Lenders provide funding for PG&E National Energy Group's construction projects through completion

BETHESDA, Md., Jan. 17, 2003 -- PG&E National Energy Group, Inc. announced in a Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on January 16, 2003 that a syndicate of lenders has agreed to provide funding for the company's subsidiary, GenHoldings I LLC, to complete construction of the Athens, Covert and Harquahala power projects. PG&E National Energy Group is a wholly owned subsidiary of PG&E Corporation.

The funds also will provide working capital facilities allowing each project, as well as the operational Millennium Power in Massachusetts, to pay for its fuel and other operating requirements.

This will allow for each project's own collateral to support natural gas pipeline capacity reservations and independent transmission system operator requirements. Until requested otherwise by the lenders, subsidiaries of PG&E National Energy Group will continue to manage the completion of construction at the three sites and will provide operating and energy services management for all GenHoldings' projects.

In connection with the lenders' waiver of various defaults and additional funding commitments, PG&E National Energy Group has agreed to work with the lenders regarding disposition of the equity in or assets of any or all of the company's subsidiaries holding the Athens, Covert, Harquahala and Millennium projects.

The amended agreement requires that if the four facilities are not transferred to the lenders or their designees on or before March 31, 2003, a default would occur. This would trigger lender remedies, including the right to foreclose on the projects.

PG&E National Energy Group has re-affirmed its guarantee of GenHoldings' obligation to make equity contributions to these projects of approximately $355 million. Neither PG&E National Energy Group nor GenHoldings currently expects to have sufficient funds to make this payment. The requirement to pay $355 million will remain an obligation of PG&E National Energy Group that would survive the transfer of the projects.

The three power plants in construction are all natural gas-fueled facilities, using state-of-the-art combined-cycle generating technology. The projects are the following:
Athens Generating, a 1,080-megawatt plant in Athens, NY, is expected to be ready for commercial operation in late summer 2003. Construction work is approximately 80 percent complete.

Covert Generating, a 1,170-megawatt plant in Covert, MI, is expected to be ready for commercial operation in fall 2003. Construction work is approximately 70 percent complete.
Harquahala Generating, a 1,092-megawatt plant in Tonopah, AZ, is expected to be ready for commercial operation in fall 2003. Construction work is approximately 77 percent complete.

The 360-megawatt Millennium Power plant owned by the GenHoldings subsidiary also is a natural gas fueled combined-cycle generating facility. Located in Charlton, MA, the plant has more than 20 employees and entered commercial service in spring 2001.

PG&E National Energy Group is currently in negotiations with key lenders and bondholders regarding a restructuring of the company's debts. During the last two months, the company has:

* Entered into an agreement to sell its 66.6 megawatt Mountain View wind- powered generation facility in the San Gorgonio Pass, near Palm Springs, Cal. to Centennial Power, Inc. for $102.5 million. The sale remains subject to receipt of regulatory approval from the Federal Energy Regulatory Commission and other conditions contained in the agreement.

* Reached agreement with its lenders to provide funding for two of the company's power-plant projects, Lake Road Generating in Connecticut and La Paloma Generating in California. The funds are allowing construction to be completed at the La Paloma plant, provide additional working capital facilities to enable each project to continue to procure fuel and other services and support collateral that may be required by suppliers of natural gas transportation services and others for the completion and operation of the projects. Subsidiaries of PG&E National Energy Group will continue to manage the completion of construction of La Paloma and provide operating and energy management services to both projects. The agreement requires that failure to transfer the Lake Road and La Paloma projects to the respective lenders or their designees by June 9, 2003 will constitute a default under the agreements. These projects have been financed entirely with debt. PG&E National Energy Group does not currently expect to have the funds needed to fulfill its obligation to guarantee the equity commitments for these projects in the aggregate amount of $604.5 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, Ore., will continue to be operated and managed by a subsidiary of PG&E National Energy Group.

PG&E National Energy Group also reported that it will take a charge in the fourth quarter of 2002 of approximately $248 million for costs related to the termination of certain interest rate hedge contracts related to the projects and the termination of certain turbine purchase agreements related to the company's Mantua Creek project.

PG&E National Energy Group is currently in default under various debt agreements and guaranteed equity commitments totaling approximately $2.9 billion. The company continues to negotiate with its lenders regarding these commitments.

As previously reported, PG&E National Energy Group and its subsidiaries are continuing efforts to abandon, sell and transfer additional assets, and reducing energy trading operations in an ongoing effort to raise cash and reduce debt, whether through negotiation with lenders or otherwise. Such asset transfers, sales or abandonments will cause substantial charges to earnings in 2002 and 2003.

As previously reported, if the lenders exercise their default remedies or if the financial commitments are not restructured, PG&E National Energy Group and certain of its subsidiaries may be compelled to seek protection under or be forced into a proceeding under Chapter 11 of the U.S. Bankruptcy Code.

For information about other developments please see the Form 8-K.

Headquartered in Bethesda, Md., PG&E National Energy Group develops, builds, owns and operates electric generating and natural gas pipeline facilities and provides energy trading, marketing and risk-management services.


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