PG&E Corp.’s struggling National Energy Group (NEG) won an eleventh-hour, very short-term reprieve with a lenders’ syndicate Monday that will allow for the continued construction of new merchant electric generating plants in Arizona, Michigan and New York, all of which have had a pall cast over them for the past three months as NEG and its parent struggle to reorder the unit’s balance sheet through still undecided asset sales, reorganization and refinancings. The agreement is good through Nov. 14, after which lenders need to come up with a longer term solution.

The new agreement will provide “limited funding” for the company’s subsidiary, GenHoldings I LLC, allowing construction to continue at power plants in the three states. Facing a $431 million payment and without the cash to pay it, NEG earlier in the month announced it would pay no more toward a 1,080-MW plant under construction in Athens, Greene County, NY, and similar plants under construction in Arizona and Michigan, which were reported last week to be $355 million short of completion.

In August and September 2002, PG&E National Energy Group funded $150 million of Gen Holding’s equity commitment. GenHolding’s remaining equity commitment is $355 million, the PG&E announcement said.

In its news announcement Monday, NEG said it had “disclosed in a Securities and Exchange Commission report that it notified the lenders under GenHoldings’ credit facility that it does not intend to make further equity contributions and is in negotiations for the lenders to fund completion of these projects.”

NEG guarantees the obligation of its subsidiary, GenHoldings I LLC, to make equity contributions under GenHolding’s credit facility to fund construction of the Harquahala Power Plant in Tonopah, AZ, the Covert Plant in Covert, MI, and the Athens Plant. This credit facility is secured by these projects in addition to the Millennium power plant in Charlton, MA.

In October, a syndicate of 16 lenders extended the maturity date of a separate PG&E National Energy Group revolving credit facility from Oct. 21, 2002 to Nov. 14, 2002, and in addition, the parent company has secured new revolving credit lines.

But NEG continues to struggle, causing some industry media to zero in on recent cutbacks by the merchant unit’s once seemingly unflappable interstate gas transmission pipeline in the Pacific Northwest, which set aside a $100 million expansion earlier this month because customers and marketing analyses said no one was ready to support greater capacity in the current depressed wholesale markets.

Wall Street observers also were watching NEG’s situation in New England closely, and last Thursday financial reports were surfacing that a portfolio of existing generating plants in the Northeast were proving very difficult to sell, something the merchant unit has been attempting to do since long before its credit crunch hit in mid-summer. NEG reportedly was shopping four of the many plants it purchased from the New England Electric System five years ago when the industry restructuring was fresh and power plants were selling for well over book values.

Analysts predicted selling these assets or the companies themselves in the current distressed markets would be a real “long shot” when the merchant power companies themselves are trading in the stock market at such unprecedentedly low prices for the energy sector.

Headquartered in Bethesda, MD, NEG develops, builds, owns and operates electric generating and natural gas pipeline facilities and provides energy trading, marketing and risk-management services, but all of these businesses are currently in flux and could be sold or reorganized substantially unless some permanent refinancing solutions are reached in the next three weeks.

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