 and quarterly commitment fees at an annual rate of .25% on the unused portion of the facility. At December 31, 1996 and 1997, no borrowings were outstanding under this working capital facility. Subsequent to the acquisition on January 14, 1998 of all of the partner interests in the Partnerships, this working capital facility was terminated (Note 10).
Under the terms of the original loan and credit agreement, the Partnerships were required to enter into interest rate swap agreements ("Swaps") with certain financial institutions, providing for payments thereunder on a notional principal amount of indebtedness to be made by the Partnerships at fixed interest rates in exchange for payments to be made by such financial institutions at floating interest rates. Such existing Swaps remained in effect after the issuance of the Securities. In connection with the issuance of the Securities, the Partnerships entered into counter swap agreements in order to hedge the obligations of the Partnerships under such existing Swaps. As a result of the foregoing arrangements, after giving effect to the net payments to be made and received by the Partnerships pursuant to all of the Swaps, the Partnerships' net payments pursuant to the Swaps were equivalent to a fixed net interest rate of approximately 1.35% on the original specified notional principal amount, which was scheduled to decline periodically until the scheduled expiration of the Swaps in 1999. The Partnerships are jointly and severally liable under these agreements.
The Partnerships' exposure to interest rate fluctuations could increase in the event of nonperformance by the bank who is party to the interest rate swap agreements; however, the Partnerships do not anticipate nonperformance by the bank. See Note 9 for additional information regarding interest rate swap agreements.
As a result of the refinancing described above, the original Swaps no longer qualify as hedges and, therefore, must be recorded at fair value. Changes in fair value are recognized in the combined statement of operations. See Note 9 for information regarding fair value of financial instruments.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
6. Commitments and Contingencies
See Note 4 for information regarding additional commitments and contingencies.
Energy Bank Collateral Under the terms of the trust indenture, the Partnerships are required to maintain a letter of credit facility to secure obligations for energy bank balances under the various power purchase agreements (Note 4). During December 1994, the Partnerships entered into an agreement with a bank for a letter of credit facility to issue up to an aggregate amount of $82 million in letters of credit. This facility contains a cross-default provision to the trust indenture, as well as a payment default under the working capital facility (Note 5). The Partnerships pay quarterly fees on this letter of credit facility at an annual rate of .30% on outstanding letters of credit and unused commitments to issue letters of credit. As of December 31, 1996 and 1997, the Partnerships' obligation for letters of credit outstanding under this facility is $68,656,000 and $67,656,000, respectively. The Partnerships are required to provide cash collateral for the maximum amount of obligations allowed under the terms of this facility. As of December 31, 1996 and 1997, the Partnerships reserved $69,156,000 in cash as collateral for such obligations (Note 3). Subsequent to the acquisition on January 14, 1998 of all of the partner interests in the Partnerships, the cash collateral requirement was terminated in exchange for the guarantee of one of the acquiring entities; also, the letters of credit facility was replaced with letters of credit from other financial institutions (Note 10).
Operation and Maintenance of the Cogeneration Facilities In 1989, the Partnerships entered into two separate ten year operation and maintenance agreements with the same contractor responsible for constructing and installing the combined-cycle cogeneration plants for both facilities for an aggregate annual consideration of approximately $11,100,000 subject to changes in specified indices. The agreements commenced during 1991 after the facilities became operational. The Partnerships each have an option to enter into a successor operation and maintenance agreement with the contractor for a ten year term following the expiration of the term of the original agreement, on either a cost plus payment basis or a fixed fee payment basis to be negotiated at the time of the operation exercise.
Under the terms of these agreements, the Partnerships are required to pay the operation and maintenance contractor a bonus payable annually over the term of the agreement, based on operating performance for each year ending on the anniversary of the respective commencement of operations (September 1, 1991 for NJEA and October 1, 1991 for NEA). The Partnerships incurred $5,375,000, $3,482,000 and $5,823,000 related to this bonus in 1995, 1996 and 1997, respectively.
During 1993, the Partnerships entered into a revised ten year heat rate bonus agreement with the operation and maintenance contractor. Under the terms of this agreement, the total bonus to be earned over the ten year period is $11 million, subject to the continued satisfaction of specified minimum performance standards. The agreement provides that this amount will be paid to the contractor over the first five years of the agreement. The agreement also provides that amounts paid under the former heat rate bonus agreement during 1992 would be applied as payments under the revised agreement. Total payments made under this agreement were $1,854,000 in each of 1995, 1996 and 1997. Amounts expensed under this heat rate bonus agreement were $1,060,000 in each of 1995, 1996 and 1997.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
Operating Lease Lease payments under the operating lease for the land in Bellingham, Massachusetts (Note 4) are as follows:
Year ending December 31, 1998 $ 189,000 1999 201,000 2000 213,000 2001 225,000 2002 237,000 Thereafter 2,760,000 ---------- $3,825,000 ==========
During 1995, 1996 and 1997, NEA paid and expensed $153,000, $165,000 and $177,000, respectively, under this agreement.
7. Employee Savings Plan
Effective January 1, 1991, the general partner (IEC) adopted a defined contribution employee savings plan qualifying under Section 401(k) of the Internal Revenue Code. Pursuant to the plan, the general partner fully matches contributions made by eligible employees to the plan up to 5% of an employee's base compensation. Contributions made by the general partner become fully vested after four years of continuous service. In addition, employees may contribute up to an additional 5% of base compensation which is not matched by the general partner. During 1995, 1996 and 1997, the Partnerships were charged $78,000, $90,000 and $156,000, respectively, for their shares of contributions made by the general partner to this plan (Note 8).
8. Other Related Party Transactions
Subsequent to the commencement of operations of the Partnerships, the general partner began to pay certain expenses as a convenience for the Partnerships. These expenses are reimbursed to the general partner at cost. The following represents the activity between the Partnerships and the general partner for the years ended December 31, 1995, 1996 and 1997:
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - --------------------------------------------------------------------------------
9. Financial Instruments
The Partnerships have made use of derivative financial instruments to hedge their exposure to fluctuations in both interest rates and the purchase price of natural gas.
Under the project loan and credit agreement, the Partnerships were required to enter into fixed interest rate swap agreements as a means of managing exposure to the variable rate interest of the original Partnerships borrowings. In conjunction with the refinancing, the Partnerships entered into counter swap agreements so that the Partnerships would no longer be exposed to changes in interest rates (Note 5).
The prices received by the Partnerships for power sales under their long-term sales contracts do not move precisely in tandem with the prices paid by the Partnerships for natural gas. In order to mitigate the price risk associated with purchases of natural gas, the Partnerships may, from time to time, enter into certain hedging transactions either through public exchanges such as the NYMEX, or by means of over-the-counter transactions with specific counterparties. The Partnerships hedge purchases of natural gas through the use of (a) natural gas call options that give the Partnerships the right, but not the obligation, to purchase specified quantities of natural gas at a pre-determined price; (b) natural gas purchase swap agreements that require the Partnerships to pay a price, fixed absolutely or within a specified range, in return for a variable price on a notional specified quantity of natural gas; and (c) forward purchases of natural gas.
The Partnerships control the credit risk arising from these instruments through credit approvals, limits and monitoring procedures. There are no significant concentrations of credit risk. The Partnerships do not normally require collateral or other security to support financial instruments with credit risks.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
The following table sets forth the contract or notional amounts of these financial instruments. While indicating the size of the transaction entered into, the amounts do not represent the Partnerships' exposure to loss in the event of nonperformance by the counterparties involved. The Partnerships do not anticipate nonperformance by the counterparties.
The net effect on interest expense due to the interest rate swap agreements and the net gain/(loss) included in cost of power and steam sales resulting from the gas purchase options, swap agreements and forward purchases is as follows:
The estimated fair value and related carrying amounts of certain financial instruments is as follows:
The estimated fair values may not be representative of actual values of the financial instruments that could have been realized as of year end or that will be realized in the future.
Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership Notes to Combined Financial Statements - -------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair values of certain instruments:
Loans payable - The fair value of loans payable at December 31, 1996 was estimated by an independent third party valuation based on the fixed nature of the loans, the credit risk associated with such loans and the current borrowing environment available to the Partnerships. The estimated fair value of the loans payable at December 31, 1997 has been determined based upon the borrowing rate (8%) currently available to the Partnerships for debt instruments with similar terms and average maturities.
Restricted cash - The fair value of restricted cash is estimated based upon the fixed yield and term of the investment and rates currently available to the Partnerships for deposits of similar maturities.
Interest rate swap agreements - The fair value of interest rate swap agreements is the estimated amount that the banks would receive to terminate the swap agreements, taking into account current interest rates and the creditworthiness of the swap counterparties.
Natural gas hedging instruments - The fair value of natural gas hedging instruments is based upon the amounts the Partnerships would be entitled to receive or required to pay if the contracts were terminated at the reporting date, taking into account the forward prices of natural gas on the reporting date, the fixed purchase prices of the contracts and the exercise dates of the contracts.
10. Subsequent Events
On January 14, 1998, pursuant to the purchase agreement dated as of November 21, 1997, all of the partner interests in the Partnerships were acquired by Tractebel, S.A. and FPL Group, Inc., through their wholly owned subsidiaries, for approximately $533 million in cash and the assumption of the Partnerships' outstanding debt. The acquisition will be accounted for under the purchase method; accordingly, the carrying value of the assets acquired and liabilities assumed of the Partnerships will be adjusted based upon the final purchase price allocation. Concurrent with and related to the acquisition of the Partnerships, IEC Funding Corp. was also acquired and its name changed to ESI Tractebel Funding Corp. Subsequent to the acquisition, the working capital facility was terminated and the letters of credit facility and the Debt Service Reserve Fund were replaced with new letter of credit arrangements (Notes 5 and 6) and the cash collateral requirement related to the energy bank balances was eliminated in exchange for the guarantee of one of the acquiring entities (Note 6).
Report of Independent Accountants
To the Stockholders of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.)
In our opinion, the accompanying balance sheet and the related statements of operations and of cash flows present fairly, in all material respects, the financial position of ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) (the Company) at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts March 24, 1998
ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Balance Sheet - -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Statement of Operations - -------------------------------------------------------------------------------
For the year ended December 31, ------------------------------------------------- 1995 1996 1997 ---- ---- ---- (In thousands)
Interest income $ 51,084 $ 49,404 $ 47,303
Interest expense (51,084) (49,404) (47,303) ------------ --------------- --------------
Net income $ -- $ -- $ -- ------------ --------------- --------------
The accompanying notes are an integral part of these financial statements.
ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Statement of Cash Flows - -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Notes to Financial Statements - -------------------------------------------------------------------------------
1. Nature of Business
IEC Funding Corp. (the "Company") is a Delaware corporation that was established as a special purpose funding corporation for the purpose of issuing the Securities described in Note 3. A majority of the common stock of the Company is owned by the partners of Northeast Energy Associates, a Limited Partnership, and North Jersey Energy Associates, a Limited Partnership (the "Partnerships"). The Company acts as agent of the Partnerships with respect to the Securities and holds itself out as the agent of the Partnerships in all dealings with third parties relating to the Securities.
Subsequent to the acquisition discussed in Note 4, the Company changed its name to ESI Tractebel Funding Corp.
The enactment in 1978 of the Public Utility Regulatory Policies Act ("PURPA") and the adoption of the regulations thereunder by the Federal Energy Regulatory Commission ("FERC") provided incentives for the development of power production facilities, such as cogeneration, by requiring electric utilities to purchase power generated by qualifying facilities.
The Partnerships were organized in 1986 to develop, finance, construct, own, manage and operate two 300 megawatt gas-fueled cogeneration facilities, one in Bellingham, Massachusetts and one in Sayreville, New Jersey. During 1986, the Partnerships were granted permission by FERC to operate the proposed cogeneration facilities as qualifying facilities defined in PURPA and as defined in federal regulations.
2. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. Placement of Securities
On December 1, 1994, the Company executed a placement of securities to qualified institutional investors as defined in Rule 144A of the Securities Act of 1933 ("Rule 144A"). Borrowings outstanding are as follows:
ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Notes to Financial Statements - -------------------------------------------------------------------------------
Effective February 10, 1995, the Company filed a Registration Statement on Form S-4 with the Securities and Exchange Commission for purposes of effecting a public exchange offer whereby the securities listed above were exchanged for a new issue of securities (the "Securities"). The Securities have terms identical to the securities issued in accordance with Rule 144A.
Interest on the above securities is payable semiannually on each June 30 and December 30, commencing December 30, 1994. Principal repayments are made semiannually commencing on June 30, 1995 and are in amounts stipulated in the trust indenture. Future principal payments are as follows:
1998 $ 21,563,000 1999 23,511,000 2000 26,333,000 2001 20,160,000 2002 22,688,000 Thereafter 376,032,000 ------------- $ 490,287,000 =============
The Securities are not subject to optional redemption but are subject to mandatory redemption in certain limited circumstances involving the occurrence of an event of loss, as defined in the trust indenture, for which the Partnerships fail to or are unable to restore a facility. Additionally, the Partnerships may, at their option, repurchase all or part of the Securities with proceeds received from the release of cash collateral maintained as security for letters of credit.
The proceeds of the Securities were used (a) to purchase the notes outstanding under the loan and credit agreement of the Partnerships and (b) to make loans to the Partnerships. In connection with these two transactions, the notes outstanding under the loan and credit agreement of the Partnerships were surrendered and new notes of the Partnerships were issued to the Company in an aggregate principal amount equal to the aggregate principal amount of the Securities (the "New Notes") and the loan and credit agreement of the Partnerships was assigned to the Company and amended and restated (the "Amended and Restated Credit Agreement").
The Securities are unconditionally guaranteed, jointly and severally, by the Partnerships and are secured by a lien on, and a security interest in, substantially all of the assets of the Partnerships. Under the Amended and Restated Credit Agreement, the Partnerships are jointly and severally required to make scheduled payments on the New Notes on dates and in amounts identical to the scheduled payments of principal and interest on the Securities. The Securities, the guarantees thereon provided by the Partnerships and the New Notes are nonrecourse to the partners of the Partnerships and are payable solely from the collateral pledged as security.
The trust indenture governing the Securities contains certain restrictions on certain activities of the Partnerships, including the incurrence of additional indebtedness or liens, the payment of distributions to the partners, the cancellation of power sale and fuel supply agreements, the use of proceeds from the issuance of the Securities and the execution of mergers, consolidations and sales of assets.
ESI Tractebel Funding Corp. (formerly IEC Funding Corp.) Notes to Financial Statements - -------------------------------------------------------------------------------
The fair value of the Securities and the notes receivable from the Partnerships at December 31, 1997 is estimated to be $526,010,000. The fair value of the Securities and the notes receivable from the Partnerships at December 31, 1996 was estimated to be $564,075,000. The fair value of the Securities and the notes receivable has been estimated based on the fixed nature of the Securities and the notes receivable, the credit risk associated with the Securities and the notes receivable, and the current borrowing environment available to the Company.
4. Subsequent Events
On January 14, 1998, pursuant to the purchase agreement dated as of November 21, 1997, all of the partner interests in the Partnerships were acquired by Tractebel, S.A. and FPL Group, Inc. through their wholly owned subsidiaries, for approximately $533 million in cash and the assumption of the Partnerships' outstanding debt. The acquisition will be accounted for under the purchase method; accordingly, the carrying value of the assets acquired and liabilities assumed of the Partnerships will be adjusted based upon the final purchase price allocation. Concurrent with and related to the acquisition of the Partnerships, IEC Funding Corp. was also acquired and its name changed to ESI Tractebel Funding Corp. Subsequent to the acquisition, the working capital facility was terminated and the letters of credit facility and the Debt Service Reserve Fund were replaced with new letter of credit arrangements and the cash collateral requirement related to the energy bank balances was eliminated in exchange for the guarantee of one of the acquiring entities.
The financial statements of the Partnerships are included on pages through.