================================================================= PG&E NATIONAL BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2003 (ISSN XXXX-XXXX) July 9, 2003 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- PG&E NATIONAL BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Martin Perry Juan, Frauline Sinson-Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of PG&E NATIONAL BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO PG&E NATIONAL BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF PG&E NATIONAL & AFFILIATES [00002] BACKGROUND & DESCRIPTION OF USGEN NEW ENGLAND, INC. [00003] DEBTORS' CONSOLIDATED BALANCE SHEET AT MARCH 31, 2003 [00004] COMPANY'S PRESS RELEASE CONCERNING THE CHAPTER 11 FILINGS [00005] PG&E CORP.'S STATEMENT ABOUT THE CHAPTER 11 FILINGS [00006] PG&E NATIONAL CHAPTER 11 DATABASE [00007] LIST OF PG&E NATIONAL'S 30-LARGEST UNSECURED CREDITORS [00008] USGEN NEW ENGLAND, INC., CHAPTER 11 DATABASE [00009] LIST OF USGEN'S 20-LARGEST UNSECURED CREDITORS [00010] NEG'S MOTION TO RESTRICT TRADING IN DEBT SECURITIES [00011] USGEN'S MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS KEY DATE CALENDAR ----------------- 07/08/03 PG&E National Petition Date 07/08/03 USGen New England Petition Date 07/__/03 Organizational Meeting with UST to form Committees 07/23/03 Deadline for filing Schedules of Assets and Liabilities 07/23/03 Deadline for filing Statement of Financial Affairs 07/23/03 Deadline for filing Lists of Leases and Contracts 07/28/03 Deadline to provide Utilities with adequate assurance 08/11/03 First Meeting of NEG's Creditors under 11 USC Sec. 341 08/11/03 First Meeting of USGen's Creditors under 11 USC Sec. 341 09/06/03 NEG's Deadline to make lease disposition decisions 09/06/03 USGen's Deadline to make lease disposition decisions 10/06/03 NEG's Deadline to remove actions under F.R.B.P. 9027 10/06/03 USGen's Deadline to remove actions under F.R.B.P. 9027 11/05/03 Expiration of NEG's Exclusive Plan Proposal Period 11/05/03 Expiration of USGen's Exclusive Plan Proposal Period 01/04/04 Expiration of NEG's Exclusive Solicitation Period 01/04/04 Expiration of USGen's Exclusive Solicitation Period 07/08/05 Deadline for NEG to Commence any Avoidance Actions 07/08/05 Deadline for USGen to Commence any Avoidance Actions Bar Date for filing Proofs of Claim REFERENCE NOTES --------------- "PG&E National" or "NEG" refers to PG&E National Energy Group, Inc., and its 5 energy trading debtor affiliates. The six PG&E National bankruptcy cases are jointly administered under Bankruptcy Case No. 03-30459, and these debtors are represented by Willkie Farr & Gallagher. "USGen" refers to USGen New England, Inc., Bankruptcy Case No. 03-30464, represented by lawyers at Blank Rome LLP. "PG&E Corp." refers to the ultimate publicly traded parent company (NYSE: PCG), which has not filed for chapter 11 protection. "Pacific Gas & Electric Company" or "Pacific Gas" refers to the utility company reorganizing under chapter 11 before the U.S. Bankruptcy Court for the Northern District of California. Judge Montali presides over that proceeding in San Francisco. PACIFIC GAS BANKRUPTCY NEWS provides gavel-to-gavel coverage of that complex restructuring. ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO PG&E NATIONAL BANKRUPTCY NEWS ----------------------------------------------------------------- PG&E NATIONAL BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of PG&E NATIONAL BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) PG&E NATIONAL BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtor's case. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of PG&E NATIONAL BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF PG&E NATIONAL & AFFILIATES ----------------------------------------------------------------- PG&E National Energy Group, Inc. 7500 Old Georgetown Road Bethesda, Maryland 20814 Telephone (301) 280-6800 http://www.pge-corp.com/ http://www.neg.pge.com/index.html PG&E National Energy Group Inc., an integrated energy company and is a wholly owned subsidiary of PG&E Corporation. In late-1998, PG&E Corporation contributed various subsidiaries to PG&E NEG. PG&E NEG's principal subsidiaries include: * PG&E Generating Company, LLC and its subsidiaries; * PG&E Energy Trading Holdings Corporation and its subsidiaries; and * PG&E Gas Transmission Corporation and its subsidiaries (which includes PG&E Gas Transmission, Northwest Corporation and its subsidiaries, including North Baja Pipeline, LLC). There are two sides to PG&E NEG's business: (A) Power Generation PG&E NEG engages in the generation of electricity in the continental United States. As of December 31, 2002, PG&E NEG owned or leased interests in 16 operating generating facilities with a net generating capacity of 1,476 megawatts (MW): Megawatts Generating Facility Total Interest Structure Fuel ------------------- ----- -------- --------- ---- New England Region ------------------ MASSPOWER -- Massachusetts 267 35 Owned Natural Gas Pittsfield, Massachusetts 173 154 Leased Natural Gas ----- ----- Subtotal 440 189 Mid-Atlantic and New York Region -------------------------------- Selkirk, New York 345 145 Owned Natural Gas Carneys Point, New Jersey 245 123 Owned Coal Logan, New Jersey 225 113 Owned Coal Northampton, Pennsylvania 110 55 Owned Waste Coal Panther Creek, Pennsylvania 80 44 Owned Waste Coal Scrubgrass, Pennsylvania 87 44 Owned Waste Coal Madison, New York 12 12 Owned Wind ----- ----- Subtotal 1,104 536 Midwest Region -------------- Ohio Peakers, Ohio 149 149 Owned Natural Gas Southern Region --------------- Indiantown, Florida 330 116 Owned Coal Cedar Bay, Florida 258 165 Owned Coal ----- ----- Subtotal 588 281 Western Region -------------- Hermiston, Oregon 474 119 Owned Natural Gas Colstrip, Montana 40 7 Owned Waste Coal San Diego Peakers, California 84 84 Owned Natural Gas Plains End, Colorado 111 111 Owned Natural Gas ----- ----- Subtotal 709 321 ----- ----- Total 2,990 1,476 ===== ===== PG&E NEG provides operating or management services (and sometimes both) for 14 of these 16 owned and leased generating facilities. Plant operations are focused on maximizing power generation ability during peak energy price hours, improving operating efficiencies and minimizing operating costs while placing a heavy emphasis on safety standards, environmental compliance and plant flexibility. (B) Natural Gas Transmission Business In its Pipeline Business segment, PG&E NEG owns, operates and develops three major natural gas pipeline facilities: (1) GTN Pipeline System -- 100% owned 1,356-mile pipeline -- 2,900 MMcf/d capacity, running at 91% capacity -- Located in Idaho, Oregon & Washington GTN consists of over 1,350 miles of natural gas transmission pipeline in the Pacific Northwest with a capacity of approximately 2.9 billion cubic feet of natural gas per day. GTN begins at the British Columbia-Idaho border, extends for approximately 612 miles through northern Idaho, southeastern Washington and central Oregon, and ends at the Oregon-California border, where it connects with other pipelines. GTN, which is the largest transporter of Canadian natural gas into the United States, commenced commercial operations in 1961 and has subsequently been expanded various times through 2002. The mainline system of GTN is composed of two parallel pipelines (along with 21 miles of a third parallel line) with 13 compressor stations totaling approximately 513,400 horsepower and ancillary facilities which include metering and regulating facilities and a communication system. GTN's mainline system has approximately 639 miles of 36-inch diameter gas transmission lines (612 miles of 36-inch diameter pipe and 27 miles of 36-inch diameter pipeline looping) and approximately 611 miles of 42-inch diameter pipe. The GTN system also includes two laterals off of its mainline system, the Coyote Springs Extension, which supplies natural gas to an electric generation facility owned by Portland General Electric Company and other customers, and the Medford Extension, which supplies natural gas to Avista Utilities and PacifiCorp Power Marketing. The Coyote Springs Extension is composed of approximately 18 miles of 12-inch diameter pipe, originating at a point on the GTN mainline system approximately 27 miles south of Stanfield, Oregon and connecting to Portland General Electric's electric generation facility near Boardman, Oregon. The Medford Extension consists of approximately 22 miles of 16-inch diameter pipe and 66 miles of 12-inch diameter pipe and extends from a point on the GTN mainline system near Bonanza, in Southern Oregon, to interconnection points with Avista Utilities at Klamath Falls and Medford, Oregon. The GTN system facilities interconnect with facilities owned by TransCanada PipeLines Ltd.'s B.C. System (TransCanada) and facilities owned by Foothills Pipe Lines South B.C. Ltd. (Foothills South B.C.) near the Idaho-British Columbia border. The GTN pipeline facilities also interconnect with facilities owned by Pacific Gas and Electric Company (or the Utility), at the Oregon-California border, with facilities owned by Northwest Pipeline Corporation (Northwest Pipeline) in Northern Oregon and in Eastern Washington, and with facilities owned by Tuscarora Gas Transmission Company (Tuscarora) in Southern Oregon. PG&E GTN also delivers gas along various mainline delivery points to two local gas distribution companies. TransCanada and Foothills South B.C. -- The GTN pipeline facilities interconnect with the facilities of TransCanada and Foothills South B.C. near Kingsgate, British Columbia. Through the TransCanada and Foothills South B.C. systems, GTN customers have access to natural gas from the Western Canadian Sedimentary Basin. TransCanada's Alberta System delivers gas from production areas to provincial gas distribution utilities and to all provincial export points, including the interconnect at the Alberta-British Columbia border to TransCanada's B.C. System and Foothills South B.C. for delivery south into GTN's system at the British Columbia-Idaho border. TransCanada and Foothills South B.C.'s transportation services are regulated by the National Energy Board of Canada. Northwest Pipeline Corporation -- GTN's pipeline facilities interconnect with the facilities of Northwest Pipeline near Spokane and Palouse, Washington and near Stanfield and Klamath Falls, Oregon. Northwest Pipeline is an interstate natural gas pipeline which both delivers gas to and receives gas from PG&E GTN and competes with GTN for transportation of natural gas into the Pacific Northwest and California. Northwest Pipeline's gas transportation services are regulated by the FERC. Tuscarora Gas Transmission Company -- The GTN pipeline facilities interconnect with the facilities of Tuscarora near Malin, Oregon. Tuscarora is an interstate natural gas pipeline that transports natural gas from this interconnection to the Reno, Nevada area. Tuscarora's gas transportation services are regulated by the FERC. Pacific Gas and Electric Company -- The GTN pipeline interconnects with the Pacific Gas and Electric Company's (Utility) gas transmission pipeline system at the Oregon- California border. The Utility's pipeline facilities deliver natural gas to customers in Northern and Central California and interconnect with other pipeline facilities near the California- Arizona border. The Utility's gas transmission system is currently regulated by the California Public Utilities Commission. In April 2001, the Utility commenced a case under Chapter 11 of the U.S. Bankruptcy Code. As part of the Utility's proposed plan of reorganization, in November 2001, the Utility filed an application with the FERC requesting authorization to operate these facilities as a federally-regulated interstate pipeline system. In conjunction with that application, GTN filed an application with the FERC for authorization to abandon by sale to the Utility approximately 2.66 miles of 42-inch and 36-inch mainline pipe from the southernmost meter station in Oregon to the California border. The transaction implementing this abandonment closed into escrow as of November 14, 2002, pending receipt of satisfactory authorizations from FERC and the bankruptcy court. (2) North Baja Pipeline -- 100% owned 80-mile pipeline -- 500 MMcf/d capacity, running at N/A capacity -- Located in Arizona & California The North Baja Pipeline system consists of approximately 80 miles of natural gas transmission pipeline in the desert southwest with a capacity of approximately 512 MDth of natural gas per day. The NBP system originates near Ehrenberg, in western Arizona, and traverses southern California to a point on the Baja California, Mexico - California border. The NBP system began limited commercial operation in September 2002 and includes a single compressor station at Ehrenberg, which has approximately 28,800 certificated horsepower and ancillary facilities including metering and regulating facilities and a communication system. The NBP mainline system consists of approximately 12 miles of 36- inch diameter gas transmission line and 68 miles of 30-inch diameter pipe. The NBP system connects with other pipelines near Ehrenberg, Arizona and at the Baja California, Mexico - California border. El Paso Natural Gas (EPNG) -- NBP pipeline facilities interconnect with the facilities of EPNG near Ehrenberg, Arizona. EPNG is an interstate natural gas pipeline, with a pipeline network throughout west Texas, New Mexico and Arizona, that serves customers and other pipelines, including NBP, within those states. Through EPNG, NBP customers have access to gas primarily from the Permian and San Juan basins of Texas, New Mexico and Colorado. EPNG's transportation services are regulated by the FERC. Gasoducto Bajanorte (GB) -- NBP pipeline facilities interconnect with the facilities of GB at the Baja California, Mexico - California border near Ogilby, California. GB is the pipeline that receives gas from NPB for the purpose of delivering the gas to customers located in the northern portion of Baja California, Mexico. GB's transportation services are regulated by the Comision Reguladora de Energia, Mexico, a regulatory agency in Mexico with responsibilities similar to those of FERC as they relate to natural gas pipelines. (3) Iroquois Pipeline -- 5.2% owned 375-mile pipeline -- 850 MMcf/d capacity, running at 88% capacity -- Located in New York & Connecticut PG&E NEG owns a 5.2% interest in the Iroquois Gas Transmission System, an interstate pipeline which extends 375 miles from the U.S.-Canadian border in northern New York through the State of Connecticut to Long Island, New York. This pipeline, which commenced operations in 1991, provides gas transportation service to local gas distribution companies, electric utilities and electric power generators, directly or indirectly through exchanges and interconnecting pipelines, throughout the Northeast. The Iroquois pipeline is owned by a partnership of six U.S. and Canadian energy companies, including affiliates of TransCanada Pipeline, Dominion Resources and Keyspan Energy. Iroquois has executed firm multi-year transportation services agreements totaling more than 1,000 MMcf per day. This pipeline also provides interruptible transportation services on an as available basis. On December 26, 2001, the FERC issued a Certificate of Public Convenience and Necessity authorizing Iroquois to expand its capacity by 220 MMcf per day of natural gas and extend the pipeline into the Bronx borough of New York City for a total investment of approximately $210 million. Iroquois also filed three additional applications with the FERC to expand its system capacity, and to extend the pipeline into Eastern Long Island. The Road Into and Out of Chapter 11 As result of the sustained downturn in the power industry, PG&E NEG and its affiliates have experienced a financial downturn which caused the major credit rating agencies to downgrade PG&E NEG's and its affiliates' credit ratings to below investment grade. PG&E NEG is currently in default under various recourse debt agreements and guaranteed equity commitments totaling approximately $2.9 billion. In addition, other PG&E NEG subsidiaries are in default under various debt agreements totaling approximately $2.5 billion, but this debt is nonrecourse to PG&E NEG. PG&E NEG, its subsidiaries and their lenders have held restructuring talks for months. Those talks have culminated in a pre-negotiated chapter 11 restructuring. PG&E National delivered a skeletal Plan of Reorganization to the Bankruptcy Court in Maryland with its bankruptcy petition. That Plan (but no Disclosure Statement providing insight into the economics of the proposed deal) is built around six key concepts: * Continuation of Operations -- The reorganized company will retain and continue to operate PG&E NEG's power generation and pipeline businesses (although certain assets may be sold or otherwise disposed of) and will complete the wind-down of its energy trading business. * Separation from PG&E Corporation -- On the Effective Date of the Plan, PG&E Corp.'s equity interests are cancelled. PG&E NEG will no longer be an affiliate of PG&E Corporation or Pacific Gas and Electric Company. * Distribution of Excess Cash -- The Plan provides for PG&E NEG to distribute excess cash (beyond what PG&E NEG reasonably needs for its going-forward working capital needs) as of the Plan's effective date to creditors. * Issuance of New Debt Securities -- PG&E NEG will issue two classes of debt securities (identified in the plan as New Tranche A Notes and New Tranche B Notes), which will be secured by substantially all of PG&E NEG's assets. * Issuance of New Common Stock -- Each holder of an Allowed Unsecured Claim will receive its pro rata share of 100% of PG&E NEG's outstanding New Common Stock as of the plan's effective date. * Potential Claims Against PG&E Corporation -- Under the reorganization plan, any claims that PG&E NEG may have against PG&E Corporation would not be released under the reorganization plan and would be retained by Reorganized PG&E NEG. A free copy of the skeletal plan is available at no charge at: http://bankrupt.com/misc/NEGPLAN.pdf ----------------------------------------------------------------- [00002] BACKGROUND & DESCRIPTION OF USGEN NEW ENGLAND, INC. ----------------------------------------------------------------- USGen New England, Inc., was incorporated on August 1, 1997 for the purpose of acquiring and operating the non-nuclear generating business of New England Electric System. USGen is an indirect, wholly-owned subsidiary of PG&E National Energy Group, Inc. USGen is in the business of owning and operating electric generating facilities in New England and buying and selling electricity and other energy-related products at wholesale. All of these Facilities are located and all of USGen's significant sales take place in New England. USGen's Generating Facilities USGen owns three Facilities: * Brayton Point Station, * Salem Harbor Station and * Manchester Street Station that use coal, oil or natural gas for fuel. USGen also owns two hydroelectric systems: * Connecticut River System and * Deerfield River System as well as the Bear Swamp pumped-storage facility. Significant Financial Obligations USGen originally financed the approximately $1.6 billion cost of the Acquisition through a combination of approximately $1.1 billion in equity from its parents and the remainder in bank debt. Currently, USGen's bank debt is an unsecured $100 million working capital and revolving credit facility with JPMorgan Chase Bank, as agent, and other banks, which matures on August 30, 2003. As of June 30, 2003, USGen owed roughly $75 million and the facility backs $13 million in outstanding letters of credit. Shortly after the Acquisition, USGen sold its Bear Swamp Facility for $479 million and then leased the Facility back from its owners on a long-term basis. Proceeds from the sale were used to reduce the bank debt and for other general corporate purposes. USGen is obligated to pay in excess of $425 million for the remaining term of the Bear Swamp lease. On July 2, 2003, USGen didn't make the $16 million payment due under the Bear Swamp lease. At the time of the Acquisition, USGen assumed from NEES several gas transportation agreements, coal transportation arrangements and certain arrangements to transport electric power from Canada into New England. Under these Commodities Transportation Arrangements, USGen is obligated to pay certain fixed costs related to the respective commodity transportation services, regardless of the Debtor's need for such services. Many of the Commodities Transportation Arrangements have above-market costs. Also, at the time of the Acquisition, USGen entered into contracts to supply wholesale standard offer service (the "SOAs") with certain subsidiaries of NEES. USGen sells power under the SOAs at contractually-established rates to the extent that a portion of the purchasers' retail customers purchase standard offer service electricity from them. In order to guarantee certain minimum revenues under the SOA's fuel adjustment provisions, USGen entered into forward contracts with its affiliate, PG&E Energy Trading - Power, L.P. ("PGET"). As market prices for energy and fuel commodities have continued to rise, USGen relates, the hedges have resulted in significant amounts being owed by the Debtor to PGET. As part of the Acquisition, USGen also acquired the rights and obligations of New England Power Company ("NEP") to purchase power at contractually established rates under various power purchase agreements between NEP and various independent power producers (the "PPAs"). In addition to the power it purchases under the arrangements with NEP, USGen also purchases power directly from several other independent power producers -- again at contractually established rates. Virtually all of the PPAs, including those involving NEP, have above-market costs. Reasons for Chapter 11 Filing USGen explains that its decision to seek relief under chapter 11 of the Bankruptcy Code is due to a confluence of factors. * First, the Company's indirect parent, NEG, is in acute financial difficulty and has itself filed for relief under chapter 11 of the Bankruptcy Code. * Second, USGen's financial condition has deteriorated as a result of a host of factors. In particular, (i) USGen must repay the approximately $88 million expected to come due under the Credit Facility at the end of August, 2003, (ii) USGen has had to use substantial working capital to prepay its fuel requirements as a result of its deteriorating credit situation, (iii) USGen must make increasing payments under the Bear Swamp lease (increases to over $45 million per year in 2004), (iv) USGen's largest sales contract and revenue source will expire at the end of 2004, exposing it to market volatility at a time when supply is expected to exceed demand, potentially resulting in depressed prices, (v) USGen must continue to pay the above-market costs related to the PPAs and the Commodity Transportation Arrangements, and (vi) USGen owes significant sums to PGET under the SOA hedges. * Third, USGen may be required to make substantial capital investments at its Brayton Point and Salem Harbor Facilities in order to meet new environmental requirements imposed by the federal and state governments with respect to air emissions and water discharges. These investments could exceed $400 million over the next three years. Given its existing obligations, its financial condition, and the financial condition of NEG, USGen does not have access to the capital needed to make these investments. If the requisite capital investments are not made, it may be necessary to cease operating these Facilities. Ultimately, USGen determined that the restructuring of its obligations could best be achieved through a chapter 11 filing. ----------------------------------------------------------------- [00003] DEBTORS' CONSOLIDATED BALANCE SHEET AT MARCH 31, 2003 ----------------------------------------------------------------- PG&E NATIONAL ENERGY GROUP, INC. CONSOLIDATED BALANCE SHEETS At March 31, 2003 Unaudited ASSETS Current Assets Cash and cash equivalents $513,000,000 Restricted cash 246,000,000 Accounts receivable: Trade (net of allowance for uncollectibles of $46,000,000) 778,000,000 Related parties 20,000,000 Other receivables 18,000,000 Inventory 35,000,000 Credit collateral deposits 249,000,000 Price risk management 717,000,000 Prepaid expenses and other 89,000,000 Assets held for sale 266,000,000 -------------- Total current assets 2,931,000,000 -------------- Property, Plant and Equipment Electric generating facilities 940,000,000 Gas transmission assets 1,778,000,000 Land 57,000,000 Other 169,000,000 Construction work in progress 823,000,000 -------------- Total property, plant and equipment 3,767,000,000 Accumulated depreciation (726,000,000) -------------- Net property, plant and equipment 3,041,000,000 -------------- Other Noncurrent Assets Investments in unconsolidated affiliates 414,000,000 Intangible assets, net of accumulated amortization of $22,000,000 35,000,000 Deferred financing costs, net of $103,000,000 accumulated amortization 69,000,000 Price risk management 264,000,000 Other 49,000,000 Assets held for sale 810,000,000 -------------- Total other noncurrent assets 1,641,000,000 -------------- TOTAL ASSETS $7,613,000,000 ============== LIABILITIES & COMMON STOCKHOLDERS' DEFICIT Current Liabilities Debt in default $4,373,000,000 Long-term debt, classified as current 10,000,000 Accounts payable: Trade 857,000,000 Related parties 49,000,000 Accrued expenses 361,000,000 Price risk management 642,000,000 Other 22,000,000 Liabilities held for sale 353,000,000 -------------- Total current liabilities 6,667,000,000 -------------- Noncurrent Liabilities Long-term debt 865,000,000 Price risk management 259,000,000 Long-term advances from PG&E Corporation 327,000,000 Other noncurrent liabilities and deferred credit 107,000,000 Liabilities held for sale 758,000,000 -------------- Total noncurrent liabilities 2,316,000,000 -------------- Minority Interest 21,000,000 Preferred Stock of Subsidiary 58,000,000 Common Stockholders' Deficit Common stock, $1.00 par value -- 1,000 shares issued and outstanding --- Paid-in capital 3,086,000,000 Accumulated deficit (4,402,000,000) Accumulated other comprehensive loss (133,000,000) -------------- Total common stockholders' deficit (1,449,000,000) -------------- TOTAL LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT $7,613,000,000 ============== ----------------------------------------------------------------- [00004] COMPANY'S PRESS RELEASE CONCERNING THE CHAPTER 11 FILINGS ----------------------------------------------------------------- PG&E National Energy Group, Inc. to Reorganize Under Chapter 11 Protection Action Taken With Support of Major PG&E NEG Creditors BETHESDA, Maryland -- July 8, 2003 -- As the next step in their ongoing restructuring efforts, PG&E National Energy Group, Inc. (PG&E NEG), PG&E Energy Trading Holdings Corporation (PG&E ET) and PG&E ET subsidiaries today voluntarily filed petitions for protection under Chapter 11 of the federal bankruptcy code. Separately, USGen New England, Inc. (USGenNE) filed its own petition for Chapter 11 relief. Today's filings in the U.S. Bankruptcy Court for the District of Maryland are in keeping with PG&E NEG's previously announced intention to maximize cash and reduce liabilities as part of its ongoing effort to restructure debt obligations. Other PG&E NEG entities -- including PG&E Gas Transmission Northwest and PG&E Generating, which include several independent power generation facilities across the country -- have not filed for Chapter 11 protection. Operations are expected to continue as normal at these facilities and at facilities owned by USGenNE. PG&E NEG is a subsidiary of PG&E Corporation (NYSE: PCG), which is not a party in the Chapter 11 proceedings. With the agreement in principle of major creditors as to its key terms, PG&E NEG also filed a Plan of Reorganization. This group includes informal bondholders, as well as agents under certain unsecured credit facilities, acting in their individual capacities. The plan anticipates that PG&E Corporation will have no equity interest in PG&E NEG or any of its subsidiaries after the Chapter 11 reorganization is approved by the court and implemented. Instead, equity in a reorganized PG&E NEG would be distributed proportionately to unsecured creditors as a component of a plan distribution package that would include cash, new debt securities and common stock. However, PG&E Corporation may continue to provide certain services on an interim basis, including the administration of employee benefits. It is anticipated that a Chapter 11 plan for the PG&E ET entities will be filed at a later date. Similarly, USGenNE's debt will not be restructured as part of the PG&E NEG plan, but will be dealt with at a later date. PG&E NEG also announced today that Joseph Bondi, currently the company's chief restructuring officer, will assume the role of chief executive officer, in addition to his current duties, subject to court approval. PG&E NEG President Thomas B. King has resigned and will remain with PG&E Corporation. "For several months, with our creditors, we have made steady progress toward restructuring PG&E National Energy Group's obligations," said Bondi, chief executive officer-designate of PG&E NEG. "While there is still much work to be done, we believe that today's action is another step in moving forward and resolving the challenges that our financial situation and current market conditions present. We concluded, along with our lenders, that filing Chapter 11 protection provides the best opportunity to reach a resolution that is in the long-term interests of our employees, the creditors and our other stakeholders." PG&E Corporation announced in May that the ongoing restructuring of PG&E NEG would be implemented through a Chapter 11 bankruptcy to facilitate an orderly negotiation among creditors, which include five bank syndicates, with approximately 40 banks and bondholders. The company estimates that claims asserted against PG&E NEG may exceed $4 billion. PG&E NEG is in default under various recourse debt agreements and guaranteed equity commitments totaling nearly $3 billion. In addition, other PG&E NEG subsidiaries are in default under various debt agreements totaling approximately $2.5 billion, but this debt is non-recourse to PG&E NEG. As a result of the sustained downturn in the power industry and like a number of merchant energy businesses, PG&E NEG experienced a financial downturn. This caused the major credit rating agencies to downgrade credit ratings to below investment grade. Although PG&E NEG's operating performance was solid during 2002, the company took a loss of $3.4 billion for the year, including the impairment charges related to the planned sale, transfer or abandonment of investments associated with the merchant power generation operation. These were steps affirmatively taken to restructure the business. First Day Motions In conjunction with the filing today, PG&E NEG will seek approval from the Bankruptcy Court for a variety of "first day motions" enabling the company to continue to manage its businesses in the ordinary course. The first day motions include requests for permission to continue payments for affected employee payroll and health benefits, and retain legal, financial and other professionals to assist the company through the Chapter 11 process. The company fully expects to continue to meet various employee payrolls and provide for continued employee health care and other benefits. Employees' qualified retirement savings plan accounts are not affected by the filing, as they are held in a trust and protected by federal law. The company also expects to continue paying vendors and suppliers in full for goods and services provided after the filing. Due to the company's cash on hand of approximately $114 million as of May 31, 2003, PG&E NEG does not need to arrange for debtor-in-possession financing. While the company expects to continue most operations during bankruptcy, operations and staffing levels will be affected as the company seeks to minimize costs and conserve cash. Moving Forward "Our goal is to continue to work constructively with the creditors to reorganize these businesses, which include valuable assets that are performing well, in a way that maximizes their value and enables these operations to emerge from Chapter 11 as viable businesses going forward." Bondi said. As previously reported for the past several months, PG&E NEG has significantly reduced its energy trading operation. Today's Chapter 11 filing of PG&E ET entities will facilitate the next major step toward final financial resolution and the wind-down of the trading subsidiaries. USGen New England While USGenNE also has filed Chapter 11 in the Maryland bankruptcy court, its case is being separately administered. The company estimates that claims asserted against USGenNE will exceed $1 billion. PG&E NEG and USGenNE will continue to work with creditors to address the future of the USGenNE assets which include: Brayton Point Station, Somerset, Mass.; Salem Harbor Station, Salem, Mass.; Manchester Street Station, Providence, R.I.; Bear Swamp facility, Rowe, Mass.; Connecticut River Hydroelectric System in New Hampshire and Vermont; and Deerfield River Hydroelectric System in Massachusetts and Vermont. It still remains likely at this time that the company will sell or transfer USGenNE, as it previously reported. Restructuring Efforts To Date Today's filings follow months of aggressive actions by PG&E NEG and its subsidiaries to abandon, sell and transfer assets and significantly reduce energy trading operations in an ongoing effort to raise cash and reduce debt, whether through negotiation with lenders or otherwise. Efforts to date and as previously reported, include: -- Sold the 66.6 megawatt Mountain View wind-powered generation facility in the San Gorgonio Pass near Palm Springs, CA, to Centennial Power, Inc. for $102.5 million. -- Sold one-half of its 50 percent interest in the Hermiston Generating plant to Sumitomo Corporation and Sumitomo Corporation of America for a pre-tax gain of approximately $23 million. The plant, located in Hermiston, OR, continues to be operated and managed by a subsidiary of PG&E NEG. -- Sold the 176-megawatt, natural gas-fired Spencer Station Generating facility in Denton, TX, and the nearby Lake Lewisville hydroelectric facility for about $2 million to the City of Garland, TX. -- Sold the Canadian energy trading operation, ET Canada, to Seminole Canada Gas Company Limited. -- Reduced the aggregate value of the energy trading portfolio by more than 70 percent. The company has limited its asset trading and risk management activities to only what is necessary for energy management services to facilitate the transition of the company's merchant generation facilities through their sale, transfer or abandonment. Ultimately, PG&E NEG will reduce and transition to only retain limited capabilities to ensure fuel procurement and power logistics for the company's retained independent power plant operations. -- Agreement in principle to transfer three power plant construction projects -- Athens Generating (Athens, NY), Covert Generating (Covert, MI), and Harquahala Generating (Tonopah, AZ) -- to the respective lenders or their designees. While the transfers have not yet been completed, funding has been provided for these projects to be completed and today's Chapter 11 filings are not expected to have any affect on those projects. -- Agreement in principle to transfer three power projects -- La Paloma Generating (McKittrick, CA), Millennium Power (Charlton, MA) and Lake Road Generating (Killingly, CT) -- to the respective lenders or their designees. While these transfers have not yet been completed, today's Chapter 11 filings are not expected to have any affect on those agreements or the day-to-day operations of these facilities. -- Pending sale of the 149-megawatt Ohio power peaking facilities to AMP-Ohio for approximately $7 million. It is expected to be completed by August 31, 2003, following necessary regulatory approvals. About PG&E NEG Headquartered in Bethesda, MD, PG&E NEG employs approximately 1,800. The company's more than 7,300 megawatts of generation include a mix of natural gas, coal/oil, hydroelectric, waste coal and wind power at numerous facilities across the country. With more than 1,350 miles of gas pipelines, the company's Pacific Northwest system has the ability to transport 2.9 billion cubic feet of natural gas per day from cost-competitive, abundant supplies in Western Canada to markets in California, Nevada and the Pacific Northwest. The company also owns the 80-mile North Baja pipeline in Southern California, which has capacity to ship 500 million cubic feet of natural gas from U.S. producing regions to markets in Northern Mexico and Southern California. ----------------------------------------------------------------- [00005] PG&E CORP.'S STATEMENT ABOUT THE CHAPTER 11 FILINGS ----------------------------------------------------------------- PG&E Corp. Reports Chapter 11 Filings for PG&E NEG Units SAN FRANCISCO, California -- July 8, 2003 -- PG&E Corporation (NYSE: PCG) today reported that, as expected, its PG&E National Energy Group, Inc. (PG&E NEG) unit and certain PG&E NEG subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Maryland, Greenbelt Division. As previously disclosed, PG&E Corporation does not expect that the outcome of PG&E NEG's bankruptcy proceedings will have a material adverse effect on the financial condition of PG&E Corporation, which has no material obligations to PG&E NEG. In May 2003, PG&E Corporation stated that the restructuring of PG&E NEG would inevitably be implemented through a Chapter 11 proceeding and that a bankruptcy filing could take place as early as the second quarter of 2003. Although PG&E Corporation worked hard and in good faith for many months to structure an agreement that would allow PG&E Corporation to retain ownership of PG&E NEG for the benefit of the Corporation's shareholders, those efforts were ultimately unable to produce a consensus among creditors. The Plan of Reorganization filed by PG&E NEG provides that PG&E Corporation will have no equity interest in PG&E NEG or any of its subsidiaries after its Chapter 11 reorganization plan is implemented. The entities filing for Chapter 11 reorganization today are: -- PG&E National Energy Group, Inc.; -- PG&E Energy Trading Holdings Corporation; -- PG&E Energy Trading - Gas Corporation; -- PG&E Energy Trading - Power Corporation; -- PG&E ET Investments Corporation; and -- USGen New England, Inc. Other PG&E NEG subsidiaries, including PG&E Gas Transmission Northwest and numerous independent electric producers, are not filing for Chapter 11 reorganization. It is expected that day-to- day operations at these affiliates will be largely unaffected by today's Chapter 11 filings. PG&E Corporation has no equity infusion agreements, material contingent liabilities, or tax-sharing agreement with PG&E NEG. The Corporation also does not expect the outcome of PG&E NEG's bankruptcy to have any effect on its utility subsidiary, Pacific Gas and Electric Company, or the utility's reorganization plan and proposed settlement agreement to end its Chapter 11 bankruptcy. "Today's Chapter 11 filings are the next step forward for PG&E NEG and its creditors, and they advance the Corporation's goal of resolving uncertainties we have been managing since the onset of the energy crisis," said Robert D. Glynn, Jr., Chairman, CEO and President of PG&E Corporation. "Moving forward, PG&E Corporation will continue to focus on several critical objectives, including implementing the proposed settlement agreement to end the utility's Chapter 11 case, maximizing the value of our utility operations, and strengthening our balance sheet." [A replay of a conference call with the financial community held at 11:30 a.m. Eastern time today to discuss PG&E NEG's Chapter 11 filing is available toll-free by calling 877-690-2089 or 402-220-0645 and is also available at http://www.pgecorp.com/ on PG&E Corp.'s Web site.] ----------------------------------------------------------------- [00006] PG&E NATIONAL CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor Entities filing separate chapter 11 petitions: Case No. Debtor Entity -------- ------------- 03-30459 PG & E National Energy Group, Inc. 03-30461 PG & E Energy Trading - Power, L.P. 03-30462 PG & E ET Investments Corporation 03-30463 PG & E Energy Trading Holdings Corporation 03-30464 PG & E Energy Trading - Gas Corporation Chapter 11 Petition Date: Tuesday, July 8, 2003 Bankruptcy Court: United States Bankruptcy Court District of Maryland Greenbelt Division Federal Courthouse 6500 Cherrywood Lane, Suite 300 Greenbelt, Maryland 20770 Telephone (301) 344-8018 Bankruptcy Judge: The Honorable Paul Mannes Debtors' Lead Bankruptcy Counsel: Matthew A. Feldman, Esq. Shelley C. Chapman, Esq. Carollynn H.G. Callari, Esq. Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10010 Telephone (212) 728-8000 Debtors' Local Bankruptcy Counsel: Paul M. Nussbaum, Esq. Martin T. Fletcher, Esq. Whiteford, Taylor & Preston, L.L.P. Seven Saint Paul Street, Suite 1400 Baltimore, MD 21202 Telephone (410) 347-8700 Debtors' Financial Advisor: Lazard Freres & Co. LLC Debtors' Restructuring Advisor: Joseph Bondi Alvarez & Marsal, Inc. Debtors' Accountants: Deloitte & Touche LLP Debtors' Litigation Consultants: Charles River Associates Debtors' Special Energy Counsel Sutherland Asbill & Brennan LLP (to assist in the wind-down of their energy trading business) Debtors' Employment & Employee Benefits Counsel: Patton Boggs LLP Debtors' FERC Regulatory Counsel: Winston & Strawn Debtors' CFTC Investigation Counsel: Clifford Chance LLP Claims Agent: Kathy Gerber Bankruptcy Services, LLC 757 Third Avenue, 3rd Floor New York, NY 10017 Telephone (646) 282-2550 U.S. Trustee: John Dougherty, Esq. Mark Shach, Esq. Office of the U.S. Trustee 6305 Ivy Lane, Suite 600 Greenbelt, MD 20770 Members of the Ad Hoc Committee of Holders of the 10-3/8% Senior Notes due 2011: $214,050,000 Thomas M. Mistele Dodge & Cox One Sansome Street, 32nd Floor San Francisco, CA 94104 $100,000,000 Kevin Winter CalPERS 400 P Street Sacramento, CA 95814 $88,566,000 Marlene DeLeon John Hancock Financial Services 200 Clarendon Street, No. T-57 Boston, MA 02116 $45,000,000 Scott Hassenstab Aegon USA Invesement Management 4333 Edgewood Road, NE Cedar Rapids, IA 52499 $27,500,000 Anne Brower Northwestern Mutual Life Insurance Co. 720 East Wisconsin Ave. Milwaukee, WI 53202 $20,199,999 Michael Zorich Principal Global Investors LLC 801 Grand Ave., 26th Floor Des Moines, IA 50392 Counsel to the Ad Hoc Committee of Holders of the 10-3/8% Senior Notes due 2011: Daniel J. Bussel, Esq. Lee R. Bogdanoff, Esq. Kenneth Klee, Esq. Klee, Tuchin, Bogdanoff & Stern LLP 2121 Avenue of the Stars, Suite 3300 Los Angeles, CA 90067 - and - Richard M. Goldberg, Esq. Joel I. Sher, Esq. Kimberly M. Stoker, Esq. Shapiro Sher Guinot & Sandler 36 Charles St., Suite 2000 Baltimore, MD 21201 ----------------------------------------------------------------- [00007] LIST OF PG&E NATIONAL'S 30-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ Wilmington Trust Company Indenture (10.375% $1,108,147,876 as Indenture Trustee Senior Notes due 1100 North Market Street May 16, 2011) Wilmington, DE 19890 (as of 5/31/03) Attn: Steve Cimalore Tel: 302-636-6058 Fax: 302-636-4143 JP Morgan Chase Revolving Credit 660,488,071 270 Park Avenue Facility (as of New York, NY 10017 05/31/03) Attn: Agnes L. Levy Managing Director Tel: 212-270-0420 Fax: 917-464-8909 Citibank, N.A. Guarantee Obligation 379,057,054 388 Greenwich Street (La Paloma) New York, NY 10013 (as of 5/31/03) Attn: Greg Frenzel Director Tel: 212-723-3106 Fax: 212-723-3964 Societe Generale Guarantee Obligation 354,720,386 1221 Avenue of the Americas (GenHoldings) New York, NY 10020 (as of 5/31/03) Attn: Nina Ross, Director Asset Recovery Management Tel: 212-278-7024 Fax: 212-278-6460 Cogentrix Caledonia Guarantee Obligation 250,000,000 Generating, LLC (Caledonia) 9405 Arrowpoint Boulevard (as of 5/31/03) Charlotte, NC 28273 Unliquidated Attn: President Copy: General Counsel Tel: 704-525-3800 Fax: 704-529-1006 Citibank, N.A. Guarantee Obligation 235,329,585 (Lake Road) (as of 5/31/03) Societe Generale Guarantee Obligation 205,000,000 (PG&E NEG Construction Company LLC) (as of 5/31/03) Southaven Power, LLC Guarantee Obligation 175,000,000 9405 Arrowpoint Boulevard (Southaven) Charlotte, NC 28273 (as of 5/31/03) Attn: General Counsel Unliquidated Tel: 704-525-3800 Fax: 704-529-1006 Orion (Reliant) Liberty Guarantee Obligation 150,000,000 Electric Power, LLC (Liberty) 133880 Dulles Corner Lane (as of 5/31/03) Herndon, VA 20171-4600 Unliquidated Attn: Vice President and General Counsel Tel: 703-561-6788 Fax: 703-561-7303 JP Morgan Chase Guarantee Obligation 25,162,000 (ETH Facility One) (as of 5/31/03) General Electric Company Guarantee Obligation 22,721,300 1 River Road (PG&E NEG Schenectady, NY 12345 Construction Company, Attn: Dan Rowley, LLC) (as of 5/31/03) General Counsel Tel.: 518-385-1407 Fax: 518-385-9051 CONTINGENT LIABILITIES: Mitsubishi Heavy Industries Guarantee Obligation 75,000,000 610 Crescent Executive Ct. (PG&E NEG Lake Mary, FL 32746 Construction Company, Attn: General Counsel LLC) (as of 05/31/03) Fax: 321-397-9674 Contingent Headquarters: Unliquidated 100 Colonial Center Parkway Disputed Lake Mary, FL 32746 Tel: 407-688-6100 Fax: 407-688-6481 TXU Energy Trading Company Guarantee Obligation 65,000,000 1717 Main Street Suite 2000 (Energy Trading) Dallas, TX 75201 (as of 05/31/03) Attn: Credit Department Contingent Tel: 214-875-9000 Unliquidated Fax: 214-875-9064 New York Independent Guarantee Obligation 50,000,000 System Operator (Energy Trading) 5172 Western Turnpike (as of 5/31/03) Altamont, NY 12009 Contingent Attn: Ray Salter Unliquidated Tel: 518-356-6060 Fax: 518-356-6146 Aquila Energy Marketing Guarantee Obligation 40,000,000 Corporation (Energy Trading) 1100 Walnut St., Suite 3300 (as of 5/31/03) Kansas City, MO 64106 Contingent Attn: Vice President, Unliquidated Credit Risk Management Tel: 816-527-1000 Fax: 816-467-8257 Duke Energy Trading & Guarantee Obligation 40,000,000 Marketing, LLC (Energy Trading) 5400 Westheimer Court (as of 5/31/03) Houston, TX 77056 Contingent Attn: Credit Manager Unliquidated Tel: 713-627-5400 Fax: 713-627-4849 Tractebel Energy Guarantee Obligation 40,000,000 Marketing, Inc. (Energy Trading) 1177 West Loop South (as of 05/31/03) Suite 800 Contingent Houston, TX 77027 Unliquidated Attn: Director of Credit Tel: 713-552-2501 Fax: 713-548-5153 TXU Electric Company Guarantee Obligation 32,500,000 1717 Main St., Suite 2000 (Energy Trading) Dallas, TX 75201 (as of 05/31/03) Attn: Craig Gilchrist Contingent Tel: 214-875-9000 Unliquidated Fax: 214-875-9050 Allegheny Energy Supply Guarantee Obligation 25,000,000 Company, LLC (Energy Trading) 4350 Northern Pike (as of 05/31/03) Monroeville, PA 15146-2841 Contingent Attn: Contract Admin. Unliquidated Tel: 412-858-1600 Fax: 412-856-2913 Citibank, N.A. Guarantee Obligation 25,000,000 (Energy Trading) (as of 5/31/03) Contingent Unliquidated Citibank, N.A. Guarantee Obligation 25,000,000 (Energy Trading) (as of 5/31/03) Contingent Unliquidated Duke Energy Trading & Guarantee Obligation 24,000,000 Marketing, L.L.C. (Energy Trading) 10777 Westheimer Suite 650 (as of 05/31/03) Houston, TX 77042 Contingent Attn: Controller Unliquidated Fax: 713-260-1825 Exelon Energy Company Guarantee Obligation 20,000,000 Attn: Vice-President (Energy Trading) 2315 Enterprise Drive (as of 5/31/03) Westchester, IL 60154 Contingent Fax: 708 236-7903 Unliquidated Massey Coal Sales Guarantee Obligation 20,000,000 Company, Inc. (Energy Trading) Attn: President (as of 05/31/03) 4 North Fourth Street Contingent Richmond, VA 23219 Unliquidated Fax: 804-788-1811 Pinnacle West Capital Guarantee Obligaton 20,000,000 Corporation (Energy Trading) Arizona Public Service (as of 5/31/03) Company Contingent ATTN: Credit Department Unliquidated 400 North Fifth Street Mail Station 9855 Phoenix, AZ 85004 COPY: APS Law Department Mail Station 9820 Fax: 602-250-3393 ConocoPhillips Company Guarantee Obligaton 15,000,000 Adams Tower (Energy Trading) 403 Cheyenne (as of 5/31/03) Tulsa, Oklahoma 74104 Contingent Fax: 281-293-5880 Unliquidated Coral Energy Resources, LP Guarantee Obligaton 909 Fannin, Suite 700 (Energy Trading) Houston, Texas 77010 (as of 05/31/03) Fax: 713-265-3843 Contingent ISO New England Guarantee Obligaton 15,000,000 One Sullivan Road (Energy Trading) Holyoke, MA 01040 (as of 5/31/03) Fax: 413-535-4204 Contingent Unliquidated Societe Generale Guarantee Obligaton 15,000,000 1221 Avenue of the Americas (Millennium) 11th Floor (as of 5/31/03) New York, NY 10020 Contingent Attn: Robert Preminger Unliquidated Fax: 212-278-5703 Tel: 212-278-6136/6148 Tennessee Valley Authority Guarantee Obligaton 15,000,000 400 West Summit Hill Drive (Energy Trading) Knoxville, Tennessee 37914 (as of 5/31/03) Fax: 865-632-3212 Contingent Unliquidated ----------------------------------------------------------------- [00008] USGEN NEW ENGLAND, INC., CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor: USGen New England, Inc. Bankruptcy Case No.: 03-30465 Chapter 11 Petition Date: Tuesday, July 8, 2003 Bankruptcy Court: United States Bankruptcy Court District of Maryland Greenbelt Division Federal Courthouse 6500 Cherrywood Lane, Suite 300 Greenbelt, Maryland 20770 Telephone (301) 344-8018 Bankruptcy Judge: The Honorable Paul Mannes Debtor's Bankruptcy Counsel: Marc E. Richards, Esq. Edward J. LoBello, Esq. Craig A. Damast, Esq. Blank Rome LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 Telephone (212) 885-5000 - and - John E. Lucian, Esq. Leslie J. Polt, Esq. Blank Rome LLP 250 West Pratt Street, Suite 2201 Baltimore, MD 21201 Telephone (410) 659-3945 Debtor's Special Regulatory Counsel: Donald Dankner, Esq. Winston & Strawn 1400 L Street, N.W. Washington, D.C. 20005 Debtor's Environmental, Labor and Special Counsel: Mary Beth Gentleman, Esq. Foley Hoag LLP World Trade Center West 155 Seaport Boulevard Boston, MA 02210 Debtor's Claims Agent: Kathy Gerber Bankruptcy Services, LLC 757 Third Avenue, 3rd Floor New York, NY 10017 Telephone (646) 282-2550 U.S. Trustee: John Dougherty, Esq. Mark Shach, Esq. Office of the U.S. Trustee 6305 Ivy Lane, Suite 600 Greenbelt, MD 20770 ----------------------------------------------------------------- [00009] LIST OF USGEN'S 20-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ JP Morgan Chase Bank Revolving Credit $88,019,496 One Chase Manhattan Plaza Agreement (matures 8th Floor 8/31/03) New York, NY 10081 Ina Tjahjono Tel: 713-750-2268 JP Morgan Chase Bank Bear Swamp Lease $16,329,425 Institutional Trust Svcs Payment 4 New York Plaza 15th Floor New York, NY 10004 Gemmel Richards Tel: 212-623-5113 New England Power Power Purchases (PPA) $9,663,266 55 Bearfoot Road and other obligations Northboro, MA 01532 Diane Pickett Tel: 508-421-7168 Mohawk River Funding Power Purchases (PPA) $2,723,731 c/o El Paso Merchant Energy 1001 Louisiana Street Houston, TX 77002 Kevin Anderson Tel: 713-420-4374 TransCanada Gas Pipeline Gas Transportation $1,535,773 450 First Street SW Calgary, AB T2P 5H1 Canada Joan Craig Tel: 403-920-5521 Algonquin Gas Transmission Gas Transportation $1,415,914 1284 Soldiers Field Road Boston, MA 02135 Michael Culver Tel: 713-627-5779 Covanta Haverhill Power Purchases (PPA) $1,062,813 100 Recovery Way Haverhill, MA 01835 Wendy Giles Tel: 978-372-6288 Resco North Andover Gas Transportation $750,000 285 Holt Road North Andover, MA 01845 Karen Courville Tel: 508-791-8900 ANR Pipeline Co. Gas Transportation $670,826 12178 Collections Center Drive Chicago, IL 60693 Priscilla Pierson Tel: 832-676-2627 Iroquois Gas Transmission Gas Transportation $559,841 One Corp. Drive Suite 600 Shelton, CT 06484 Ivy Kao Tel: 203-944-7020 Columbia Gas Transmission Gas Transportation $451,017 PO Box 641475 Pittsburgh, PA 03592 Susan Wade Tel: 304-357-3702 Distrigas Gas Transportation $392,087 One Liberty Square 11th Floor Boston, MA 02109 Michelle Tiberi Tel: 617-526-8372 Tenessee Gas Transmission Gas Transportation $345,133 PO Box 360127 Pittsburgh, PA 15251-6127 Janet Stewart Tel: 832-676-2674 Siemens Westinghouse Parts and Service $327,205 Power Corp. PO Box 371686 Pittsburgh, PA 15251-7686 Kirsten Schreiner Tel: 407-736-3925 Town of Somerset Brayton Point Water $297,000 Water Dept. PO Box 35 Somerset, MA 02726-0000 Bob Lima Tel: 508-679-2793 O'Connor Constructors, Brayton Point Unit 3 $266,151 Inc. outage work 45 Industrial Drive Canton, MA 02021 Laura Altman Tel: 718-830-1923 Pontook Operating Power Purchases (PPA) $190,405 Suite 410 100 Commercial Street Portland, ME 04101 Loraine Lamont Tel: (207) 774-6400 State of New Hampshire Water & Sewer $170,000 6 Hazen Drive Concord, NH 03302 Julie Lockwood Tel: (603) 271-3406 Waste Management Landfill for flyash $167,000 4 Liberty Lane West Hampton, NH 03842 Chris De Santis Tel: (508) 836-5600 Turnkey Landfill Power Purchases (PPA) $125,000 19 Turnkey Way Gonic, NH 03839 Alan Davis Tel: (603) 330-2166 ----------------------------------------------------------------- [00010] NEG'S MOTION TO RESTRICT TRADING IN DEBT SECURITIES ----------------------------------------------------------------- The NEG Debtors ask Judge Mannes to "enforc[e] the automatic stay and establish[] notice and hearing procedures that must be satisfied before certain transfers of claims against PG&E National Energy Group, Inc., and its Subsidiaries, or any beneficial interest therein, are deemed effective." In other words, NEG wants to restrict trading in its debt securities. $1 Billion of Tax Benefits at Risk Vice President and Assistant Treasurer John C. Barpoulis explains that NEG fears unrestricted trading in its debt securities may jeopardize the value of more than $1 billion of tax losses, including built-in losses (i.e., asset tax basis in excess of asset fair market value) and net operating loss carryforwards the Company's accumulated to date. NEG currently estimates that the aggregate tax basis of its assets exceeds the aggregate fair market value of such assets by substantially more than $1 billion. Thus, NEG has a "net unrealized built-in loss" of approximately that amount. NEG may have NOLs during or upon the consummation of its reorganization plan under chapter 11, such as by reason of the disposition of its built-in loss assets, referred to above, but the existence and amount of such losses depends on future events and therefore cannot be known presently. The Tax Losses are a valuable asset of NEG's estate, and may be used by NEG to offset income and gain during the pendency of its chapter 11 proceeding and after emergence from chapter 11, thereby significantly reducing its future federal income tax liability under applicable rules set forth in the Internal Revenue Code of 1986, as amended. The Debtors are concerned about the viability of NEG's Tax Losses, however, because certain transfers of claims against NEG could occur prior to confirmation of NEG's chapter 11 plan. Those transfers could severely limit NEG's ability to use the Tax Losses and could have significant negative consequences for NEG, its estate and its reorganization process. If an ownership change occurs pursuant to the consummation of a confirmed chapter 11 plan and Section 382(1)(5) of the I.R.C. does not apply, NEG's ability to use the Tax Losses will be limited under Section 382. Section 382(1)(5), also known as the "Bankruptcy Exception," applies to any ownership change that occurs pursuant to the consummation of a confirmed bankruptcy plan in which at least 50% of the stock (by value) of the debtor is received by existing shareholders or "qualified creditors." A debtor's ability to utilize its tax losses without restriction is generally preserved if Section 382(l)(5) applies to an ownership change. Very generally, "qualified creditors" are creditors who have held their claims against the debtors for 18 months or more before the petition date or who acquired such claims in the ordinary course of the debtor's business and have held such claims since they arose. See I.R.C. Sec. 382(1)(5)(E); Treas. Reg. Sec. 1.382-9(d). Based on NEG's current information, the Bankruptcy Exception may apply to the ownership change that will occur pursuant to the consummation of a confirmed bankruptcy plan. However, additional trading in the claims against NEG may cause the Bankruptcy Exception not to be available, because buyers of those claims may not be "qualified creditors." $183,000,000 Transfer Limit In order to preserve to the fullest extent possible the flexibility to craft a chapter 11 plan that maximizes the use of NEG's Tax Losses, the Debtors want to closely monitor certain transfers of claims, so as to be in a position to act expeditiously to prevent such transfers if necessary. Specifically, the Debtors want notice and hearing procedures put in place that will govern the trading of more than $183,000,000 of NEG-related debt obligations. The Debtors estimate that the total claims (including maximum liability under contingent claims) against NEG are approximately $3.86 billion, so transfers of less than $183 million aren't likely to trigger any loss of tax benefits. While the Debtors may face an uphill battle to prevent the transfer, they want to talk about it and slow it down. Courts have previously recognized that built-in losses, like NOLs, are property of the estate and must be protected. See, e.g., In re WorldCom, Inc., et al., Case No. 02-13533 (AJG) (Bankr. S.D.N.Y. March 4, 2003) (approving notification procedures and transfer restrictions in order to protect tax basis and NOLs). Various courts have commonly granted the relief requested herein, i.e., the restriction or enjoining of transfers of claims in order to protect debtors against the possible loss of their NOLs and built-in losses. See, e.g., In re WorldCom, Inc., et al., Case No. 02-13533 (AJG) (Bankr. S.D.N.Y. March 4, 2003) (approving notification procedures and restrictions on certain transfer of claims against and interests in the debtors); In re Williams Comm. Group, Inc., Case No. 02-11957 (BRL) (Bankr. S.D.N.Y. July 24, 2002) (debtors provided 30 days' notice to object to proposed transfers of claims against the debtors that would increase the transferee's holdings to or above levels that could reasonably be expected to lead to a distribution of 5% of the stock in the reorganized debtors); In re Ames Dept. Stores, Inc., Ch. 11 Case No. 01-42217 (REG) (Bankr. S.D.N.Y. August 20, 2001) (enjoining and establishing procedures respecting transfer of common stock and claims). See also similar protection of NOLs granted respecting transfer of equity interest in debtor: In re Maxxim Medical Group, Inc., et al., Case No. 03-10438 (PJW) (Bankr. D. Del. February 13, 2003) (approving notification and hearing procedures for trading in, and claiming worthless stock deduction in respect of, equity securities of the debtor); In re Conseco, et al., Case No. 02-49672 (CAD) (Bankr. N.D. Ill. December 17, 2002) (limiting certain transfers of, and trading in, equity interests of the debtors and approving related notification procedures); In re Worldtex, Inc., Case No. 01-785 (MFW) (Bankr. D. Del. Apr. 2, 2001) (debtors provided 30 days' notice to object to proposed transfers that would result in the transferee holding 5% or more of the debtors' common stock or decrease the ownership interest of an existing 5% or greater shareholder); In re First Merchants Acceptance Corp, 1998 Bankr. LEXIS 1816 (Bankr. D. Del. 1998) (debtors provided 30 days' notice to object to proposed transfers of stock in the debtors that would increase the transferee's holding to or above certain level); In re Metrocall, et al., Case No. 02-11579 (RB) (Bankr. D. Del. June 6, 2002) (debtors provided 5 business days' notice to object to proposed transfers of stock that would result in transferee holding 5% or more of the debtors' stock or a reduction in the ownership interest of an existing 5% or greater shareholder); In re US Airways Group, Inc., et al., Case No. 02-83984 (SSM) (Bankr. E.D. Va. Oct. 2, 2002) (debtors provided 10 days' notice to object to proposed transfers of equities to and from 5% holders); In re Casual Male Corp, Case No. 01-41404 (REG) (Bankr. S.D.N.Y. May 18, 2001) (enjoining transfers of common stock and convertible notes that would result in the transferee's holdings increasing to or beyond 4.99% and providing debtors 30 days' notice to object to certain transfers); In re Southeast Banking Corp., 1994 WL 1893513 (Bankr. S.D. Fla. July 21, 1994) (enjoining 5% trades of common stock); and In re Phar-mor, Inc., 152 B.R. 924 (Bankr. N.D. Ohio 1993) (enjoining shareholders from selling stock in the debtors unless they obtained relief from the automatic stay). ----------------------------------------------------------------- [00011] USGEN'S MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS ----------------------------------------------------------------- USGen New England, Inc., tells Judge Mannes that its business is heavily dependent upon a relatively small number of Critical Vendors whose goods or services cannot be replaced in the near term. "Indeed," the USGen says, "several of the Critical Vendors represent the Debtor's only viable source of certain critical goods and services." The Company fears that if these critical vendors aren't paid, USGen may be unable to continue operations. What Makes a Vendor Critical Senior Vice President Ernest K. Hauser explains that USGen management reviewed its accounts payable ledger using four criteria to identify Critical Vendors: (a) whether the supplier of specific goods or services is a unique vendor that is critical to the Debtor's business operations; (b) whether the failure to pay Critical Vendor Claims to such vendor would require the Debtor to incur higher costs for such goods and services postpetition; (c) whether the initiation of service with a new supplier and/or delayed delivery time would cause supply and service interruption; and (d) whether failure to pay the Critical Vendor Claim would cause the Debtor to lose future revenues in excess of the amount of such claim, disrupt the Debtor's operations or otherwise potentially harm the Debtor's reorganization efforts. In cases where there is no likely risk of, or problem attendant with, discontinued services by a vendor detected, such vendor will not be considered to be a Critical Vendor. Four Specific Critical Vendors Owed $533,686 USGen management identified four specific Critical Vendors: (1) Boiler Repairs O'Connor Constructors, Inc. 45 Industrial Drive Canton, MA 02021 $266,151.81 The boiler unit at the Debtor's Brayton Point Facility is currently under repair. These repairs are necessary to keep the facility operational. Due to the specialized nature of the required repairs, the Debtor has no immediate alternative option to the vendor that currently provides this critical service. (2) Urea Supply Monson Companies, Inc. P. O. Box 3000 Hartford CT 06150 $98,131.81 As a result of the operation of the Debtor's Facilities, the Debtor produces a significant amount of the chemical nitrous oxide. The Debtor utilizes the chemical urea to absorb the nitrous oxide produced at the Facilities. In order to ensure the health and safety of employees at the Facilities and the public at large, it is essential that the Facilities have an adequate supply of urea. The Debtor has no immediate alternative options to the vendor that currently provides this critical service. (3) Ash Haulers Waste Management P.O. Box 830003 Baltimore, MD 21283-0003 $167,000.00 As a result of the operation of the Debtor's Facilities, the Debtor produces a significant amount of ash. The Debtor only has a limited ability to store such ash at its Facilities. After the limited storage capacity is utilized, the Debtor would have to shut down certain of its Facilities if the ash was not properly and timely removed. In order to avoid such shut down and ensure the health and safety of employees at the Facilities and the public at large, it is essential that ash generated at the Facilities is collected and disposed of in a timely and safe manner. The Debtor has no immediate alternative options to the vendor that currently provides this critical service. (4) Environmental Contractors CEM Compliance Service 219 Ocean Road Narragansett, R.I. 02882 $2,402.25 The Debtor has also identified certain environmental vendors that perform critical environmental-related services in connection with the Debtor's Facilities. The Environmental Contractors provide and/or supply specific goods or services critical to the Debtor's extensive federal, state and local environmental compliance, monitoring and mitigation programs, licensing requirements, as well as the Debtor's business operations. The Debtor's business is heavily dependent upon the continued supply and provision of goods and services by the Environmental Contractors. Any action by the Environmental Contractors to discontinue the provision or supply of goods or services due to non-payment of outstanding prepetition accounts payable would force the Debtor to immediately cease operation of the Facilities. Any such action would severely impact the ability of the Debtor to generate revenue. $216,314 Critical Vendor Slush Fund USGen believes there are Other Critical Vendors with which, in the ordinary course of its business, the Debtor contracts for the services to supply essential services and equipment for the operation of the business. The Company has not had the opportunity to fully review and analyze each of its vendors to determine whether the services provided by each of its vendors are absolutely critical to the continuation of the business. Thus, the Company asks Judge Mannes to allow the Company the discretion to pay up to $750,000 in the aggregate to Critical Vendors without further court review. Quid Pro Quo John Lucian, Esq., at Blank Rome LLP, makes it clear that USGen requests authority, but no direction, to pay discrete and limited prepetition amounts owed to certain vendors and suppliers of critical goods and service. All payments under this Critical Vendor Program will be conditioned on the Critical Vendor agreeing to maintain or reinstate customary trade terms during the pendency of the chapter 11 proceedings. "Customary trade terms" means (a) trade terms and practices (including allowances) as favorable or more favorable to the Debtor than those in effect as of the Petition Date, or (b) as agreed. Mr. Lucian relates that a Critical Vendor's acceptance of payment will be deemed to be acceptance of the terms of the Court order approving the Critical Vendor Program. If the Critical Vendor thereafter does not provide the Debtor with customary trade terms during the pendency of this case, the Debtor would be entitled to demand and recover any payments of prepetition claims made after the Petition Date plus interest calculated from the date of payment. Nothing in this Motion, Mr. Lucian points out, should be construed as an assumption of any executory contract or unexpired lease between the Debtor and any of the Critical Vendors, nor should it be construed as a rejection of any executory contract or unexpired lease with any creditor. The Debtor is in the process of reviewing these matters and reserves all of its rights with respect to the assumption or rejection of any executory contracts. Furthermore, the Debtor reserves the right to contest on nonbankruptcy grounds the amount claimed to be due by any of the Critical Vendors. In addition, nothing in this Motion should be construed as limiting any causes of action of the Debtor arising under Chapter 5 of the Bankruptcy Code, including, without limitation, fraudulent conveyances, preferences and unauthorized post-petition transfers, except payments made pursuant to the Order entered hereto. The Doctrine of Necessity Section 105 of the Bankruptcy Code provides that "the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. Sec. 105(a). Moreover, it is well settled that a bankruptcy court may authorize the payment of prepetition obligations where necessary to facilitate the chapter 11 process. In re Just For Feet, Inc., 242 B.R. 821, 826 (Bankr. D. Del. 1999) (holding that a debtor must show that payment of the prepetition claim of a vendor is critical to its survival in reorganization); see also In re NVR, L.P., et al., 147 B.R. 126, 127-28 (Bankr. E. D. Va. 1992) ("Under 11 U.S.C. Sec. 105 the court can permit pre- plan payment of a pre-petition obligation when essential to the continued operation of the debtor"); In re Eagle-Picher Indus., Inc., 124 B.R. 1021, 1023 (Bankr. S.D. Ohio 1991) ("[T]o justify a payment of a prepetition unsecured creditor, a debtor must show that the payment is necessary to avert a serious threat to the chapter 11 process"). Under the "necessity of payment doctrine," courts have recognized that the payment of certain prepetition obligations of a debtor is permissible when such payments are necessary to preserve the business of the debtor and the failure to pay prepetition obligations posed a real and significant threat to a debtor's reorganization. See, e.g., Miltenberger v. Logansport Railway, 106 U.S. 286 (1882) (payment of pre- receivership claim prior to reorganization permitted to prevent "stoppage of . . . [crucial] business relations"); In re Lehigh & New Eng. Ry., 657 F.2d 570 (3rd Cir. 1981) (payment of claims of creditors authorized under "necessity of payment" doctrine); Dudley v. Mealy, 147 F.2d 268 (2nd Cir.), cert. denied, 325 U.S. 873 (1945). Courts have authorized the payment of prepetition obligations to parties similar to the Critical Trade Creditors in other large chapter 11 cases in this and other districts. See, e.g., In re Startec Global Communications Corp., et al., Case No. 01-25013 (Bankr. D. Md. Dec. 20, 2001) (J. Keir); see also In re Financial News Network, Inc., 134 B.R. 732 (Bankr. S.D.N.Y. 1991); In re Ionosphere Clubs, Inc., 98 B.R. 174 (Bankr. S.D.N.Y. 1989); In re AMF Bowling Worldwide, Inc., Nos. 01-61119 - 01-61143 (Bankr. E. D. Va. July 2, 2001) (DHA); In re Fas Mart Convenience Stores, Inc., et al., Nos. 01-60386 - 01-60387 (Bankr. E.D. Va. Mar. 10, 2001) (DOT); In re Heilig-Meyers, Nos. 00-34533 - 00-34538 (Bankr. E.D. Va. Aug. 16, 2000) (DOT); In re Gross Graphic Sys., Inc., No. 99-2756 (Bankr. D. Del. July 30, 1999) (PJW); In re Penn Traffic Company, et al., No. 99-462 (Bankr. D. Del. March 1, 1999) (PJW); In re Discovery Zone, Inc., No. 99-941 (D. Del. Apr. 21, 1999) (JJF); In re Acme Steel Company, et al., No. 98-2179 (Bankr. D. Del. Sep. 29, 1998) (MFW); In re FF Holdings Corp. and Farm Fresh, Inc., No. 98-37 & 98-38 (D. Del. Feb. 17, 1998) (JJF); In re Best Products Co., Inc., No. 96-35267-T (Bankr. E.D. Va. Sep. 24, 1996) (DOT); In re Gulf Air, Inc., 112 B.R. 152 (Bankr. W.D. La. 1989). The Debtor is aware of the recent decision in the Kmart bankruptcy case in which the court ruled that traditional critical vendor relief was not appropriate in that case. Capital Factors, Inc. v. Kmart Corp., 291 B.R. 818 (N.D. Ill. 2003). The Debtor believes that the Kmart decision, which is not controlling in this Circuit, is inapposite here. Kmart sought authority to pay certain prepetition obligations to trade creditors that supplied goods to Kmart stores. Id. These creditors included, inter alia, egg and dairy vendors and liquor distributors. Id. at 820. While the supply of eggs, milk and alcoholic beverages may have enhanced the sundries offered by Kmart and possibly increased customer traffic at Kmart's stores and/or increased sales revenues, such items can hardly be considered "critical" when compared to the goods/services provided by the prepetition vendors that the Debtor has identified as critical. Further, such fungible goods could have been obtained by Kmart from other dairy farmers and liquor distributors, albeit presumably on less favorable terms. Id. Here, the critical vendors of the Debtor are truly "critical" in the most fundamental sense. As explained above, these vendors are not mere suppliers of fungible goods easily obtainable on the open market from a host of generic vendors. Rather, these vendors provide unique, highly specialized services (e.g., ash hauling), which are necessary to protect the environment, comply with environmental and energy restrictions at the local and federal level, and maintain adequate wholesale energy supplies which are ultimately enjoyed by thousands of businesses and consumers without disruption. Moreover, due to the highly specialized nature of the goods and services provided to the Debtor by these vendors, competing vendors or alternative options are practically nonexistent in areas in which the Debtor's facilities are located. Accordingly, the truly critical nature of the goods and services supplied by these vendors to the Debtor requires unique protection, in contrast to the goods not deemed critical in Kmart. *** End of Issue No. 1 *** ------------------------------------------------------------------------- Peter A. 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