ITEM 2. PROPERTIES
PSEG
PSEG does not own any property. All property is owned by its subsidiaries.
PSE&G
PSE&G's First and Refunding Mortgage (Mortgage), securing the bonds issued
thereunder, constitutes a direct first mortgage lien on substantially all of
PSE&G's property.
The electric lines and gas mains of PSE&G are located over or under public
highways, streets, alleys or lands, except where they are located over or under
property owned by PSE&G or occupied by it under easements or other rights. These
easements and rights are deemed by PSE&G to be adequate for the purposes for
which they are being used.
PSE&G believes that it maintains adequate insurance coverage against loss
or damage to its principal properties, subject to certain exceptions, to the
extent such property is usually insured and insurance is available at a
reasonable cost.
Electric Transmission and Distribution Properties
As of December 31, 2002, PSE&G's transmission and distribution system
included approximately 21,873 circuit miles, of which approximately 7,518
circuit miles were underground, and approximately 781,041 poles, of which
approximately 536,260 poles were jointly owned. Approximately 99% of this
property is located in New Jersey.
26
In addition, as of December 31, 2002, PSE&G owned five electric
distribution headquarters and four subheadquarters in four operating divisions,
all located in New Jersey.
Gas Distribution Properties
As of December 31, 2002, the daily gas capacity of PSE&G's 100%-owned
peaking facilities (the maximum daily gas delivery available during the three
peak winter months) consisted of liquid petroleum air gas (LPG) and liquefied
natural gas (LNG) and aggregated 2,973,000 therms (approximately 2,886,000 cubic
feet on an equivalent basis of 1,030 Btu/cubic foot) as shown in the following
table:
Daily Capacity
Plant Location (Therms)
Burlington LNG Burlington, NJ 773,000
Camden LPG Camden, NJ 280,000
Central LPG Edison Twp., NJ 960,000
Harrison LPG Harrison, NJ 960,000
Total 2,973,000
As of December 31, 2002, PSE&G owned and operated approximately 17,019
miles of gas mains, owned 11 gas distribution headquarters and two
subheadquarters, all in two operating regions located in New Jersey and owned
one meter shop in New Jersey serving all such areas. In addition, PSE&G operated
61 natural gas metering or regulating stations, all located in New Jersey, of
which 28 were located on land owned by customers or natural gas pipeline
companies supplying PSE&G with natural gas and were operated under lease,
easement or other similar arrangement. In some instances, the pipeline companies
owned portions of the metering and regulating facilities.
Office Buildings and Facilities
PSE&G leases substantially all of a 26-story office tower for its corporate
headquarters at 80 Park Plaza, Newark, New Jersey, together with an adjoining
three-story building. PSE&G also leases other office space at various locations
throughout New Jersey for district offices and offices for various corporate
groups and services. PSE&G also owns various other sites for training, testing,
parking, records storage, research, repair and maintenance, warehouse facilities
and for other purposes related to its business.
In addition to the facilities discussed above, as of December 31, 2002,
PSE&G owned 41 switching stations in New Jersey with an aggregate installed
capacity of 20,934 megavolt-amperes and 241 substations with an aggregate
installed capacity of 7,503 megavolt-amperes. In addition, 5 substations in New
Jersey having an aggregate installed capacity of 127 megavolt-amperes were
operated on leased property.
Power
Power rents approximately 137,000 square feet of office space from PSE&G at
its headquarters in Newark, New Jersey. Other leased properties include office,
warehouse, classroom and storage space, primarily in New Jersey, used for system
maintenance, procurement and materials management staff, training and storage.
Through a subsidiary, Power owns a 57.41% interest in approximately 12,000
acres of restored wetlands and conservation facilities in the Delaware River
Estuary that was formed to acquire and own lands and other conservation
facilities required to satisfy the condition of the NJPDES permit issued for
Salem. Power also owns several other facilities, including the on-site Nuclear
Administration and Processing Center buildings.
Power has an 13.91% ownership interest in the 650-acre Merrill Creek
Reservoir in Warren County, New Jersey. The reservoir was constructed to store
water for release to the Delaware River during periods of low flow. Merrill
Creek is jointly owned by seven companies that have generation facilities along
the Delaware River or its tributaries and use the river water in their
operations. Power also owns the Maplewood Test Services in Maplewood, New Jersey
and the Central Maintenance Shop at Sewaren, New Jersey.
27
Power believes that it maintains adequate insurance coverage against loss
or damage to its principal plants and properties, subject to certain exceptions,
to the extent such property is usually insured and insurance is available at a
reasonable cost. For a discussion of nuclear insurance, see Note 13. Commitments
and Contingent Liabilities of the Notes.
As of December 31, 2002, Power's share of installed generating capacity was
13,055 MW, as shown in the following table:
OPERATING POWER PLANTS
Total Owned Principle
Capacity % Capacity Fuels
Name Location (MW) Owned (MW) Used Mission
Steam:
Hudson, Jersey City NJ 991 100% 991 Coal/Gas Load Following
Mercer, Hamilton NJ 648 100% 648 Coal/Gas Load Following
Sewaren, Woodbridge Twp. NJ 453 100% 453 Gas/Oil Load Following
Linden, Linden (E) NJ 430 100% 430 Oil Load Following
Keystone, Shelocta (A) PA 1,700 22.84% 388 Coal Base Load
Conemaugh, New Florence (A) PA 1,700 22.50% 382 Coal Base Load
Kearny, Kearny (E) NJ 300 100% 300 Oil Load Following
Bethlehem, Albany (E) NY 376 100% 376 Oil Load Following
Bridgeport Harbor, Bridgeport CT 534 100% 534 Coal/Oil Base Load/Load
Following
New Haven Harbor, New Haven CT 466 100% 466 Oil/Gas Load Following
Total Steam 7,598 4,968
Nuclear:
Hope Creek, Lower Alloways Creek NJ 1,049 100% 1,049 Nuclear Base Load
Salem 1 & 2, Lower Alloways Creek NJ 2,221 57.41% 1,275 Nuclear Base Load
Peach Bottom 2 & 3, Peach Bottom (B) PA 2,186 50% 1,093 Nuclear Base Load
Total Nuclear 5,456 3,417
Combined Cycle:
Bergen, Ridgefield NJ 1,221 100% 1,221 Gas Load Following
Burlington, Burlington NJ 245 100% 245 Gas Load Following
Total Combined Cycle 1,466 1,466
Combustion Turbine:
Essex, Newark NJ 617 100% 617 Gas/Oil Peaking
Edison, Edison Township NJ 504 100% 504 Gas/Oil Peaking
Kearny, Kearny NJ 443 100% 443 Gas/Oil Peaking
Burlington, Burlington NJ 557 100% 557 Oil Peaking
Linden, Linden NJ 324 100% 324 Gas/Oil Peaking
Hudson, Jersey City NJ 129 100% 129 Oil Peaking
Mercer, Hamilton NJ 129 100% 129 Oil Peaking
Sewaren, Woodbridge Township NJ 129 100% 129 Oil Peaking
Bayonne, Bayonne NJ 42 100% 42 Oil Peaking
Bergen, Ridgefield NJ 21 100% 21 Gas Peaking
National Park, National Park NJ 21 100% 21 Oil Peaking
Kearny, Kearny NJ 21 100% 21 Gas Peaking
Linden, Linden (E) NJ 21 100% 21 Gas/Oil Peaking
Salem, Lower Alloways Creek NJ 38 57.41% 22 Oil Peaking
Bridgeport Harbor, Bridgeport CT 19 100% 19 Oil Peaking
Total Combustion Turbine 3,015 2,999
Internal Combustion:
Conemaugh, New Florence (A) PA 11 22.50% 2 Oil Peaking
Keystone, Shelocta (A) PA 11 22.84% 3 Oil Peaking
Total Internal Combustion 22 5
Pumped Storage:
Yards Creek, Blairstown (C)(D) NJ 400 50% 200 Peaking
Total Operating Generation Plants 17,957 13,055
(A) Operated by Reliant Resources
(B) Operated by Exelon Generation LLC
(C) Operated by Jersey Central Power & Light Company
(D) Excludes energy for pumping and synchronous condensers.
(E) These assets are scheduled for retirement within the next
three years, partially dependent upon new generation going
into service discussed below.
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As of December 31, 2002, Power had 4,037 MW of generating capacity in
construction or advanced development, as shown in the following table:
POWER PLANTS IN CONSTRUCTION OR ADVANCED DEVELOPMENT
Total Owned Principle Scheduled
Capacity % Capacity Fuels In Service
Name Location (MW) Owned (MW) Used Date
Combined Cycle:
Bethlehem NY 763 100% 763 Gas June 2005
Lawrenceburg IN 1,096 100% 1,096 Gas November 2003
Waterford OH 821 100% 821 Gas June 2003
Linden NJ 1,218 100% 1,218 Gas March 2005
Total Construction 3,898 3,898
Nuclear Uprates NJ/PA 139 100% 139 Nuclear 2003-2005
Total Advanced Development 139 139
Total
Capacity
Projected Capacity (2002-2005) (MW)
Total Owned Operating Generating Plants 13,055
Under Construction 3,898
Advanced Development 139
Less: Planned Retirements (1,127 )
Projected Capacity 15,965
Energy Holdings
Energy Holdings rents office space for its corporate headquarters at 80
Park Plaza, Newark, New Jersey from PSE&G. Energy Holdings' subsidiaries also
lease office space at various locations throughout the world to support business
activities. Energy Holdings believes that it maintains adequate insurance
coverage for properties in which its subsidiaries have an equity interest,
subject to certain exceptions, to the extent such property is usually insured
and insurance is available at a reasonable cost.
29
Global has invested in the following generation facilities, which are in
operation or under construction as of December 31, 2002:
OPERATING POWER PLANTS
Total Owned Principle
Capacity % Capacity Fuels
Name Location (MW) Owned (MW) Used
United States (A)
Texas Independent Energy
Guadalupe TX 1,000 50% 500 Natural gas
Odessa TX 1,000 50% 500 Natural gas
Kalaeloa HI 180 50% 90 Oil
GWF
Bay Area I CA 21 50% 10 Petroleum coke
Bay Area II CA 21 50% 10 Petroleum coke
Bay Area III CA 21 50% 10 Petroleum coke
Bay Area IV CA 21 50% 10 Petroleum coke
Bay Area V CA 21 50% 10 Petroleum coke
Hanford CA 27 50% 14 Petroleum coke
GWF Energy:
Hanford - Peaker Plant CA 94 76% 71 Natural gas
Henrietta - Peaker Plant CA 96 76% 73 Natural gas
SEGS III CA 30 9% 3 Solar
Tracy CA 21 35% 7 Biomass
Bridgewater NH 16 40% 6 Biomass
Conemaugh PA 15 50% 8 Hydro
Total United States: 2,584 1,322
International(B)
MPC
Jingyuan - Units 5 and 6 China 600 15% 90 Coal
Tongzhou China 30 40% 12 Coal
Nantong China 30 46% 14 Coal
Jinqiao (Thermal Energy) China N/A 30% N/A Coal/Oil
Zuojiang - Units 1, 2 and 3 China 72 30% 22 Hydro
Fushi - Units 1, 2 and 3 China 54 35% 19 Hydro
Shanghai BFG China 50 33% 16 Blast furnace gas
Haian (Thermal Energy) China N/A 100% N/A Coal
Huangshi Unit I China 100 25% 25 Coal
PPN India 330 20% 66 Naphtha/Natural gas
Prisma (C)
Crotone Italy 20 25% 5 Biomass
Bando D'Argenta I Italy 10 50% 5 Biomass
Electroandes Peru 183 100% 183 Hydro
Chorzow (Existing Facility) Poland 100 55% 55 Coal
Skawina CHP Poland 590 50% 295 Coal
Turboven
Maracay Venezuela 60 50% 30 Natural gas
Cagua Venezuela 60 50% 30 Natural gas
TGM Venezuela 40 9% 4 Natural gas
Rades Tunisia 471 60% 283 Natural gas
Total International: 2,800 1,154
Total Operating Power Plants: 5,384 2,476
30
Global has invested in the following generation facilities which are under
construction as of December 31, 2002:
POWER PLANTS IN CONSTRUCTION
Scheduled
Total Owned Principle In
Capacity % Capacity Fuels Service
Name Location (MW) Owned (MW) Used Date
United States
GWF Energy
Tracy - Peaker Plant CA 167 76% 127 Natural gas 2003
International
MPC
Huangshi Unit II China 600 25% 150 Coal 2006
Yulchon South Korea 612 50% 306 Natural Gas 2004
Kuo Kuang Taiwan 480 18% 84 Natural gas 2003
Prisma (C)
Strongoli Italy 40 25% 10 Biomass 2003
Bando D'Argenta II Italy 10 50% 5 Biomass 2003
Salalah Oman 200 81% 162 Natural gas 2003
Chorzow Poland 220 90% 198 Coal 2003
Total Construction: 2,329 1,042
TOTAL GENERATION FACILITIES: 7,713 3,518
(A) In November 2002, Global sold its interest in the generating
station, Kennebec (Maine) to United American Energy Corp.
(B) Tanir Bavi (India) was sold in October 2002 to GMR Vasavi
Group. Also during 2002, assets in Argentina were fully
impaired. See Note 4. Asset Impairments and Note 5.
Discontinued Operations of the Notes.
(C) All Prisma assets are currently held for sale.
Domestic Generation In Operation
Texas Independent Energy, L.P. (TIE)
In April 1999, Global and its partner, Panda Energy International, Inc.,
established TIE, a 50/50 joint venture, which owns and operates electric
generation facilities in Guadalupe County in south central Texas (Guadalupe) and
Odessa in western Texas (Odessa).
Approximately 37.5% of the Guadalupe plant's total output for 2003 has been
sold via bilateral power purchase agreements and the remainder will be sold in
the Texas spot market. In 2002, the plant generated approximately $145 million
of gross revenue.
Approximately 9.6% of the Odessa plant's total output for 2003 has been
sold via bilateral power purchase agreements. The balance of the output will be
sold on a spot or short-term basis into the Texas power market. In 2002, the
plant generated approximately $161 million of gross revenue. For a discussion of
the Texas power market, see Item 7. MD&A - Future Outlook.
Kalaeloa
Global's partner in Kalaeloa is a power fund managed by Harbert Power. All
of the electricity generated by the Kalaeloa power plant is sold to the Hawaiian
Electric Company under a power purchase contract terminating in May 2016. Under
a steam purchase and sale agreement expiring in May 2016, the Kalaeloa power
plant supplies steam to Hawaiian Independent Refinery, Inc. In 2002, the plant
generated approximately $108 million of gross revenue. The plant availability
factor in 2002 was 99%.
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GWF Power Systems LP (GWF) and Hanford LP (Hanford)
Global and Harbert Power each own 50% of the GWF plants. Power purchase
contracts for the plants' net output are in place with Pacific Gas and Electric
Company (PG&E) ending in 2020 and 2021. In 2002, the plants generated
approximately $62 million of gross revenue. The average availability factor of
the five plants in 2002 was 95%.
Global and Harbert Power each own 50% of Hanford. A power purchase contract
for the plant's net output is in place with PG&E through 2011. The Hanford plant
generated approximately $16 million of gross revenue in 2002 and had an
availability factor of 97%.
In July 2001, GWF, Hanford and the Tracy biomass plant entered into an
agreement with PG&E and amendments to their power purchase agreements with PG&E
that contained the Public Utilities Commission of the State of California
approved pricing for a term of five years commencing July 16, 2001.
Hanford and Henrietta Peaker Plants
In May 2001 GWF Energy LLC (GWF Energy), a 50/50 joint venture between
Global and Harbinger GWF LLC (an affiliate of Harbert Power), entered into a
10-year power purchase agreement with the California Department of Water
Resources (DWR) to provide 340 MW of electric capacity to California from three
new natural gas-fired peaking plants. As of December 31, 2002, Global's
ownership interest in this project was 76%. Energy and capacity not scheduled by
the DWR is available for sale by GWF Energy. Two of the plants, the Hanford and
Henrietta Peaking plants, have commenced commercial operation, and had
approximately $25 million and $22 million in gross revenue, respectively, during
2002.
For further information, see Note 13. Commitments and Contingent
Liabilities of the Notes.
International Generation in Operation
Global owns interests in operating generation facilities in China, India,
Italy, Peru, Poland, Tunisia and Venezuela. In October 2002, a settlement was
reached between AES Corporation (AES) and Global under which Global will
transfer its minority ownership interests in certain Argentine assets to AES.
For more details, see Note 4. Asset Impairments of the Notes.
China
Meiya Power Company Limited (MPC)
Global's activities in China and surrounding countries are conducted
through MPC, a joint venture with the Asian Infrastructure Fund (AIF) and Hydro
Quebec International (HQI).
MPC is focused on developing, acquiring, owning and operating electric and
thermal heat generation facilities in China, South Korea and Taiwan. MPC seeks
to structure long-term power purchase contracts with its customers and to
incorporate take-or-pay and minimum take provisions to support debt service and
a specified equity return. Pricing terms for energy from its facilities
generally include a base price and indexed adjustments to compensate for changes
in inflation, foreign currency exchange rates up to the minimum equity return
and laws affecting taxes, fees and required reserves. For cogeneration
facilities, instead of selling the electricity through long-term power purchase
contracts, MPC sells its output through an annually determined quota fixed in
accordance with a predetermined formula which essentially determines the amount
of electricity to be sold by reference to the amount of steam generated by the
cogeneration facilities. The two cogeneration plants in Tongzhou and Nantong
operate under this system. MPC's projects, either under construction or in
operation, have obtained all the required approvals to enable issuance of a
business license in their respective localities.
Minority investments held by Global in nine generation facilities located
in China generated 2% of Global's total gross revenues in 2002.
32
India
PPN Power Generating Company Limited (PPN)
Global owns a 20% interest in PPN located in Tamil Nadu, India. Global's
partners include Marubeni Corporation, with a 26% interest, El Paso Energy
Corporation, with a 26% interest and the Reddy Group, with a 28% interest. PPN
has entered into a power purchase contract for the sale of 100% of the output to
the State Electricity Board of Tamil Nadu (TNEB) for 30 years, with an agreement
to take-or-pay to a plant load factor (PLF) of 85%.
Peru
Empresa de Electricidad de los Andes S.A. (Electroandes)
Electroandes' main assets include four hydroelectric facilities with a
combined installed capacity of 183 MW and 460 miles of transmission lines
located in the central Andean region (northeast of Lima). In addition,
Electroandes has a temporary concession to develop two greenfield hydroelectric
facilities totaling 180 MW and expansion projects on existing stations totaling
100 MW. These concessions expire in March 2003, but are renewable for two
additional years. In 2002, 91% of Electroandes revenues were obtained through
power purchase agreements with mining companies in the region. Electroandes
generated approximately $45 million of gross revenue in 2002.
Venezuela
Turbogeneradores de Maracay (TGM)
Global, with a 9% interest, is in partnership with Corporacion Industrial
de Energia (CIE), to own TGM. TGM sells all of the energy produced under
contract to Manufacturas del Papel (MANPA), a paper manufacturing concern
located in Maracay. MANPA and CIE have common controlling shareholders.
Turboven
The facilities in Cagua and Maracay are owned and operated by Turboven, an
entity which is jointly owned by Global and CIE. To date, power purchase
contracts have been entered into for the sale of approximately 70% of the output
of Maracay and Cagua, to various industrial customers. The power purchase
contracts are structured to provide energy only with minimum take provisions.
Fuel costs are passed through directly to customers and the energy tariffs are
calculated in US Dollars and paid in local currency. In 2002, the plants in
Maracay and Cagua generated $20 million of gross revenue.
Poland
Elcho
In October 2000, Global acquired a 55% economic interest in a combined
thermal energy and power generation plant in Chorzow, in the Upper Silesia
region of Poland, with Elektrownia Chorzow holding the remaining interest. As a
part of the acquisition of the existing plant, Global obtained the rights to
construct, and is constructing, a 220 MW electrical and 500 MW thermal combined
thermal energy and power plant in Chorzow. Global currently holds a 55% economic
interest in Elektrocieplownia Chorzow Sp. z.o.o. (ELCHO), including both the old
plant and the plant under construction, with the anticipation of expanding such
interest to approximately 90% by 2003. Global intends to operate the existing
plant until the new plant comes on line in late 2003. Polskie Sieci
Elektroenergetyczne SA (PSE), the Polish power grid company, has signed a
long-term power purchase agreement with ELCHO and it is planned for all of the
power to be delivered into the local distribution system. During 2002, the
existing plant generated approximately $21 million of gross revenue. As of
December 31, 2002, Energy Holdings' investment exposure, including
contingencies, was $80 million.
33
Skawina CHP Plant (Skawina)
During 2002, Global acquired a 50% interest in Skawina, a combined thermal
energy and power generation, for $31 million and will purchase additional shares
in 2003 that will bring Global's aggregate interest in Skawina to approximately
65%. In addition, Global has an obligation to offer to purchase an additional
10% ownership from Skawina's employees in 2004 for a total potential ownership
in Skawina of 75%. Skawina supplies electricity to three local distribution
companies and heat mainly to the city of Krakow, under one-year contracts
consistent with current practice in Poland. The sale is part of the Polish
Government's energy privatization program. During 2002, the plant generated
approximately $49 million of gross revenue. As of December 31, 2002, Energy
Holdings, investment exposure, including contingencies, was $90 million.
Tunisia
Rades
Global and its partner Marubeni Corporation own 60% and 40%, respectively,
of the Carthage Power facility in Rades, Tunisia for which Global is the
operator. A 20-year power purchase contract has been entered into for the sale
of 100% of the output to Societe Tunisienne d'Electricite et du Gaz, the
national utility. The tariff in the power purchase contract consists of a fixed
capacity charge to cover debt and equity return as well as fixed and variable
charges to cover fuel, operations and maintenance costs. Each tariff component
will be paid in local currency (Dinars). Rades commenced operation in May 2002
and generated approximately $57 million of gross revenue in 2002.
Power Plants Under Construction
Global has eight projects in construction located in the United States,
China, Italy, Oman, Poland, South Korea and Taiwan. All of these plants have
obtained power purchase contracts for their output. The two projects under
construction in Italy are currently held for sale.
United States
Tracy Peaker Plant
The Tracy Peaker Plant is under construction with a commercial operation
date deadline of July 1, 2003. Total project cost is expected to be $146
million. For additional information, see Note 13. Commitments and Contingent
Liabilities of the Notes.
Oman
Salalah
In March 2001, Global, through Dhofar Power Company (DPCO), signed a
20-year concession with the government of Oman to privatize the electric system
of Salalah. A consortium led by Global (81% ownership) and several major Omani
investment groups owns DPCO. The project is expected to achieve commercial
operation by April 2003. Total project cost is estimated at $256 million.
Global's equity investment, including contingencies and equity guarantees, is
expected to be approximately $97 million. As of December 31, 2002, Energy
Holdings' investment exposure, including contingencies, was $39 million.
Poland
Elcho
Global's 220 MW (electrical) and 500 MW (thermal) facility will replace an
existing 100 MW thermal energy and power generation facility. Global's economic
interest in the project is currently 55%, with the anticipation of expanding
such interest to approximately 90% by the end of 2003, with the balance held by
a local Polish company. Total project cost is estimated at $324 million.
Global's equity investment, including contingencies, is not expected to exceed
$105 million. The plant has a targeted commercial operation date in late 2003.
PSE, the Polish power grid company, has entered into a 20-year power purchase
agreement with ELCHO for 100% of the electrical output. All
34
of the thermal energy will be sold to Przedsiebiorstwo Energetyki Cieplnej, the
district heating company for a term of 20 years.
Taiwan
Kuo Kuang
Through MPC, Global owns a 17.5% indirect interest in a gas-fired
combined-cycle electric generation facility under construction in Kuo Kuang,
Taiwan. MPC has a 35% interest in Kuo Kuang and partners with two local
Taiwanese companies, Chinese Petroleum Corporation and CTCI Corporation. Kuo
Kuang has entered into a 25-year power purchase contract for the sale of 100% of
its electric output to Taiwan Power Company, the national utility. The power
purchase contract payments consist of a fixed capacity charge to cover debt and
equity return as well as fixed and variable charges to cover fuel, operations
and maintenance costs. The tariff will be paid in local currency. Kuo Kuang is
expected to be in operation in 2003, with a total cost of approximately $320
million. Global's equity investment, including contingencies, is expected to be
approximately $20 million.
South Korea
Yulchon
Through MPC, Global owns a 50% indirect interest in Yulchon Generation
Company, a gas-fired combined-cycle plant under construction in South Korea.
Open cycle operation of the plant is scheduled for mid-2004, with conversion to
combined-cycle operation scheduled for mid-2005. The power will be purchased by
state-owned Korea Electric Power Company under a long-term power purchase
contract. The total cost of the project is expected to be $301 million, and will
be provided by debt funds from project finance sources and equity funds from
MPC.
Electric Distribution Facilities
Global has invested in the following distribution facilities:
Number Global's
of Ownership
Name Location Customers Interest
Rio Grande Energia Brazil 1,020,000 32%
Chilquinta Energia Chile 480,000 50%
SAESA Chile 660,000 100%
Luz del Sur Peru 720,000 44%
Total 2,880,000
Brazil
Rio Grande Energia (RGE)
Together with VBC Energia, a consortium of Brazilian companies formed to
invest in electric privatization, and Previ, the largest pension fund in Brazil,
Global acquired RGE in 1997. Global is the named operator for the system. A
shareholders' agreement establishes corporate governance, voting rights and key
financial provisions. Global has veto rights over certain actions, including
approval of the annual budget and financing plan, executive officers,
significant investments or acquisitions, sale or encumbrance of assets,
establishment of guarantees, amendment of the concession agreement and dividend
policies. Day-to-day operations are the responsibility of RGE, subject to
partnership oversight. During 2001, VBC Energia and Previ transferred their
shares to Companhia Paulista de Forcae Luz (CPFL), an electric distribution
company in which each of VBC Energia and Previ have an interest.
35
RGE operates under a non-exclusive territorial concession agreement ending
in 2027. The concession is non-exclusive in that the distribution system must
provide large consumers the right to choose another provider of energy or to
self-generate. Global does not believe this represents a substantial threat to
the profitability of the distribution system in Brazil since the tariff
structure provides the distribution system the opportunity to recover all costs
associated with distribution service plus a return. RGE secures its energy
supply through contractual agreements expiring between 2007 and 2020. RGE will
also purchase 20% of its energy requirements through 2013 under the terms of
contracts, which are denominated in US Dollars. During 2002, RGE generated $430
million in gross revenue.
See Note 4. Asset Impairments of the Notes for a discussion of the goodwill
impairment recorded for RGE. For a discussion of the Brazilian regulatory
environment, see Item 1. Business - Regulatory Issues and Item 7. MD&A - Future
Outlook.
Chile
Chilquinta Energia S.A. (Chilquinta) and Luz del Sur (LDS)
Global together with its partner, Sempra, jointly own 99.99% of the shares
of Chilquinta, an energy distribution company with numerous energy holdings,
based in Valparaiso, Chile. In addition, Global and Sempra jointly own 87.9% of
LDS, which owns electric distribution facilities in Peru.
As equal partners, Global and Sempra share in the management of Chilquinta,
however, Sempra has assumed lead operational responsibilities at Chilquinta,
while Global has assumed lead operational responsibilities at LDS. The
shareholders' agreement gives Global important veto rights over major
partnership decisions including dividend policy, budget approvals, management
appointments and indebtedness.
In 2002, Chilquinta generated approximately $132 million in gross revenues.
Chilquinta operates under a non-exclusive perpetual franchise within Chile's
Region V which is located just north and west of Santiago. Global believes that
direct competition for distribution customers would be uneconomical for
potential competitors. LDS operates under an exclusive, perpetual franchise in
the southern portion of the city of Lima and in an area just south of the city
along the coast serving a population of approximately 3.2 million. In 2002, LDS
generated gross revenues of approximately $312 million. Both Chilquinta and LDS
purchase energy for distribution from generators in their respective markets on
a contract basis.
For a discussion of the regulatory environment in Chile and Peru, see Item
1. Business - Regulatory Issues.
Sociedad Austral de Electricidad S.A. (SAESA)
In 2001, Global purchased a 99.9% equity in SAESA and its subsidiaries from
Compañia de Petrleos de Chile S.A. (COPEC). The SAESA group of companies
consists of four distribution companies and one transmission company that
provide electric service to 390 cities and towns over 900 miles between Bulnes
in the VIII Region and Cochrane in the XI Region of southern Chile.
Additionally, Global purchased from COPEC approximately 14% of Empresa Elctrica
de la Frontera S.A. (Frontel), not already owned by SAESA, to bring Global's
total interest in Frontel to 95.5%.
Through its affiliated company Sistema de Transmission del Sur S.A. (STS),
SAESA provides transmission services to electrical generation facilities that
have power purchase arrangements with distributors in Regions VIII, IX and X and
has current capacity of 673 MVA.
SAESA also owns a 50% interest in an Argentine distribution company,
Empresa de Energia Rio Negro S.A. (EDERSA) which provides generation,
transmission and distribution services to 66 communities in the Province of Rio
Negro, which is located close to Argentina's principal oil and gas reserves and
has more than 600,000 residents.
SAESA and its Chilean affiliates are organized and administered according
to a centralized administrative structure designed to maximize operational
synergies. In Argentina, EDERSA has its own independent administrative
structure.
36
During 2002, SAESA's generated revenues of approximately $146 million,
serving 660,000 customers.
Argentina
EDEN, EDES and EDELAP
In October 2002, a settlement was reached under which Global will transfer
its minority interest in the assets of Empresa Distribuidora de Energia Norte
S.A. (EDEN), Empresa Distribuidora de Energia Norte S.A. (EDES) Empresa
Distribuidora La Plata S.A. (EDELAP) and other investments to Global's partner,
AES. For more details, see Note 4. Asset Impairments of the Notes.
EDEERSA
Global has an ownership interest in Empresa Distribuidora de Electricidad
de Entre Rios S.A. (EDEERSA). As of June 30, 2002, Global determined that its
investment in EDEERSA was completely impaired under Statement of Financial
Accounting Standards (SFAS) No. 144. For a detailed discussion, see Note 4.
Asset Impairments and Note 13. Commitments and Contingent Liabilities of the
Notes.
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