SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: ~~October~~November 2818, 2002


	Exact Name of
Commission	Registrant	State or other	IRS Employer
File	as specified in	Jurisdiction of	Identification
Number	its charter	Incorporation	Number

333-66032	PG&E National	Delaware	94-3316236
	Energy Group, Inc.

PG&E National Energy Group, Inc.
7600 Wisconsin Avenue
(mailing address: 7500 Old Georgetown Road)
Bethesda, Maryland 20814

(Address of principal executive offices) (Zip Code)

(301) 280-6800
(Registrant’s telephone number, including area code)

Item 5. Other Events

~~Extension~~This current report on Form 8-K discusses recent defaults by PG&E National Energy Group Inc. and includes forward-looking statements with respect to potential charges against earnings that are necessarily subject to various risks and uncertainties. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. These statements should be read in conjunction with the forward-looking statement factors set forth in the Management Discussion and Analysis of ~~Revolving~~Financial ~~Credit~~Condition ~~Facility~~and ~~Expiration~~Results ~~Date~~of Operations in the Form 10-Q Quarterly Report of PG&E NEG for the quarter ended September 30, 2002.

AsDefaults previously disclosed, PG&E National Energy Group’s (“PG&E NEG”) $750 million 364-day revolving credit facility was amended to reduce the lenders’ commitments to $500 million and to extend the maturity date to October 21, 2002. On October 21, 2002, PG&E NEG and the lenders under ~~the~~Various ~~364-day~~Debt ~~and two-year~~Agreements ~~revolving credit facilities entered into an amendment to the credit facilities which extended the expiration~~ and ~~renewal~~Guaranteed ~~date~~Equity ~~to November 14, 2002.~~Commitments ~~The amendment (i) reduces the lenders commitments under the 364-day facility~~ and the two-year facility to $431 million and $273 million, respectively, which are the amounts outstanding as of October 21, 2002; (ii) prohibits PG&E NEG from making any payment for the Athens, Covert, Harquahala and La Paloma projects under construction; and (iii) changes the interest payment schedule from quarterly to monthly. The amendment also provides for payment of an amendment fee equal to 1% of each lenders’ outstanding loans under the 364-day revolving credit facility and a deferred fee of 1-1/2% of each lenders’ outstanding loans under the 364-day revolving credit facility subordinated in payment to repayment in full of PG&E NEG’s senior indebtedness due to unaffiliated parties.

~~Funding~~On ~~and~~November 14, ~~Forbearance~~2002, PG&E National Energy Group Inc. (PG&E NEG) defaulted on the repayment of the $431 million 364-day tranche of its Corporate Revolver. The amount outstanding under the two-year tranche of the Corporate Revolver is $273 million, the majority of which supports outstanding letters of credit. The default under the Corporate Revolver also constitutes a cross-default under (1) PG&E NEG’s Senior Notes ($1 billion outstanding), (2) its guarantee of the Turbine Revolver ($205 million outstanding), and (3) its equity commitment guarantees for the GenHoldings credit facility ($355 million outstanding), for the La Paloma credit facility ($375 million outstanding) and for the Lake Road credit facility ($230 million). In addition, on November 15, 2002, PG&E NEG failed to pay a $52 million interest payment due under the Senior Notes.

AsNotwithstanding ~~previously~~the ~~disclosed~~defaults, PG&E NEG ~~notified~~believes that the lenders ~~under~~will ~~GenHoldings I,~~continue ~~LLC’s~~to ~~(“GenHoldings”)~~negotiate ~~credit~~a ~~facility~~global ~~that~~restructuring ~~PG&E~~of ~~NEG~~these ~~did~~commitments. ~~not~~This ~~intend~~global torestructuring ~~make further~~would ~~equity contributions to GenHoldings.~~ require PG&E NEG ~~announced~~to ~~that~~abandon, itsell, ~~was~~or ~~in negotiations~~transfer ~~for~~certain ~~the lenders to fund completion~~ of ~~these projects. On October~~PG&E ~~24,~~NEG’s ~~2002,~~merchant ~~GenHoldings~~assets and ~~the~~reduce ~~lenders~~energy ~~under the GenHoldings credit facility~~trading ~~entered~~operations. ~~into~~If aagreed ~~Second~~to ~~Waiver~~by ~~and~~PG&E ~~Forbearance~~NEG’s ~~Agreement~~lenders ~~pursuant to which the~~and ~~lenders~~implemented ~~waived~~by ~~through~~PG&E ~~November 14~~NEG, ~~2002,~~these ~~existing~~various ~~defaults under the~~asset ~~GenHoldings~~transfers, ~~credit~~sales ~~agreement~~and toabandonments ~~allow~~would ~~GenHoldings~~cause tosubstantial ~~(i) borrow~~charges up to ~~$50 million~~earnings ~~and (ii) issue specified letters of credit~~ in aeither ~~face~~the ~~amount~~fourth ~~not~~quarter ~~to exceed~~of ~~$36 million. The lenders also agreed to forbear until November 14,~~ 2002, ~~from~~or ~~exercising~~in ~~any remedies with respect to existing defaults~~2003. ~~The~~ ~~agreement,~~If inthe ~~effect~~lenders ~~until November 14, 2002, is a transitional~~exercise ~~step~~their ~~while~~default ~~the~~remedies ~~lenders~~or ~~look~~if at a ~~more~~restructuring ~~permanent~~is ~~resolution.~~not achieved, PG&E NEG ~~agreed~~ toand ~~pay~~certain ~~the lenders a fee equal to 1%~~ of ~~the maximum amount which could~~ beits ~~borrowed~~subsidiaries ~~and~~may ~~the maximum value of letters of credit which could~~ be ~~issued pursuant~~compelled to ~~the~~seek ~~Second~~protection ~~Waiver~~under ~~and~~or ~~Forbearance~~be ~~Agreement.~~forced ~~On October~~into Chapter ~~25,~~11 ~~2002, the~~of ~~lenders funded GenHoldings pending draw request for~~ the ~~Athens,~~Bankruptcy ~~Covert and Harquahala construction projects~~Code.

Notwithstanding these restructuring efforts, if PG&E ~~Corporation~~NEG ~~Loan~~abandons, sells or transfers assets in an effort to meet current liquidity needs or other strategic efforts, PG&E NEG would incur substantial charges to earnings in either the fourth quarter of 2002 or in 2003.

~~PG&E~~In ~~NEG’s parent~~addition, the default by PG&E ~~Corporation~~NEG ~~(“Parent”),~~will ~~has~~cause ~~disclosed~~cross-defaults into aoccur ~~Current~~under ~~Report~~certain onmaster ~~Form 8-K~~trading ~~that~~agreements ~~on October 18, 2002, Parent~~ entered into abetween ~~Second Amended~~various ~~and~~of ~~Restated~~PG&E ~~Credit Agreement with the lenders party thereto, Lehman~~NEG’s ~~Commercial~~energy ~~Paper~~trading ~~Inc.,~~subsidiaries ~~as Administrative Agent,~~ and ~~others (the “Parent Loan Agreement”)~~counterparties. ~~Under the Parent Loan Agreement, Parent agreed, among other things, not to permit~~ PG&E NEG orhas ~~any~~guaranteed ofthe energy ~~its~~trading subsidiaries’ toobligations ~~(i) sell~~under ~~or abandon~~these ~~any of their respective assets except in compliance with certain conditions, or (ii) restructure any of their respective indebtedness except in compliance with certain conditions~~contracts. ~~These prohibitions do not apply to a~~ ~~“Qualified Asset Sale,” a “Qualified Bankruptcy Sale,” a “Qualified~~ ~~Abandonment,” or a~~

Rating Actions

On November 13, 2002, Moody’s Investors Service (Moody’s) announced its decision to downgrade the credit rating of PG&E NEG to Ca from B3. In addition, Moody’s announced that it was downgrading the credit rating of each of the following PG&E NEG subsidiaries: PG&E Gas Transmission, Northwest Corp. (PG&E GTN) (downgraded to B1 from Ba1); USGen New England, Inc. (USGenNE) (downgraded to Caa1 from B2); and Attala Generating Company, LLC (Attala) (downgraded to Caa2 from B2). The ratings on each of these companies remain negative and PG&E GTN remains under review for possible downgrade.

Moody’s stated in its press release that its rating action reflects PG&E NEG’s disclosures that it would not make certain interest and principal payments under the Corporate Revolver or the Senior Notes. Moody’s stated that its outlook for these companies reflects the uncertainty associated with the outcome of PG&E NEG’s debt restructuring efforts, including the possibility of a bankruptcy filing by PG&E NEG.

On November 14, 2002, Standard & Poor’s (S&P) announced its decision to downgrade the credit rating of PG&E NEG to D from B- and removed the rating from CreditWatch. In addition, S&P announced that it was downgrading the credit rating of each of the following PG&E NEG subsidiaries: PG&E GTN(downgraded to CCC from BB-); USGenNE (downgraded to C from B-); PG&E Energy Trading Holdings Corp. (PG&E ET) (downgraded to C from B-); and Attala (downgraded to C from B-). The ratings on each of the subsidiaries remain on CreditWatch with negative implications. S&P withdrew its rating of PG&E Generating Company, LLC.

S&P stated that its rating action reflects the possibility that PG&E NEG may not be successful in resolving its financial difficulties outside of bankruptcy. S&P lowered PG&E GTN’s rating to below investment grade to reflect S&P’s maximum three-notch differential between the rating of a ring fenced entity and its ultimate parent. S&P noted that PG&E GTN’s stand-alone credit quality remains considerably stronger than the current rating would indicate.

“Qualified Restructuring,” all as defined in the Parent Loan Agreement. In general, these definitions permit transactions in which, among other things, the Parent (i) is released from existing liabilities related to the assets that are the subject of the transaction, (ii) incurs no new liabilities as a result of the transaction, and (iii) receives payment at closing for any taxes that would be payable as a result of the transaction if PG&E NEG and its subsidiaries were a separate group for tax purposes.

The Parent Loan Agreement also restricts Parent’s investments in PG&E NEG to, with limited exceptions, an amount that is no more than 75% of the net cash tax savings received by Parent after October 1, 2002, as a result of a “Qualified Asset Sale,” a “Qualified Bankruptcy Sale,” a “Qualified Abandonment,” or a “Qualified Restructuring,” (as defined in the Parent Loan Agreement) by PG&E NEG. PG&E NEG is included in the federal consolidated tax return of Parent.

PG&E NEG is not a party to the Parent Loan Agreement.

Item 7. Exhibits

10.1 Second Amendment to Credit Agreement, dated as of October 18, 2002, to the Amended and Restated Credit Agreement, dated as of August 22, 2001, among PG&E National Energy Group, Inc., JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Issuing Bank, the several lenders from time to time parties thereto, the Documentation Agents thereunder, the Syndication Agents thereunder, and JPMorgan Chase Bank, as Administrative Agent.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PG&E NATIONAL ENERGY GROUP, INC. ~~By: /s/ Thomas E. Legro Name: Thomas E. Legro Title: Vice President and Chief Accounting Officer~~

~~Dated~~By: ~~October 28,~~/s/ ~~2002~~ Thomas E. Legro Name: Thomas E. Legro Title: Vice President and Chief Accounting Officer

4Dated: November 18, 2002

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