With its subsidiary NRG on the financial ropes and near bankruptcy, Xcel Energy on Friday announced plans to sell the Viking Gas Transmission pipeline and a one-third interest in the Guardian Pipeline project to Northern Border Partners LP for $152 million including associated debt. Northern Border Partners is expected to purchase all of the common stock of Viking by the end of December, subject to regulatory approvals.

Xcel CFO Dick Kelly said the sale reflects the utility company’s continuing focus on core utility operations. “We’ve been pleased with Viking’s financial performance and the contributions of its employees to make it a successful company,” Kelly said. “However, we do not have enough scale in the gas transmission business to realize the full potential of Viking. This sale is consistent with our intent to focus on our core electric and gas distribution businesses.”

Northern Border Partners CEO Bill Cordes touted the stable cash flows of the Viking and Guardian pipeline systems. “In addition, these systems are strategically located to serve upper Midwestern markets and provide potential operating and commercial synergies with other Northern Border assets,” he noted.

With Viking and Guardian and Northern Border Pipeline Co., Northern Border Partners will serve a substantial portion of the upper Midwest marketplace. Northern Border already delivers 2.4 Bcf/d of gas to the region. Guardian, which will begin at the terminus of Northern Border at Joliet, IL, will provide a new reach into the Wisconsin market from the south with 750 MMcf/d of access. Guardian Pipeline is scheduled to start service next month. The 141-mile interstate natural gas pipeline system will transport gas from Joliet to a point west of Milwaukee. Subsidiaries of CMS Energy and Wisconsin Energy Corp. hold the remaining interests in the Guardian system.

The Viking system is a 671-mile interstate gas pipeline extending from Emerson, MB, to Marshfield, WS. It has a firm transportation capacity of 516 MMcf/d and connects to many other major pipeline systems including TransCanada, Northern Natural Gas, Great Lakes and ANR to provide service to markets in Minnesota, Wisconsin and North Dakota. Northern Border Partners also owns the 350-mile Midwestern Gas Transmission system, which stretches from Portland, TN, to Joliet.

“The earnings before interest, taxes, depreciation and amortization (EBITDA) for 2003 associated with our ownership of Viking and Guardian are expected to be approximately $22 to $23 million,” said Cordes. “We believe that this acquisition will be immediately accretive to earnings and cash flow per unit. It should provide at least $0.10 in additional cash flow per unit in 2003 and 2004, depending on the timing of permanent financing.” Depreciation expense and maintenance capital expenditures are expected to total $7.5 million and $4.5 million respectively in 2003, the company said. Northern Border Partners will finance the acquisition initially under its revolving credit facility and expects to issue equity for a portion of the acquisition price next year.

Meanwhile, for Xcel, the sale represents a small step toward restoring financial strength. The Wall Street Journal reported on Friday that Xcel’s independent power generation and marketing subsidiary, NRG Energy Inc., is prepared to surrender its ownership to creditors through a Chapter 11 bankruptcy filing. NRG and Xcel denied the rumor Friday afternoon, but such a possibility has been expected for months.

“We have begun the process of negotiating with our various bank and bondholder constituencies regarding specific points in the restructuring proposal,” NRG President Richard C. Kelly said. “We anticipate that those negotiations will take several weeks. Consistent with what we have said previously, a Chapter 11 filing may ultimately be the means to implement any restructuring proposal agreed to with our creditors.

“Our customers and vendors should be reassured that NRG has sufficient cash and liquidity to meet its current operating obligations,” he added. “Any Chapter 11 filing should have little, if any, impact on employees and plant operations as we would continue to run our businesses and plants in the same manner as before and without interruption.”

NRG owes banks and bondholders as much as $10 billion, including about $1.3 billion in overdue collateral payments that were triggered by credit ratings downgrades in August.

Xcel on Friday also received a waiver from regulatory authorities that the company said will allow it to either renew a $400 million credit line that expired Friday, or pursue other unnamed options.

If the independent power generation unit filed under Chapter 11, it would be the first major energy company to file for bankruptcy since the fall of Enron. However, many observers expect more bankruptcy filings to follow. Standard & Poors’ said earlier last week that merchant energy companies will have to refinance about $90 billion in debt between 2003 and 2006, which will be one of the “worst times in recent history to refinance debt” (see Daily GPI, Nov. 7).

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