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 2128, 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

~~This~~Extension current report on Form 8-K includes forward-looking statements, including projections, 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 ~~Financial~~Revolving ~~Condition~~Credit ~~and~~Facility ~~Results~~Expiration ~~of Operations in the~~Date ~~Form 10-Q Quarterly Report of PG&E NEG for the quarter ended June 30, 2002.~~

~~Rating~~As ~~Action~~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 364-day and two-year revolving credit facilities entered into an amendment to the credit facilities which extended the expiration and renewal date to November 14, 2002. 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.

OnFunding October 11, 2002, Standard & Poor’s (S&P) announced its decision to downgrade the credit rating of PG&E National Energy Group, Inc. (PG&E NEG), a subsidiary of PG&E Corporation, to B- from BB+. In addition, S&P 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 BB- from BBB+); USGen New England, Inc. (USGen NE) (downgraded to B- from BB+); PG&E Generating Company, LLC (downgraded to B- from BB+); PG&E Energy Trading Holdings Corp. (PG&E ET) (downgraded to B- from BB+); and ~~Attala~~Forbearance ~~Generating Company, LLC (downgraded to B- from BB+). The ratings on each~~ of ~~these~~GenHoldings ~~companies remain on CreditWatch with negative implications.~~

~~S&P~~As ~~stated~~previously ~~that~~disclosed, ~~its rating action reflects the uncertainty facing~~ PG&E NEG in ~~reaching~~notified anthe ~~agreement~~lenders ~~with~~under ~~its~~GenHoldings ~~bank~~I, LLC’s ~~lenders~~(“GenHoldings”) ~~regarding~~credit ~~the~~facility ~~impending~~that ~~October 21,~~PG&E ~~2002,~~NEG ~~maturity~~did ofnot aintend ~~$431 million~~to ~~principal~~make further ~~payment,~~equity ~~and~~contributions ~~further~~to ~~noted~~GenHoldings. ~~that~~ PG&E NEG ~~“currently~~announced ~~has~~that noit ~~access~~was toin negotiations for the ~~capital~~lenders ~~markets~~to ~~and~~fund ~~lacks~~completion ~~adequate liquid~~of ~~funds~~these toprojects. ~~make~~On ~~the~~ October 21 24, 2002, ~~payment.”~~GenHoldings ~~S&P~~and ~~noted~~the ~~that~~lenders itunder ~~lowered~~ the ~~ratings~~GenHoldings oncredit ~~PG&E~~facility entered ~~ET,~~into ~~despite~~a ~~the~~Second ~~existence~~Waiver ofand aForbearance ~~corporate~~Agreement ~~structure~~pursuant ~~that is designed~~ to ~~comply~~which ~~with S&P’s~~the ~~criteria~~lenders towaived ~~protect~~through aNovember 14, ~~subsidiary~~2002, ~~from~~existing defaults under the GenHoldings ~~bankruptcy~~credit ofagreement ~~its~~to ~~parent,~~allow ~~due~~GenHoldings to ~~PG&E ET’s~~(i) borrow ~~reliance~~up onto ~~PG&E~~$50 million ~~NEG~~ and ~~its~~(ii) issue ~~affiliates~~specified ~~for~~letters ~~capital and support~~ of ~~PG&E ET’s~~credit ~~trading operations~~ in ~~the~~a ~~form~~face ofamount ~~explicit~~not ~~collateral~~to exceed ~~guarantees~~$36 million. ~~S&P lowered~~The ~~PG&E~~lenders ~~GTN’s~~also ~~rating~~agreed to ~~below~~forbear ~~investment~~until ~~grade to reflect S&P’s maximum~~November 14, ~~three-notch~~2002, ~~differential~~from ~~between~~exercising ~~the~~any ~~rating~~remedies ofwith arespect ~~ring~~to ~~fenced~~existing ~~entity and its~~defaults. ~~ultimate~~The ~~parent.~~agreement, ~~Although~~in ~~S&P~~effect ~~noted~~until ~~that~~November ~~PG&E~~14, ~~GTN~~2002, is ~~“legally~~a ~~ring fenced,”~~transitional ~~and~~step ~~that~~while ~~PG&E~~the ~~GTN’s~~lenders ~~stand-alone~~look ~~credit~~at ~~quality~~a ~~remains~~more ~~good,~~permanent ~~S&P~~resolution. ~~stated it could not view~~ PG&E ~~GTN’s~~NEG agreed ~~rating~~to onpay athe ~~stand-alone~~lenders ~~basis~~a ~~because~~fee ofequal ~~the~~to ~~100~~1% ~~ownership~~ byof ~~PG&E NEG and~~ the ~~guarantees~~maximum ~~that~~amount ~~PG&E~~which ~~GTN holds on behalf of~~could ~~affiliates.~~be ~~S&P~~borrowed ~~lowered~~and the ~~ratings~~maximum value of ~~the~~letters ~~other~~of ~~PG&E~~credit ~~NEG~~which ~~subsidiaries~~could ~~noting~~be issued ~~that~~pursuant ~~because~~to ~~these~~the ~~subsidiaries~~Second doWaiver ~~not~~and ~~benefit~~Forbearance ~~from~~Agreement. ~~any~~On ~~legal~~October 25, ~~ring fencing~~2002, ~~there~~the islenders ~~the~~funded ~~possibility~~GenHoldings ~~that~~pending ~~these~~draw ~~subsidiaries~~request ~~would~~for bethe ~~consolidated~~Athens, inCovert aand ~~bankruptcy~~Harquahala ofconstruction ~~PG&E NEG~~projects.

~~On October 16, 2002, Moody’s Investors Service, Inc. (Moody’s) downgraded the credit ratings of~~ PG&E ~~GTN’s~~Corporation ~~senior secured indebtedness to Baa3 from Baa2,~~Loan ~~USGenNE’s pass-through certificates and syndicated bank credit facility to Ba3~~ ~~from~~

PG&E NEG’s parent, PG&E Corporation (“Parent”), has disclosed in a Current Report on Form 8-K that on October 18, 2002, Parent entered into a Second Amended and Restated Credit Agreement with the lenders party thereto, Lehman Commercial Paper Inc., as Administrative Agent, and others (the “Parent Loan Agreement”). Under the Parent Loan Agreement, Parent agreed, among other things, not to permit PG&E NEG or any of its subsidiaries to (i) sell or abandon 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. These prohibitions do not apply to a “Qualified Asset Sale,” a “Qualified Bankruptcy Sale,” a “Qualified Abandonment,” or a

~~Baa3~~“Qualified Restructuring,” ~~and~~all ~~Attala~~as ~~Generating~~defined ~~Company,~~in ~~LLC’s~~the ~~senior~~Parent ~~secured~~Loan ~~indebtedness~~Agreement. toIn ~~Ba3~~general, ~~from~~these ~~Baa3.~~definitions ~~Moody’s~~permit ~~stated~~transactions ~~that~~in ~~its~~which, ~~action~~among ~~reflects~~other ~~that~~things, the ~~these~~Parent ~~entities are~~(i) is ~~wholly~~released ~~owned~~from byexisting ~~PG&E~~liabilities ~~NEG,~~related ~~“whose~~to ~~credit~~the ~~profile~~assets ~~has~~that are ~~deteriorated~~the ~~due~~subject ~~to weak~~of ~~operating~~the ~~performance~~transaction, ~~low~~(ii) incurs ~~operating~~no ~~cash~~new ~~flow~~liabilities ~~relative~~as toa ~~its debt~~result ~~levels~~of the transaction, and ~~very~~(iii) receives ~~tight~~payment ~~liquidity”~~at ~~noting~~closing ~~that~~for ~~PG&E~~any ~~NEG~~taxes ~~relies upon excess cash~~that ~~flow~~would ~~generated~~be bypayable ~~PG&E~~as ~~GTN~~a ~~and~~result ~~USGenNE.~~of ~~Moody’s also noted that it has concerns about~~ the ~~ability~~transaction ofif PG&E NEG toand ~~extend~~ its subsidiaries ~~revolving~~were ~~credit~~a ~~facility that~~separate ~~expires~~group onfor ~~October 21,~~tax ~~2002~~purposes.

~~Further,~~The onParent ~~October 18,~~Loan ~~2002,~~Agreement ~~Moody~~also restricts Parent’s ~~downgraded~~investments in PG&E NEG’s ~~senior~~to, ~~unsecured~~with ~~debt~~limited exceptions, ~~issuer~~an ~~and~~amount ~~syndicated~~that ~~bank~~is ~~credit~~no ~~facility~~more tothan B375% ~~from~~of ~~B1.~~the ~~Moody’s~~net ~~also~~cash ~~further downgraded PG&E~~tax ~~GTN’s~~savings ~~senior~~received ~~unsecured~~by ~~debt~~Parent toafter ~~Ba1~~October 1, ~~from Baa3~~2002, ~~USGenNE’s~~as ~~pass-through certificates~~a ~~and~~result ~~syndicated~~of ~~bank~~a ~~credit~~“Qualified Asset ~~facility~~Sale,” toa B2“Qualified ~~from~~Bankruptcy ~~Ba3~~Sale,” ~~and~~a ~~Attala Generating~~“Qualified ~~Company~~Abandonment,” ~~LLC’s~~or ~~senior secured debt to B2 from Ba3. Moody’s kept~~a ~~these~~“Qualified ~~ratings~~Restructuring,” ~~under~~(as ~~review~~defined ~~for~~in ~~further~~the ~~possible~~Parent ~~downgrade.~~Loan InAgreement) ~~addition~~by ~~to its~~PG&E ~~comments~~NEG. ~~in its October 16, 2002 release, Moody’s noted that~~ PG&E NEG ~~had disclosed that it~~ is included in ~~negotiations with lenders under its GenHoldings I, LLC construction facility for~~ the ~~lenders~~federal toconsolidated ~~fund~~tax ~~completion~~return of ~~the projects~~Parent.

~~As previously reported,~~ PG&E NEG and its rated subsidiaries, including PG&E GTN, have provided guarantees to counterparties in support of PG&E ET’s energy trading and non-trading activities related to PG&E NEG’s merchant energy portfolio. The face amount of PG&E GTN’s guarantees, excluding guarantees relating to tolling agreements, is ~~$468 million.~~not Asa ofparty October 7, 2002, the current exposure (excluding exposure under tolling agreements) guaranteed by PG&E GTN, is approximately $83 million. The amount of such exposure varies daily depending on changes in market prices and net changes in position. In light of the recent downgrades of PG&E GTN’s credit ratings, some counterparties may seek replacement security to ~~collateralize~~ the ~~exposure guaranteed~~Parent byLoan ~~PG&E GTN~~Agreement.

~~At October~~Item 7, 2002, PG&E ET’s estimated uncollateralized current exposure (excluding exposure under tolling agreements) is approximately $293 million (including the exposure guaranteed by PG&E GTN in the amount of $83 million as discussed above). ~~In the past, PG&E ET has been able to negotiate acceptable~~Exhibits ~~arrangements and reduce its overall exposure to counterparties when PG&E ET or~~ its counterparties have faced similar situations. There can be no assurance that PG&E ET can continue to negotiate acceptable arrangements in the current circumstances. PG&E NEG cannot quantify with any certainty the actual future calls on PG&E ET’s liquidity, however, based on current estimates of anticipated demands for collateral, PG&E NEG believes that PG&E ET has sufficient liquidity to meet anticipated calls for cash collateral or other credit support, or to otherwise reduce this uncollateralized exposure. The actual calls for collateral will depend largely upon counterparties’ responses to the ratings downgrades, mutual forebearance as many counterparties also have been downgraded, pre- and early-pay arrangements, the continued performance of PG&E NEG companies under the underlying agreements, whether counterparties have the right to demand such collateral,

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.

the execution of master netting agreements and offsetting transactions, changes in the amount of exposure, and the counterparties’ other commercial considerations.

The face amount of PG&E NEG’s guarantees relating to PG&E ET’s tolling agreements, including $174 million of guarantees provided by PG&E GTN, is approximately $599 million. This amount includes $150 million that both PG&E NEG and PG&E GTN have guaranteed in connection with the tolling agreement with Liberty Electric Power, L.P. (Liberty). As previously disclosed, Liberty has provided notice to PG&E ET that the ratings downgrade of PG&E NEG constituted a material adverse change under the tolling agreement requiring PG&E ET to post security in the amount of $150 million. PG&E ET has not posted such security. Under the terms of the guarantees for an aggregate $150 million, Liberty must first proceed against PG&E NEG’s guarantee, and can only demand payment under PG&E GTN’s guarantee if (1) PG&E NEG is in bankruptcy or (2) Liberty has made a payment demand on PG&E NEG which remains unpaid 5 business days after the payment demand is made. PG&E ET is in negotiations with Liberty to resolve this situation.

The other tolling agreement for which PG&E GTN has issued a guarantee of PG&E ET’s payment obligations is an 8-year tolling agreement with DTE-Georgetown, LP (“DTE”) in an amount not to exceed $24 million. By letter dated October 14, 2002, DTE provided notice to PG&E ET that the downgrade of PG&E GTN constituted a material adverse change under the tolling agreement between PG&E ET and DTE and that PG&E ET was required to post replacement security. PG&E ET has a 10-business day cure period within which to post such security. PGET has not posted replacement security. If PG&E ET fails to do so, DTE has the right to terminate the tolling agreement and seek recovery of damages based upon the difference between the amount that would have been paid for power for the remaining term had it not been terminated (including gas supply and transportation costs) and the amount the non-defaulting party would be paid for power under a tolling agreement (or equivalent contracts for the purchase and sale of gas and power) for the remaining term. To the extent that PG&E ET does not pay these damages, the counterparty may seek payment from PG&E GTN under the guarantee for an amount not to exceed $24 million.

If PG&E NEG does not replace guarantees, provide alternative collateral, or agree on other acceptable agreements as required, the counterparty has the right to terminate the related tolling agreement and seek recovery of damages based upon the difference in the contract price for the power under the agreement and the market price for the power. In the event of a dispute over the amount of any termination payment that the parties are unable to resolve by negotiation, the tolling agreements provide for mandatory arbitration. The dispute resolution process could take as long as 6 months to more than a year to complete. PG&E NEG is unable to predict whether counterparties will seek to terminate their tolling agreements.

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: October 2128, 2002

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