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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

--------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

COMMISSION FILE NUMBER: 1-16077

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ORION POWER HOLDINGS, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)


Delaware 52-2087649
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

c/o Reliant Resources, Inc.
1111 Louisiana Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 230-3500

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

ON MARCH 1, 2002, THERE WERE 1,000 SHARES OF COMMON STOCK OF THE REGISTRANT
OUTSTANDING, ALL OF WHICH WERE HELD BY RELIANT RESOURCES, INC.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(I)(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE PERMITTED THEREBY.



ORION POWER HOLDINGS, INC.

TABLE OF CONTENTS

PART I

Item 1. Business............................................................1

Item 2. Properties.........................................................13

Item 3. Legal Proceedings..................................................14

Item 4. Submission of Matters to a Vote of Security Holders................14

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................14

Item 6. Selected Financial Data............................................14

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................14

Item 7A...................................................................28

Item 8. Financial Statements and Supplementary Data........................28

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...............................................29

PART III

Item 10. Directors and Executive Officers of the Registrant................29

Item 11. Executive Compensation............................................29

Item 12. Security Ownership of Certain Beneficial Owners and Management....29

Item 13. Certain Relationships and Related Transactions....................29

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...29

Financial Statements......................................................F-1



PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We have made, and may continue to make, various forward-looking statements
with respect to our financial position, business strategy, projected costs,
projected savings, and plans and objectives of management. Such forward-looking
statements are identified by the use of forward-looking words or phrases such as
"anticipates," "intends," "expects," "plans," "believes," "estimates," or words
or phrases of similar import. These forward-looking statements are subject to
numerous assumptions, risks, and uncertainties, and the statements looking
forward beyond 2002 are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Actual results
could differ materially from those anticipated by the forward-looking
statements.

Factors that could cause actual results to differ materially include, but
are not limited to, those described below:

o political, legal and economic conditions and developments in the
United States;

o state, federal and other legislative and regulatory initiatives
affecting the electric utility industry, including rate regulation,
deregulation and restructuring initiatives;

o changes in the environmental and other laws and regulations to which
we are subject, or the application thereof;

o the extent and timing of the entry of additional competition in our
markets;

o the performance of projects undertaken;

o our ability to execute our strategy of developing and constructing
power generating facilities;

o our ability to obtain the necessary financing that our business may
require;

o the ability of Reliant to integrate our operations with its wholesale
energy business;

o fluctuations in the prices for electric products and services; and

o financial market conditions, changes in commodity prices and interest
rates, and weather and other natural phenomena.

In addition to factors previously disclosed by us, Reliant Resources, Inc.
("Reliant Resources"), and factors identified elsewhere herein, certain other
factors could cause actual results to differ materially from such
forward-looking statements. All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by reference to such factors.

Our forward-looking statements represent our judgment only on the dates
such statements are made. By making any forward-looking statements, we assume no
duty to update them to reflect new, changed, or unanticipated events or
circumstances.

ITEM 1. BUSINESS.

MERGER

On February 19, 2002, Orion Power was acquired by merger by a wholly owned
subsidiary of Reliant Resources. As a result, Orion Power became a wholly owned
subsidiary of Reliant Resources, which files reports with the Securities and
Exchange Commission.

Reliant Resources provides electricity and energy services with a focus on
the competitive wholesale and retail segments of the electric power industry in
the United States. Reliant Resources acquires, develops and operates electric
power generating facilities that are not subject to traditional cost-based
regulation and therefore can generally sell power at prices determined by the
market. Reliant Resources also trades and markets power, natural gas and other
energy-related commodities and provides related risk management services.
Reliant Resources intends to continue Orion Power's business and to integrate it
with Reliant Resources' operations.

OVERVIEW

We are an electric power generating company committed to delivering a broad
range of wholesale energy and related products and services to independent
system operators, utilities, municipalities, cooperatives, retail aggregators
and other wholesale customers. Prior to our merger with a subsidiary of Reliant
Resources, we grew our business by strategically acquiring, developing and
modernizing non-nuclear electric generating facilities located in critical
locations in regions across the United States. We continue to approach our
business with financial discipline, applying a rigorous and multi-faceted
approach. We currently own 81 plants with an aggregate capacity of 5,644
megawatts. We also have two projects under construction with a total capacity of
804 megawatts, which are expected to be in operation in 2002.

Our facilities in operation are diversified by fuel type and
geographically. The tables below set forth the assets owned by our regional
operating companies:



ORION POWER NEW YORK, L.P. FACILITIES SUMMARY

CAPACITY PRIMARY
ASSET (MW) FUEL TYPE LOCATION SERVED
- ----- ----- --------- ---------------


Hydroelectric Assets.................... 650 Water Central/Northern New York

Assets Located in New York City:
Astoria Generating Station.......... 1,265 Natural Gas / New York City - Queens
Oil
Gowanus Generating Station.......... 494 Oil New York City - Brooklyn
Narrows Generating Station.......... 280 Natural Gas New York City - Brooklyn

Carr Street Generating Station.......... 94 Natural Gas East Syracuse, NY
-----
Total...................... 2,783
=====

ORION POWER MIDWEST, L.P. FACILITIES SUMMARY

CAPACITY PRIMARY
ASSET (MW) FUEL TYPE LOCATION SERVED
- ----- ----- --------- ---------------
Avon Lake Generating Station............ 754 Coal Cleveland, OH
Brunot Island Generating Station........ 54 Oil Pittsburgh, PA
Ceredo Generating Station............... 500 Natural Gas Ceredo WV
Cheswick Generating Station............. 562 Coal Pittsburgh, PA
Elrama Generating Station............... 457 Coal Pittsburgh, PA
New Castle Generating Station........... 318 Coal West Pittsburg, PA
Niles Generating Station................ 216 Coal Youngstown, OH
-----
Total.......................... 2,861
=====


In order to provide a broad range of energy products and services and to
better manage electric and fuel commodity risk, we operate facilities that are
diversified by fuel type as set forth in the table below:

FUEL TYPE SUMMARY
-----------------

CAPACITY
PRIMARY FUEL (MEGAWATTS) PERCENTAGE
- ------------ ----------- ----------
Coal.......................................... 2,307 41%
Natural Gas / Oil (Dual fuel capability)...... 1,265 22%
Natural Gas................................... 874 15%
Fuel Oil...................................... 548 10%
Water......................................... 650 12%
----- ----
Total................................ 5,644 100%
===== ====

In addition, we manage electric and fuel commodity price risk by attempting
to sell a majority of our output forward through long term and short term
contracts and purchase in advance the associated fuel to match the term of those
sales.

CORPORATE OPERATIONS

As of December 31, 2001, our corporate headquarters were located in
Baltimore, Maryland. With the completion of our merger on February 19, 2002, we
are currently combining our headquarters into Reliant Resources' headquarters at
1111 Louisiana Street, Houston, Texas. The corporate office is focused on
selected activities, including corporate administration, accounting, financing,
power sales, fuel procurement, asset management, risk management and business
development. As of February 28, 2002, there were 71 employees located in the
corporate office, including all of the executive officers. We conduct our
day-to-day operations by subsidiaries, which are wholly-owned either by us or by
another one of our subsidiaries.

We have centralized some aspects of asset management, risk management,
power sales, and fuel procurement. The combined power sales and fuel procurement
group, which, as of February 28, 2002, totaled 23 employees, focuses on
optimizing the net margin earned on sales of energy, capacity, and ancillary
services after taking out the cost of fuel and limiting the amount of risk in
our activities. This group is being integrated in Reliant's operations in
Houston with each function becoming a part of the appropriate section of
Reliant's business structure.

ORION POWER NEW YORK, L.P.

FACILITIES. Our regional operating company, Orion Power New York, L.P.,
which is headquartered outside Syracuse, New York manages our assets located in
New York State. Orion Power New York manages a total of 74 power generation
facilities of which 72 are currently operational. Total aggregate capacity of
these facilities is approximately 2,783 megawatts. The facilities consist of 70
hydroelectric facilities, of which 68 are active, three facilities located in
New York City and the Carr Street Generating Station in East Syracuse. As of
December 31, 2001, Orion Power New York employed 375 people as direct employees.

We have not owned these facilities for a substantial period of time, and
therefore, our historical financial and operating results do not provide a
longer term perspective on the operation of the assets located in New York.

ASSETS LOCATED IN NEW YORK CITY. We currently bid the energy produced by
the assets located in New York City into the energy and ancillary services
markets operated by the New York Independent System Operator, Inc. (NY-ISO).
Because our assets located in New York City serve a transmission-constrained
area, bids for energy produced by these facilities are subject to market power
mitigation measures as implemented by the NY-ISO. The market power mitigation
measures provide that if the energy bid price for our assets located in New York
City exceeds the market price at a specified location reference point outside
New York City by 5% or more, our bid price is replaced with an energy reference
price that approximates our cost of production. All units that are dispatched
will then receive the market clearing price. Due to the fact that our units are
located in critical areas in New York City and are often dispatched for
uneconomic reasons, we receive the greater of the market clearing price or the
cost of production. We also currently bid capacity and certain ancillary
services from these assets into the NY-ISO capacity market. Prices for this
capacity and ancillary services are also subject to mitigation measures that cap
the prices.

HYDROELECTRIC ASSETS. We have sold all of the output of the hydroelectric
assets, including energy, capacity, and ancillary services, to Niagara Mohawk
Power Corporation on a bilateral basis under a contract through September 30,
2001. Under this contract, we received an annual fixed payment, totaling $73.6
million for the period October 2000 through September 2001 and a variable
payment of approximately $20 per megawatt hour for all generation above
approximately 2.2 million megawatt hours. We extended this contract with Niagara
Mohawk Power Corporation though September 30, 2004. Under the extended contract,
we receive an entirely variable payment. The actual price we receive is
dependent upon our water flows and our ability to optimize production during
peak periods. Based on the hydroelectric assets' performance and available
historical data on average water flows over the last ten years, we would expect
the variable payment to generate a significantly higher revenue stream than the
original contract.

CARR STREET. We have entered into a gas tolling agreement with
Constellation Power Source covering the Carr Street Generating Station, which
continues until November 2003. Under this agreement, Constellation Power Source
has the exclusive right to all energy, capacity and ancillary services produced
by the plant. Constellation Power Source pays for, and is responsible for, all
fuel used by the plant during the term of the gas tolling agreement. We are
currently paid a fixed fee monthly and variable payment per megawatt hour
generated, both of which escalate annually. We have guaranteed certain aspects
of the plant's operating performance and failure to meet these guarantees could
result in penalties.

ORION POWER MIDWEST, L.P.

FACILITIES. Our regional operating company, Orion Power MidWest, L.P.,
which is headquartered near Pittsburgh, Pennsylvania, manages our assets located
in Ohio, Pennsylvania and West Virginia. The assets consist of eight power
generating facilities, six of which are active, located in western Pennsylvania
and Ohio, and one in West Virginia. Our West Virginia facility, the Ceredo
Generating Station, a 500 megawatt gas-fired peaking facility, commenced
commercial operations in June 2001. The remaining seven facilities were acquired
from Duquesne Light Company in April 2000, three of which Duquesne had recently
acquired in an asset swap with FirstEnergy Corp. The other four (including the
retired facility) have historically been owned and operated by Duquesne Light
Company. The seven operating facilities have a total aggregate capacity of
approximately 2,861 megawatts, with five of such facilities using coal as their
primary fuel source, one using oil and one using natural gas.

The majority of the coal units operate as baseload units because of their
low production costs per megawatt hour. Our oil- and gas-fired units operate as
intermediate and peaking facilities, respectively. In addition, in connection
with the Duquesne acquisition we entered into the provider of last resort
contract with Duquesne Light Company, which we subsequently extended. As of
December 31, 2001, we employed 470 people in the direct operation of the eight
facilities managed by Orion Power MidWest.

We have not owned these facilities for a substantial period of time, and
therefore, our historical financial and operating results do not provide a
longer term perspective on the operation of these assets.

PROVIDER OF LAST RESORT CONTRACTS. As part of our acquisition of seven
facilities located in Ohio and western Pennsylvania in April 2000, we entered
into two provider of last resort contracts with Duquesne Light Company, which we
have subsequently extended. Under the contracts, we are obligated for a specific
period to provide energy to Duquesne Light Company to meet its obligations to
satisfy the demands of any customer in the Duquesne Light Company service area
that does not elect to buy energy from a competitive supplier as allowed by the
Pennsylvania state deregulatory initiatives or that elects to return to Duquesne
Light Company as the designated provider of last resort. Under these contracts,
we must provide all of the energy necessary to meet the contractual requirements
with no minimum and no maximum quantity and Duquesne Light Company must buy all
of the energy needed to satisfy its provider of last resort obligation from us.

The provider of last resort contracts are wholesale contracts between us
and Duquesne Light Company, and we have no responsibility for selling energy
directly to the related retail customers. Therefore, we have no involvement in
billing retail customers or collecting amounts owed by retail customers.

The Duquesne Light Company service area covers approximately 580,000 retail
customers. According to information provided by Duquesne Light Company, the peak
demand for the Duquesne Light Company control area was approximately 2,771
megawatts, and the total amount of electricity consumed was approximately
13,908,091 megawatt hours in 2001. As of December 31, 2001, approximately 81% of
the customers in the Duquesne Light Company control area, as measured by energy
consumption, received energy from Duquesne Light Company as the provider of last
resort. The peak provider of last resort load was approximately 2,306 megawatts
for 2001. The total amount of electricity consumed by provider of last resort
customers was approximately 10,885,190 megawatt hours for 2001.

Under the initial provider of last resort contract (the "POLR I
Agreement"), the prices we receive are a specified portion of Duquesne Light
Company's current retail rates, which have been approved by the Pennsylvania
Public Utility Commission. From this amount, Duquesne Light Company deducts the
Pennsylvania gross receipts tax of 4.4%, $1 per megawatt hour for certain
ancillary services and a pro rata share transmission line losses in the Duquesne
Light Company control area. Such amount excludes any generation rate adjustment
payments received by Duquesne Light Company from its retail customers whose
energy is secured by the POLR I Agreement.

The POLR I Agreement continues in effect for each rate class until the
amount of Duquesne Light Company's stranded costs allocated to that rate class
have been recovered through the surcharge being added to each customer's monthly
bill. For three rate classes, all stranded costs have already been recovered,
and therefore the provider of last resort obligation under the POLR I Agreement
is satisfied for these rate classes. The remaining rate classes are projected to
complete stranded cost recovery between 2001 and 2004, with most rate classes
expected to have completed stranded cost recovery before the summer of 2002.
Accordingly, we expect the majority of the original provider of last resort
contract obligations under POLR I Agreement to end during mid 2002.

Upon completion of stranded cost recovery for any rate class, the energy
requirements of such rate class are then provided under the second provider of
last resort contract (the "POLR II Agreement") between Duquesne Light Company
and us until December 31, 2004. The POLR II Agreement becomes effective for each
Duquesne Light Company retail customer class as that class comes off the retail
tariff that relates to the POLR I Agreement. The POLR II Agreement differs from
the originally applicable tariff and the POLR I Agreement in certain respects,
including:

o The penalty for failures to deliver energy which cause Duquesne Light
Company to reduce energy provided to consumers will be reduced from
$1,000 to $100 per megawatt hour of shortfall under most circumstances
(which penalty is still in addition to imbalance charges payable by us
under both POLR Agreements with respect to such shortfall based on the
applicable tariff rates);

o We will be paid rates that are approximately nine percent higher per
megawatt hour, although the actual increase depends on actual demand
in each rate class.

Given the expected demand for energy from provider of last resort customers
and the historic energy generation from our assets located in Ohio and
Pennsylvania and our peaking power plant under construction in West Virginia, we
generally expect to produce more energy than needed to meet our provider of last
resort obligations under both the POLR I and POLR II Agreements. We will attempt
to sell this excess energy into the market and will receive the prevailing
market price at the time. The provider of last resort demand, however, will
fluctuate on a continuous, real-time basis, and will likely peak during summer
and winter, on weekdays, and during some hours of the day. This could cause the
provider of last resort demand to be greater than the amount of energy we are
able to generate at any given moment. As a result, we may need to purchase
energy from the market to cover our contractual obligations. This is likely to
occur at times of higher market prices, although the price we receive will be
determined as described above and will not fluctuate with the market. This
situation could also arise or worsen if we have operational problems at one or
more of our generating facilities that reduce their ability to produce energy.
Failure to provide sufficient energy could give rise to penalties under both the
POLR I and POLR II Agreements. A severe under-delivery of energy that forces
Duquesne Light Company to deny some customers energy could give rise to
penalties of $1,000 per megawatt hour under the POLR I Agreement or $100 or
$1,000 per megawatt hour under the POLR II Agreement, depending upon the
circumstances of such under-delivery. As the number of rate classes eligible for
provider of last resort service under the POLR I Agreement decreases, we will be
potentially entitled to the reduced damages of $100 per megawatt hour under the
POLR II Agreement with respect to more rate classes, so we believe that the risk
of $1,000 per megawatt hour damages will decrease appreciably as more rate
classes transition to the POLR II Agreement.

ECAR does not recognize capacity as a separate product from energy, and we
are not obligated under either of the POLR Agreements to provide capacity; our
supply obligations under such agreements relate solely to energy.

In addition to providing energy to Duquesne Light Company under the POLR I
and POLR II Agreements, we provide certain ancillary services to Duquesne Light
Company under a separate ancillary services agreement. We provide the amount of
such services necessary to meet Duquesne Light Company's pro rated share of its
service territory's load at fixed rates per kilowatt per month for each such
service. Failure to provide the required amount of such services obligates us to
pay certain market damages with respect to any shortfall.

In the fourth quarter of 2001, Duquesne Light Company announced that it
intended to join a newly created wholesale energy services market in western
Pennsylvania called PJM-West. This market could be created and operational as
early as May 2002. In the PJM-West system, capacity will be recognized as a
separate product from energy, and load serving entities in PJM West, such as
Duquesne Light Company, will be required to demonstrate their ability to provide
certain required levels of capacity. Following Duquesne Light Company's
announcement, we began negotiations with Duquesne Light Company regarding the
terms and price at which we would provide their capacity requirements, as well
as modifications to the POLR I and II Agreements, ancillary services agreement,
and other related documents that would be necessary to allow such agreements to
function mechanically within the PJM West structure.

Recent Developments.

On February 15, 2002, we executed with Duquesne Light Company a capacity
agreement, amendments to the POLR I and II Agreements, and an amended and
restated ancillary services agreement, as well as amendments to certain related
agreements as necessary to allow such agreements to function mechanically within
the PJM West structure. Effectiveness of all of the foregoing is conditioned
upon receipt of the consent of our lenders as well as the satisfaction of
multiple other conditions precedent, including without limitation Federal Energy
Regulatory Commission (FERC) approval of certain changes to Duquesne Light
Company's retail and supplier tariffs to allow Duquesne Light Company to pass on
to the applicable customers amounts payable by Duquesne Light Company under the
capacity agreement and additional amounts under the amended and restated
ancillary services agreement. If such conditions are not satisfied within 180
days of the execution date, the new agreements and amendments do not become
effective and will terminate automatically. A brief summary of certain of the
principal economic terms of the foregoing amendments and agreements follows.

Capacity Agreement:

Under the capacity agreement, we will provide 106% of the capacity
requirements of Duquesne Light Company's zone (subject to our right to swap up
to 65% of such obligation as described below) in return for a fixed monthly
payment. If we fail to provide the required amount of capacity, Duquesne Light
Company is not permitted to withhold any portion of the capacity payment;
instead, we must reimburse Duquesne Light Company for the corresponding
deficiency charges assessed by PJM West against Duquesne Light Company. Assuming
that we designate the required level of megawatts of installed capacity (the
greater of (a) the summer net demonstrated capacities of the Cheswick, Elrama,
and Brunot Island plants plus any qualified interruptible load and (b) (i) 1,220
megawatts (prior to the repowering of Brunot Island) or (ii) 1,360 megawatts
(after such repowering)) from certain qualified units, Duquesne Light Company is
(and therefore we are) entitled to alternative deficiency charges, which are
currently assessed by PJM West at $176.80 MW/day, with respect to such required
level. For any deficiency in excess of such required level, non-alternate
deficiency charges, currently $12,908 MW/day, would be assessed by PJM West.
Deficiency charges assessable by PJM West are capped at $64,542 MW/year per
unit.

Pursuant to a swap feature embedded in the capacity agreement and a
corresponding feature in a separate capacity agreement between FirstEnergy Corp.
and Duquesne Light Company, we can elect for 0 - 65% of Duquesne Light Company's
daily capacity requirements to be provided by FirstEnergy Corp., with no
corresponding reduction of the monthly capacity payment due to us from Duquesne
Light Company.

Amendments to POLR Agreements:

Many of the modifications to the POLR Agreements (e.g., changes to
scheduling requirements) reflect mechanical adjustments necessary in the PJM
West operating construct. Also, because we have units in FirstEnergy Corp's
control area and FirstEnergy Corp. has units in Duquesne Light Company's zone,
we have agreed with FirstEnergy Corp. to swap a portion of Duquesne Light
Company's forecasted energy requirements with FirstEnergy Corp., in a percentage
corresponding to the swap percentage under the capacity agreement. We will
deliver to FirstEnergy Corp's control area from our units in such control area
the swapped amount of energy (which delivery satisfies our delivery obligations
under the POLR Agreements with respect to such amounts), and FirstEnergy Corp.
will deliver the same amount of energy to Duquesne Light Company from
FirstEnergy Corp.'s units in Duquesne Light Company's zone.

For any shortfall in energy required to be delivered under the POLR
Agreements, we must pay Duquesne Light Company the amount of the charge assessed
by PJM West against Duquesne Light Company with respect to such shortfall (which
will be the then-applicable LMP), plus the $100 or $1,000 per megawatt hour
penalty currently required under the POLR Agreement if such failure requires
Duquesne Light Company to reduce energy provided to consumers. Because (a) the
amount of the charge assessable by PJM West is capped at $999 per MWh, unlike
the current situation in ECAR where no cap is provided, (b) the safe harbor
entitling us to the reduced $100 per megawatt hour penalty is now available
under both POLR Agreements, and (c) such safe harbor has been expanded slightly,
thus potentially lessening the likelihood of such penalties being imposed, our
liability for deficiencies under the POLR Agreements may be reduced compared to
those under the current POLR Agreements. Such penalties and charges for failure
to deliver energy under the POLR Agreements are separate from any damages
payable by us under the capacity agreement for failure to deliver capacity.

Under the amended POLR II Agreement, in return for additional consideration
under the capacity agreement, we will assume responsibility for payment of
certain transmission congestion charges applicable to energy delivered by us to
Duquesne Light Company which may arise due to PJM West's nodal based pricing
system that creates pricing variations within Duquesne Light Company's service
territory. In order to hedge against this difference, load serving entities
(such as Duquesne Light Company) will have access to Firm Transmission Rights
("FTR's"). In this case, PJM West will allocate FTR's associated with Duquesne
Light Company 's load to Duquesne Light Company. Duquesne Light Company is
contractually obligated to assign those rights to us if we so request. These
FTR's have the effect of a financial hedge by "matching up" generating assets to
the load zone price . Properly managed, these FTR's should have the effect of
managing the cost risk associated with such congestion. Energy delivered by us
to FirstEnergy Corp. pursuant to the swap described above is intended to be
provided from our units located in the FirstEnergy Corp. control area and can be
delivered anywhere within such area. There is not a nodal based pricing system
in the FirstEnergy Corp. control that creates pricing variations within such
area, so we do not consider transmission congestion charges to be an issue with
respect to the energy delivered to FirstEnergy Corp. pursuant to the swap
arrangement. Finally, FirstEnergy Corp. will bear any transmission congestion
charges applicable to energy delivered by FirstEnergy Corp. to Duquesne Light
Company pursuant to the swap arrangement in return for a fixed payment from
Duquesne Light Company of $0.10 per megawatt hour so delivered. We have agreed
to reimburse Duquesne Light Company for the amount of such charges paid to
FirstEnergy Corp.

Amended and Restated Ancillary Services Agreement:

Under the amended and restated ancillary services agreement, we will
provide the amount of ancillary services required by the Duquesne Light Company
zone. The consideration we will receive under the amended and restated agreement
will be a fixed amount per megawatt hour of the Duquesne Light Company zone's
load and is roughly double the consideration received under the existing
agreement (in return for an increase in quantity of services provided of
approximately 19% from the existing agreement, based on an historical average).
This significant price increase is due to the fact that in the PJM West market,
the market price of these services will be higher. The prices under the amended
and restated agreement were determined based upon comparisons with proxy markets
and discussions with PJM West; we therefore anticipate that they should be
reflective of market prices in the PJM West territory.

If we fail to provide any ancillary services required to be delivered under
the amended and restated agreement, we will be responsible for the charges
assessed by PJM West against Duquesne Light Company for such failure, which
would be the then-applicable PJM West clearing price for the amount of the
deficiency. However, if such failure is excused under the PJM West Protocols due
to force majeure, no such charges would be assessed.

ORION POWER DEVELOPMENT COMPANY, INC.

Orion Power Development Company, Inc. manages our assets under construction
and development. Our development company's primary objective was to
strategically grow our portfolio of generating assets in a timely manner by
developing efficient generating facilities that can provide wholesale customers
with reliable, low-cost electricity and related products and services. As of
February 28, 2002, Orion Power Development Company, Inc. had no direct
employees. Consequently, some of the employees of Orion Power Holdings, Inc.
managed the daily business of and the development projects owned by Orion Power
Development Company, Inc.

CONSTRUCTION AND DEVELOPMENT

A primary facet of our strategy was to grow by developing additional
capacity at our facilities by repowering or adding units at existing facilities
and by building new facilities throughout the U.S. and Canada. In June 2001, we
completed the construction of Ceredo Electric Generating Station, which was a
project included in our acquisition of Columbia Electric Corporation in December
2000.

We currently have two projects that are under construction:

o Liberty Electric Generating Station (Liberty), located south of
Philadelphia, Pennsylvania, is a 550 megawatt, natural gas fired
facility under construction, which will consist of two General
Electric model 7FA class combustion turbine-generators supplying steam
to a single Toshiba steam turbine-generator. We expect that this
facility will operate as a baseload facility. The output of this
facility is contracted under a tolling agreement for a term of
approximately 14 years. Under this agreement, the counterparty will
have the exclusive right to receive all energy, capacity and ancillary
services produced by the plant. The counterparty will pay for, and be
responsible for, all fuel used by the plant under the tolling
agreement. This facility is scheduled for completion in April 2002.

o Brunot Island Generating Station, located near downtown Pittsburgh,
Pennsylvania, is currently a 254 megawatt peaking facility. We have
begun the conversion of many of the existing simple cycle, oil fired
units on site back to their original combined cycle operation and the
upgrade of the on-site natural gas pipeline to allow for natural gas
to become the primary fuel. We will also upgrade environmental control
equipment to reduce our emissions. Our objective is to increase
capacity at Brunot Island by 140 megawatts and significantly reduce
production costs. This project is scheduled for final completion by
the summer of 2002.

Prior to our merger with Reliant Resources, Orion Power was evaluating
additional development projects to further the company's growth. These include
the Kelson Ridge Generating Station in Waldorf, MD, Atlantic Generating Station
in Port St. Lucie, FL, the repowering of Astoria Generating Station and many
other repowerings of operating facilities. Given the early stage of all the
aforementioned projects, the recent shift in market fundamentals and Reliant
Resources' own development plans and capital requirements, we may elect not to
pursue these activities or we may otherwise not be able to do so. Reliant is
currently evaluating any potential costs for changes in projects including
turbine purchase obligations.

RECENT MARKET DEVELOPMENTS

NEW YORK MARKET FRAMEWORK. The New York wholesale energy market has been in
operation for over two years. The NY-ISO has responsibility for daily operation
of the transmission system and the administration of bid-based markets for
wholesale energy, capacity, and ancillary services. The day-ahead and real-time
wholesale energy and ancillary services markets started on November 18, 1999.
The capacity market began with an auction in early April 2000 for the summer
2000 six-month capacity period.

Under the NY-ISO, generators like us are able to sell energy to any
wholesale customer in the state. These sales may be done under bilateral
contracts, in which pricing and other provisions are determined through private
negotiation, or by bidding into the day-ahead and real-time energy and ancillary
services markets.

Over the course of the last year, the rate of changes in market rules has
slowed, however, several key changes did occur. For example, the implementation
of many programs now allow energy demand, commonly referred to as "load", to
respond to high prices in emergency and non-emergency situations.

Additionally, FERC directed the NY-ISO to expand the price mitigation rules
that applied to utility-divested units to include all units in New York City for
the summer of 2001. FERC also imposed similar market mitigation measures for the
real-time market as were already in place in the day ahead market. However, the
NY-ISO was unable to implement the real-time market mitigation measures until
late in the summer, and the period of real-time mitigation lapsed at the end of
September. Under a subsequent FERC order, the NY-ISO was directed to incorporate
a market monitoring plan consistent with the "in city" mitigation in the
day-ahead and real-time markets. This order also required Consolidated Edison to
remove the mitigation authority from its tariff. The NY-ISO filed the revised
mitigation plan on March 20, 2002. It is too early in the proceeding to assess
fully the impact of the revised mitigation plan on us.

Finally, the NY-ISO implemented a change in the method of determining how
the installed capacity of a generating unit is calculated, by taking into
account a unit's availability to operate. Specifically, generators now sell
unforced capacity, which is their installed capacity discounted by their forced
outage rates. The change will also financially penalize a generator for
"unforced outages". The capacity market ensures that there is enough generation
capacity to meet retail energy demand and ancillary services requirements. All
power retailers are required to demonstrate commitments for capacity sufficient
to meet their peak forecasted load plus a reserve requirement, currently set at
18%. As an extra reliability measure, power retailers located in New York City
are required to procure the majority of this capacity (currently 80% of their
peak forecasted load) from generating units located in New York City. Because
New York City is currently short of this capacity requirement and the existing
capacity is owned by only a few entities, a price cap of $105 per kilowatt-year
divided by the "in city" average forced outage rate for all the units has been
instituted for in-city generators. In 2001, in two separate auctions, we sold
all of our available capacity at or near the price cap in effect at that time.

There can be no assurance that changes to New York's competitive wholesale
energy markets will not adversely affect our operations. The NY-ISO has the
ability to revise prices, which could lead to delayed or disputed collection of
amounts due to us for sales of energy and ancillary services. The NY-ISO also
has the ability, in some cases subject to FERC approval, to impose cost-based
pricing and/or price caps. Moreover, FERC is considering imposing an overall
refund condition in all market-based rate authorizations, which could allow FERC
to revisit prices.

MIDWEST MARKET FRAMEWORK. The assets managed by Orion Power MidWest, L.P.
are located in the ECAR region. The ECAR region covers part or all of the
following states: Indiana, Kentucky, Maryland, Michigan, Ohio, Pennsylvania,
Virginia and West Virginia. There is no ISO or similar entity in place for the
entire ECAR region, although the utilities in the region are proposing several
competing plans for an independent system operator and/or a regional
transmission operator. The ECAR market is characterized by substantial costs for
transmitting power from one location to another, because each independent
utility charges a tariff to use its transmission facilities. Therefore, moving
power across multiple utility systems becomes expensive and may become difficult
or impossible at times of high demand.

The current market in the ECAR region is relatively illiquid and is
dominated by private bilateral contracts between parties. Notwithstanding the
general lack of liquidity, markets do exist in several areas within the ECAR
region. The ECAR region also lacks a specific capacity market and well-developed
markets for ancillary services.

Given the competing ISO and RTO proposals currently under consideration and
the many divergent interests which exist in the ECAR region, we expect that any
adoption of ISOs or similar entities will be gradual. Some entities, including
Duquesne Light Company, have considered joining the PJM-West market, a newly
created wholesale market that would cover the western portion of the
Mid-Atlantic region as early as May 2002. If Duquesne Light Company, our primary
customer in the ECAR Region, joins the PJM-West market, we may well enter the
newly created wholesale market as well. We are unable to determine what impact,
if any, joining the PJM-West market would have on our business or financial
prospects. See "Orion Power MidWest, L.P. - Recent Developments" for a
discussion of Duquesne Light Company's recent announcement of its intention to
join the PJM West market and certain contractual arrangements that have been
executed between Orion Power MidWest, L.P. and of Duquesne Light Company in
February 2002 in anticipation thereof.

REGULATION

We are subject to complex and stringent energy, environmental, and other
governmental laws and regulations at the federal, state, and local levels in
connection with the development, ownership, and operation of our electric
generation facilities. The federal and state energy laws and regulations create
burdens and risks for our operations, as well as opportunities for further
acquisitions of facilities at attractive prices.

FEDERAL ENERGY REGULATION

FERC, is an independent agency within the Department of Energy that
regulates the transmission and wholesale sale of electricity in interstate
commerce under the authority of the Federal Power Act. FERC is also responsible
for licensing and inspecting private, municipal and state-owned hydroelectric
projects. FERC determines whether a public utility qualifies for exempt
wholesale generator status under the Public Utility Holding Company Act, which
was amended by the Energy Policy Act of 1992.

FEDERAL POWER ACT. The Federal Power Act gives FERC exclusive rate-making
jurisdiction over wholesale sales of electricity and transmission of electricity
in interstate commerce. FERC can exercise this authority to require refunds if
it determines that rates are unjust and unreasonable and is considering imposing
an overall refund condition in all market based rate authorizations, which could
allow FERC to revisit market prices. FERC regulates the owners of facilities
used for the wholesale sale of electricity and its transmission in interstate
commerce as "public utilities" under the Federal Power Act. The Federal Power
Act also gives FERC jurisdiction to review certain transactions and numerous
other activities of public utilities.

FERC is also encouraging the voluntary restructuring of transmission
operations through the use of independent system operators and regional
transmission groups. The result of establishing these entities typically is to
eliminate or reduce transmission charges imposed by successive transmission
systems. The full effect of these changes on us is uncertain at this time, in
part, because it has not been determined which of these entities will control
the transmission systems connected to certain of our generating facilities.

The Federal Power Act also gives FERC exclusive authority to license
non-federal hydroelectric projects on navigable waterways and federal lands.
FERC hydroelectric licenses are issued for 30 to 50 years. Our hydroelectric
assets are licensed by FERC from 2004 through 2036. Individual hydroelectric
facilities, representing approximately 90 megawatts of our capacity, have
licenses that expire over the next ten years. Facilities representing
approximately 160 megawatts of our capacity have new or initial license
applications pending before FERC. Upon expiration of a FERC license, the federal
government can take over the project and compensate the licensee, or FERC can
issue a new license to either the existing licensee or a new licensee. In
addition, upon license expiration, FERC can decommission an operating project
and even order that it be removed from the river at the owner's expense. In
deciding whether to issue a license, FERC gives equal consideration to a full
range of licensing purposes related to the potential value of a stream or river.
It is not uncommon for the relicensing process to take between four and ten
years to complete. Generally, the relicensing process begins at least five years
before the license expiration date and FERC issues annual licenses to permit a
hydroelectric facility to continue operations pending conclusion of the
relicensing process. We expect that FERC will issue us new or initial
hydroelectric licenses for all the facilities with pending applications.
Presently, there are no applications for competing licenses and there is no
indication that FERC will decommission or order any of the projects to be
removed.

Nonetheless, there remains the possibility that FERC will not issue new or
initial licenses for our projects, which could have a material adverse effect on
our operations and revenue. In addition, several interested parties have
intervened or are likely to intervene in our licensing proceedings. These
interested parties may be able to impose conditions and affirmative obligations
on our hydropower operations, which could add significant costs to our
operations or reduce revenues. In the past, FERC has issued licenses with
conditions that have rendered the operation of the relevant projects uneconomic.
Therefore, there is no guarantee that the hydroelectric licenses issued by FERC
will permit us to operate the projects profitably. Finally, the relicensing
process itself is costly, time consuming, and could affect adversely our
hydroelectric revenues.

The remainder of our hydroelectric assets have licenses that expire over an
approximate 30 year period, are exempt from licensing because they are small
facilities with five megawatts or less or are not within FERC's jurisdiction
because they are not located on navigable waterways or federal land. Many of the
existing licenses contain conditions that have one or more operational
constraints, including restricting energy production, impacting the time of year
or day in which generation occurs, raising operating costs, and requiring
certain minimum river flow releases, which directly affect our ability to
generate energy.

STATE ENERGY REGULATION

At the state level, public utility commissions are responsible for
approving rates and other terms and conditions under which public utilities
purchase electric power from independent producers and sell retail electric
power to consumers. In addition, most state laws require approval from the state
commission before an electric utility operating in the state may divest or
transfer electric generation facilities. These laws also give the commissions
authority to regulate the financial activities of electric utilities selling
electricity to consumers in their states.

State public utility commissions have authority to promulgate regulations
for implementing some federal laws. Power sales agreements, which we enter into,
are also potentially subject to review by state public utility commissions. In
particular, the state public utility commissions review the process by which the
utility has entered into power sales agreements. States may also assert
jurisdiction over the siting, construction, and operation of our facilities, as
well as the issuance of securities and the sale or other transfer of assets.

NEW YORK. In 1996, the New York Public Service Commission began proceedings
to introduce retail competition in New York State. These initiatives, in
conjunction with FERC's "open access" rules, led to the formation of an ISO
responsible for centralized control and operation of the state-wide electric
transmission grid. They also led to a spot market and a related competitive
electric energy auction. This auction is open on a non-discriminatory basis to
all electric service providers. Other aspects of New York's restructuring plan
include market power mitigation through utility divestiture of fossil fuel
generation plants, the unbundling and establishment of separate rates for
historic utility functions, and market mitigation measures at the wholesale
level.

Under the New York Public Service Law, the New York Public Service
Commission has jurisdiction over corporations engaged in the production of
electricity and transfers of electric generation facilities located in the
State. The New York Public Service Commission reviewed and approved each of our
transactions to acquire our assets located in New York, and made the necessary
findings to permit us to seek exempt wholesale generator status from FERC. We
are subject to "lightened regulation" in New York.

PENNSYLVANIA. In December 1996, Pennsylvania adopted the Electricity
Generation Customer Choice and Competition Act, which is now part of the Public
Utility Code. The Act is a comprehensive restructuring plan that allows direct
access to be phased in over a three-year period beginning January 1, 1999 and
culminating in full retail choice by January 1, 2001. Under this plan, one-third
of each customer class will be eligible for direct access each year.

The Act required each utility to submit its restructuring plan to the
Pennsylvania Public Utility Commission for approval. The Pennsylvania Public
Utility Commission is authorized to permit, but may not require, utilities to
divest their generation assets. We are not subject to the Pennsylvania Public
Utility Commission.

OHIO. The Ohio legislature passed a statute in 1999 providing for
implementation of retail competition beginning in 2001. The statute delegated to
the Ohio Public Utilities Commission the responsibility for developing certain
restructuring rules, including rules relating to market monitoring, stranded
cost recovery, and consumer protection. The restructuring plan for each
investor-owned utility has been approved by the Ohio Public Utilities
Commission. Similar to Pennsylvania, we do not expect to be subject to
regulation by the Ohio Public Utilities Commission. If we do become subject to
regulation by the Ohio Public Utilities Commission, however, additional costs
may be imposed on the operations of our assets located in Ohio and Pennsylvania.

WEST VIRGINIA. In 1998, the West Virginia Legislature enacted HB 4277,
which authorized the Public Service Commission to consider whether restructuring
was in the public interest and, if so, to submit a restructuring plan for
Legislative approval. In January 2000, the Commission issued an order finding
restructuring in the public interest and submitting a long-term plan for
transition to competitive power supply markets and consumer choice. The
implementation of retail electric choice has been delayed, however, pending
legislative action.

ENVIRONMENTAL REGULATIONS

The construction and operation of electric generating facilities are
subject to extensive environmental and land use regulation in the United States.
Those regulations applicable to us primarily involve the discharge of emissions
into the water and air as well as the use of water, but can also include
wetlands preservation, endangered species, waste disposal, and noise regulation.
These laws and regulations often require a lengthy and complex process of
obtaining and renewing licenses, permits, and approvals from federal, state, and
local agencies. If these laws and regulations are changed, modifications to our
facilities may be required.

CLEAN AIR ACT. In late 1990, Congress passed the Clean Air Act Amendments
of 1990, which affect existing facilities as well as new project development.
The act and many state laws require significant reductions in SO2 (sulfur
dioxide) and NOx (nitrogen oxide) emissions that result from burning fossil
fuels.

The 1990 Amendments create a marketable commodity called an SO2
"allowance." All non-exempt facilities over 25 megawatts that emit SO2 must hold
or obtain allowances in order to operate. Each allowance gives the owner the
right to emit one ton of SO2 annually. All non-exempt facilities that existed in
1990 have an assigned number of allowances. If additional allowances are needed,
they can be purchased from facilities having excess allowances. Our assets
located in New York currently have more allowances than needed, while our assets
located in Ohio and Pennsylvania require additional allowances or the
installation of SO2 controls. We believe that the additional costs of obtaining
the number of allowances needed for future projects should not materially affect
our ability to purchase and operate such facilities.

The 1990 Amendments also require states to impose annual operating permit
fees. While such permit fees may be substantial and will be greater for
coal-fired projects like our assets located in Ohio and Pennsylvania than for
those burning gas or other fuels, such fees are not expected to significantly
increase our costs.

The 1990 Amendments also contain other provisions that could materially
affect our projects. Various provisions may require permits, inspections, or
installation of additional pollution control technology.

The Ozone Transport Assessment Group, composed of state and local air
regulatory officials from the 37 eastern states, has recommended additional NOx
emission reductions that go beyond current federal standards. These
recommendations include reductions from utility and industrial boilers during
the summer ozone season.

The EPA recently granted several state petitions under Section 126 of the
Clean Air Act. Section 126 allows the EPA to set limits for specific sources of
emissions originating in other states. As a result, the EPA will require
reductions in NOx emissions at the majority of our fossil energy facilities at
levels consistent with those required under the EPA rule. Consistent with the
EPA's rule, reductions have been proposed which would need to be achieved by May
1, 2004 through the implementation of controls or the purchase of emission
allowances. We believe that our assets located in New York City are already in
compliance with these limits. We anticipate capital expenditures of
approximately $300 million at the assets located in Ohio and Pennsylvania
through 2010 to address these anticipated air emissions issues. We expect that
the majority of these expenditures under the EPA rule and the EPA's Section 126
initiative will occur between 2002 and 2008. However, particularly given the
trend towards more stringent environmental regulation, it is possible that the
amount we must spend to bring the facilities into compliance may change
materially. In addition, the time at which these capital expenditures must be
made could be accelerated, and operations could be halted at these facilities
until any necessary improvements are made.

In 1999, the EPA requested information relating to the Avon Lake Generating
Station and Niles Generating Station from the previous owner of these
facilities. This was part of the EPA's broader industry information request, and
forms the basis for the agency's new source review actions against coal-fired
power plants. Although there have not been any new source review-related suits
filed against the Avon Lake Generating Station or the Niles Generating Station,
there can be no assurance that either of them will not be the target of any such
action in the future. Based on the levels of emissions control that the EPA
and/or states are seeking in these new source review enforcement actions, we
believe that significant additional costs and penalties could be incurred,
planned capital expenditures could be accelerated, or operations could be halted
at these stations if they ever became targets of a new source review enforcement
action.

CLEAN WATER ACT. Our facilities are subject to a variety of state and
federal regulations governing existing and potential water /wastewater and
stormwater discharges from the facilities. Generally, federal regulations
promulgated through the Clean Water Act govern overall water/wastewater and
stormwater discharges through permits. Under current provisions of the Clean
Water Act, existing permits must be renewed at least every five years, at which
time permit limits come under extensive review and can be modified to account
for more stringent regulations. In addition, the permits can be modified at any
time. Many of our facilities need to renew their Clean Water Act permits over
the next two years. Major issues to be addressed when permits are renewed
include the impact of intake screens and cooling systems on fish, as well as the
adverse impact of discharging large quantities of warm water to public rivers
and lakes. The cost of addressing any of these environmental issues could be
substantial.

In addition, changes to the environmental permits of our coal or other fuel
suppliers may increase the cost of fuel, which in turn could have a significant
impact on our operations.

EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT. In April 1997, the EPA
expanded the list of industry groups required to report the Toxic Release
Inventory under Section 313 of the Emergency Planning and Community
Right-to-Know Act to include electric utilities. Our operating facilities will
be required to complete a toxic chemical inventory release form for each listed
toxic chemical manufactured, processed, or otherwise used in excess of threshold
levels for the applicable reporting year. The purpose of this requirement is to
inform the EPA, states, localities, and the public about releases of toxic
chemicals to the air, water, and land that can pose a threat to the community.

EMPLOYEES

As of December 31, 2001, we employed approximately 908 people. Of these
employees, approximately 554 are covered by collective bargaining agreements.
The collective bargaining agreements expire at various dates between April 2003
and May 2006. We have never experienced a work stoppage, strike, or labor
dispute. We consider relations with our employees to be good.

ITEM 2. PROPERTIES.

The Orion Power corporate offices currently occupy approximately 15,340
square feet of leased office space in Baltimore, Maryland, which lease expires
in 2005, subject to renewal options. Upon expiration or earlier, this office
space will be vacated as the corporate headquarters is being transitioned to
Reliant's headquarters in Houston, Texas.

In addition to our corporate office space, we lease or own various real
property and facilities relating to our assets and development activities. Our
principal facilities are generally described under the descriptions of our three
operating subsidiaries contained elsewhere. We believe that we have title to our
facilities in accordance with standards generally accepted in the energy
industry, subject to exceptions which, in our opinion, would not have a material
adverse effect on the use or value of the facilities. Substantially all of our
assets are pledged to our bank lenders under our credit facilities.

Our total lease expense for all of our properties described above was
approximately $1.8 million for 2001.

ITEM 3. LEGAL PROCEEDINGS.

We are involved in various litigation matters in the ordinary course of our
business. We are not currently involved in any litigation that we expect, either
individually or in the aggregate, will have a material adverse effect on our
financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Omitted in reliance upon General Instruction I.1(a) and (b) for Form 10-K.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

All of the shares of common stock of Orion Power Holdings, Inc. are
beneficially owned by Reliant Resources and therefore, there is no trading
market in such shares.

ITEM 6. SELECTED FINANCIAL DATA.

Omitted in reliance upon General Instruction I.1(a) and (b) for Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

You should read the following discussion in conjunction with our audited
consolidated financial statements and the related notes included elsewhere in
this report.

OVERVIEW

We were incorporated in Delaware in March 1998 for the purpose of
acquiring, developing, owning, and operating non-nuclear electric power
generating facilities throughout North America. Commencing in November 1998, in
six separate acquisitions, we directly or through our wholly-owned subsidiaries
acquired our facilities with a total electric generating capacity of 5,644
megawatts in operation and an additional 804 megawatts in construction.

On February 19, 2002, Orion Power Holdings was acquired by merger by a
wholly-owned subsidiary of Reliant Resources, Inc. (Reliant).

Similar to other wholesale power generators, we typically sell three types
of products: energy, capacity, and ancillary services. Energy refers to the
actual electricity generated by our facilities and sold to intermediaries for
ultimate transmission and distribution to consumers of electricity. Capacity
refers to the physical capability of a facility to produce energy. Ancillary
services generally are support products used to ensure the safe and reliable
operation of the electric power supply system.

We typically sell our wholesale products to electric power retailers, which
are the entities that supply power to consumers. Power retailers include
independent service operators, regulated utilities, municipalities, energy
supply companies, cooperatives, and retail "load" or customer aggregators.

OUTLOOK

Reliant will fully integrate Orion Power's assets into the existing Reliant
business, fully utilizing Reliant's extensive trading, marketing and operational
experience. Reliant will improve Orion Power's assets through reduced operating
and maintenance costs as well as improved availability and reliability. This
integration will be rolled out during the third quarter of 2002. All
modernization, environmental, and development strategies will be integrated into
Reliant's regional operational strategy.

RESULTS OF OPERATIONS

GENERALLY. The principal factor affecting recent changes in our results has
been the timing of the acquisitions of our facilities. We acquired our
facilities on the following dates:

o Carr Street Generating Station - November 19, 1998;

o Hydroelectric assets - July 30, 1999;

o Assets located in New York City - August 20, 1999;

o Assets located in Cleveland, Pittsburgh, West Pittsburg, Youngstown
(Midwest Assets) - April 28, 2000;

o Assets under construction from Columbia Electric Corporation -
December 11, 2000; and

o Assets under development from Competitive Power Ventures (Atlantic) -
October 12, 2001.

One of the assets acquired from Columbia Electric Corporation, Ceredo
Electric Generating Station, was placed into commercial operation in June 2001.

CRITICAL ACCOUNTING POLICIES

Orion Power management has implemented several accounting policies and has
made certain judgements and estimates that are disclosed in the footnotes to our
consolidated financial statements. Several critical accounting policies,
judgments and estimates are discussed below.

REVENUE RECOGNITION

Revenues from the sale of electricity are recorded based on output
delivered and capacity provided at rates specified under contract terms or
received in the wholesale marketplace. The only portion of our revenue that
contains certain assumptions in its determination and measurement is the revenue
recognized from the Provider of Last Resort contract with Duquesne Light
Company. The revenue, per the contract, is based on the amount of charges billed
to Duquesne Light Company's customer base for the services provided. Since the
amount of the actual revenue is not known until it is remitted by Duquesne Light
Company subsequent to when they have read a customer's meter, we have
established a reasonable number of assumptions regarding multiple factors to
match the megawatts we produce to the revenue we record. These assumptions are
continuously reviewed and revised, as necessary. We have been and continue to
work with Duquesne Light Company to obtain the most accurate and timely data
available to minimize any violatility within our assumptions. Through December
31, 2001, there have been no significant revisions or changes to our revenue
recognition assumptions related to this contract.

DERIVATIVE INSTRUMENTS

Derivative instruments (Derivatives) are contracts which typically derive
value from changes in interest rates, foreign exchange rates, credit spreads,
prices of securities or financial or commodity price indices. The timing of cash
receipts and payments for derivatives is generally determined by contractual
agreement. Derivatives can be either standardized contracts that are traded on
an organized exchange or privately negotiated contracts. Futures contracts are
examples of standard exchange-traded derivatives. Privately negotiated
derivative contracts include forwards, interest rate swaps and certain option
contracts. Orion Power enters into interest rate swap agreements and commodity
forward contracts as an end user for purposes other than trading. Derivatives
used for purposes other than trading serve to economically hedge variable cash
flows on floating rate debt and hedge the purchase and sale price of various
commodities. For further information, see the footnotes to the Consolidated
Financial Statements.

Interest rate swaps are used to remove violatility in the floating interest
rate. They protect against increases in the interest rate. A determental value
is created when interest rates fall because the rate has become locked in.

Commodity swaps are used by Orion Power to stabilize future margins with
fixed forward purchases and sales thus removing the uncertainty of the daily or
real time prices incorporated in the market place as well as limit, or negate
the floating rates used in other sales and purchases. The risk is Orion Power
may have to purchase additional power at higher rates in order to fulfill these
contracts. An additional lost opportunity, or additional gains, would be not
having any commodity available for higher sale prices, or lower purchases, when
the market rates differ from the fixed rates.

INCOME TAXES

Orion Power accounts for income taxes under the asset and liability method
prescribed by Statement of Financial Accounting Standard (SFAS) No. 109,
"Accounting for Income Taxes," and, accordingly, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using existing enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rates would be recognized in income in the period
that includes the enactment date. We continuously review multiple tax strategies
for each individual subsidiary and for the consolidated entity, as a whole, in
an effort to continue to reduce our tax liability. We review acceptable tax
practices at the federal and state levels as well as any potential credits or
exemptions available to us. Part of this strategy focuses on the future
direction of the operating facilities as well as any future site development
including legal entity structuring. These tax positions are subject to review
and appeal and could result in a negative outcome having an adverse effect on
future earnings.

PROJECT DEVELOPMENT COSTS

Project development costs represent amounts incurred for professional
services, direct salaries, permits, options on real property and other direct
incremental costs related to the development of new property and equipment,
principally electric generating facilities. These costs are expensed as incurred
until development reaches a stage when it is probable that the project will be
completed. A project is considered probable of completion upon meeting one or
more milestones, which may include a power sales contract or securing
construction or operating permits, among others. Project development costs that
are incurred after a project is considered probable of completion but prior to
starting physical construction are capitalized. Project development costs are
included in construction in progress when physical construction begins. Orion
Power periodically assesses project development costs for impairment. Impairment
could occur with: significant increases in construction costs, including any
turbine commitments; loss of a critical trading partner or contract (ie - an
executed tolling agreement) through bankruptcy; or an inability to obtain the
necessary financing to complete the project.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

REVENUE. Our revenue was $1,178.4 million for the year ended December 31,
2001, as compared to revenue of $957.6 million for the year ended December 31,
2000. The overall increase in revenues was mainly attributable to a full period
of the Midwest assets in our portfolio for the year ended December 31, 2001. The
Midwest assets were acquired in April 2000. One factor was increased generation
in New York City through increased megawatt capacity, availability and
production. Energy and capacity prices were fairly comparable for the years
ended December 31, 2001 and 2000. Other factors in determining our revenue
stream are weather patterns and the seasonality of energy consumption, which is
often correlated with weather patterns. Extreme temperatures can cause
significant fluctuations in our revenue stream by significantly affecting energy
usage patterns. Plant outages, due to a variety of factors, can also lead to
changes in revenues of our own facilities, and those of other energy producers,
by affecting the volume or prices of our wholesale energy products. In early
August 2001, we had a significant outage in one of our main units, Avon Lake #9,
located in Cleveland, Ohio. This unit returned to service in mid August 2001 and
has operated normally since that time. No other such outages have occurred in
the periods described that have had a significant impact on our business.

OPERATING EXPENSES. Our operating expenses for the year ended December 31,
2001, consisted of fuel expense, gain on derivative instruments, operations and
maintenance expense, general and administrative expenses, taxes other than
income taxes (principally property taxes) and depreciation and amortization
expense.

We had fuel expenses of $470.4 million for the year ended December 31,
2001, compared with $437.8 million for the year ended December 31, 2000. The
increase in fuel expense was mainly attributable to a full period of the Midwest
assets in our portfolio for the year ended December 31, 2001, as well as our
Ceredo facility commencing operations in June 2001. Fuel expense for 2000 also
includes $57 million for the purchase of power from May 2000 through October
2000 to supplement our generating capacity to meet our obligations under the
Provider of Last Resort Contract. Excluding the purchased power of $57 million
from 2000 for our provider of last resort obligation, the fuel to revenue ratio
is very comparable at 40% for each period.

Our gain on derivative instruments was $11.9 million for the year ended
December 31, 2001, compared to $0 for the year ended December 31, 2000. This
gain reflects the change in market value for the derivative instruments (certain
electricity, natural gas, oil, and financial tolling agreements) that do not
qualify as hedges under generally accepted accounting principles. See discussion
of the "Accounting Change".

Our operations and maintenance expenses were $129.4 million for the year
ended December 31, 2001, as compared to $97.6 million for the year ended
December 31, 2000. The increase was mainly attributable to a full period of the
Midwest assets in our portfolio for the year ended December 31, 2001. As a
percentage of revenues, the periods are very comparable at 11% and 10% for the
years ended December 31, 2001 and 2000, respectively.

Our general and administrative expenses were $58.3 million for the year
ended December 31, 2001, as compared to $37.1 million for the year ended
December 31, 2000. The increase was the result of expanded corporate
infrastructure to support our growth along with a full year of the Midwest
regional office in 2001 as well as salary increases and incentive bonuses.

Taxes other than income taxes amounted to $57.4 million for the year ended
December 31, 2001, compared to $60.8 million for the year ended December 31,
2000. The decrease was due to approximately a $6.2 million reduction in taxes
other than income taxes in Orion Power NY due to the settlement of outstanding
property tax issues in several municipalities with favorable results and was
partially offset by increased taxes of approximately $1.7 million for our
Midwest assets due to a full year of ownership in 2001.

Depreciation and amortization expense was $137.9 million for the year ended
December 31, 2001, as compared to $103.2 million for the year ended December 31,
2000. The increase was mainly attributable to a full period of the Midwest
assets in our portfolio for the year ended December 31, 2001. The expense for
the year ended December 31, 2001 also includes partial year depreciation for
many capital projects completed during the year at several of our plants
including a major unit restart in one of our assets located in New York City as
well as some major upgrades to our older Midwest assets.

Our charge for buyout of operations and maintenance contracts was the
result of the acquisition of the subsidiaries of Constellation Operating
Services in April 2000. We incurred a one-time loss of $19.0 million,
principally a non-cash item. There was no such loss for the year ended December
31, 2001.

OPERATING INCOME. As a result of these factors, our operating income was
$336.8 million for the year ended December 31, 2001, as compared to operating
income of $202.2 million for the year ended December 31, 2000.

INTEREST INCOME. Our interest income was $21.5 million for the year ended
December 31, 2001, as compared to $15.3 million for the year ended December 31,
2000. This increase was due to more cash on hand for the year ended December 31,
2001, which included the proceeds from our initial public offering of
approximately $453 million in November 2000 as well as a follow-on equity and
debt offering in May 2001 for net proceeds of approximately $465 million.

INTEREST EXPENSE. Our interest expense was $202.8 million for the year
ended December 31, 2001, as compared to $168.7 million for the year ended
December 31, 2000. The increase was mainly attributable to a full period of
interest related to the debt entered into in April 2000, to acquire the Midwest
assets. The year ended December 31, 2001, also included a full year of interest
for the $400 million senior notes issued by Orion Power in April and May 2000.
Additional net debt was added during 2001 through withdrawals on various
revolvers and construction loans totaling approximately $249 million as well as
the addition of the $200 million convertible senior notes sold in May 2001,
which were offset by approximately $332 million in debt repayments.

INCOME TAX PROVISION. Our income tax provision was $54.9 million for the
year ended December 31, 2001, compared to $20.2 million for year ended December
31, 2000. The increase was due to higher taxable income for the equivalent
periods. Our effective tax rate decreased to 35.3% from 41.5% due to the
implementation of several strategies to reduce our taxable income in high tax
jurisdictions mostly attributable to selected state tax credits utilized during
2001.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

REVENUE. Our revenue was $957.6 million for the year ended December 31,
2000, as compared to revenue of $134.1 million for the year ended December 31,
1999. The increase was primarily due to a full year of operations in 2000 of our
hydroelectric assets and our assets located in New York City, and the
acquisition in April 2000 of our assets located in Cleveland, Pittsburgh, West
Pittsburg and Youngstown. The revenue from each facility was determined at least
in part in accordance with the various interim capacity and energy agreements
then in place, including the provider of last resort contract with Duquesne
Light Company. The provider of last resort contract has been revised and the
term extended through December 2004. Our capacity sale agreement for our assets
located in New York City with Consolidated Edison expired in April 2000, at
which time we began selling our capacity into the market.

OPERATING EXPENSES. Our operating expenses consisted of fuel expense,
operations and maintenance expense, taxes other than income taxes (principally
property taxes), general and administrative expenses and depreciation and
amortization expense.

We had fuel expenses of $437.8 million for the year ended December 31,
2000, compared with $20.5 million for the year ended December 31, 1999. The
increase in 2000 was the result of our acquisition of our assets located in
Cleveland, Pittsburgh, West Pittsburg and Youngstown, the full year of operation
of our assets located in New York City and higher per unit costs for natural gas
and oil in 2000. From the date of acquisition through November 18, 1999, the
assets located in New York City were being operated under a tolling agreement
where the party buying the power supplied the fuel. This contract terminated
when the NY-ISO began operations. Fuel expense for 2000 also includes $57
million for the purchase of power from May 2000 through October 2000 to
supplement our generating capacity to meet our obligations under the provider of
last resort contract.

Our operations and maintenance expenses were $97.6 million for the year
ended December 31, 2000, as compared to $22.7 million for the year ended
December 31, 1999. The increase was a result of the ownership and operation of
our hydroelectric assets and our assets located in New York City for a full year
in 2000 along with the acquisition in the more recent period of our assets
located in Cleveland, Pittsburgh, West Pittsburg and Youngstown. The year ended
December 31, 1999, reflects the Carr Street facility for the period with partial
periods for our hydroelectric assets and our assets located in New York City.

Taxes other than income taxes amounted to $60.8 million for the year ended
December 31, 2000, compared to $20.8 million for the year ended December 31,
1999. The increase was a result of the ownership and operation of our
hydroelectric assets and our assets located in New York City for a full year in
2000 along with the acquisition in the more recent period of our assets located
in Cleveland, Pittsburgh, West Pittsburg and Youngstown. The year ended December
31, 1999, reflects the Carr Street facility for the full year and a partial year
for our hydroelectric assets and our assets located in New York City.

Our general and administrative expenses were $37.1 million for the year
ended December 31, 2000, as compared to $16.8 million for the year ended
December 31, 1999. The increase was the result of expanded corporate
infrastructure to support our growth along with the creation of a regional
office for Orion Power MidWest, L.P.

Depreciation and amortization expense was $103.2 million for the year ended
December 31, 2000, as compared to $18.9 million for the year ended December 31,
1999. The increase was a result of the ownership and operation of our
hydroelectric assets and our assets located in New York City for a full year in
2000 along with the acquisition in the more recent period of our assets located
in Cleveland, Pittsburgh, West Pittsburg and Youngstown. We also added the
provider of last resort contract value as an intangible asset in 2000. The year
ended December 31, 1999, reflects the Carr Street facility for the period with
partial periods for our hydroelectric assets and our assets located in New York
City.

Our charge for buyout of operations and maintenance contracts was the
result of the acquisition of the subsidiaries of Constellation Operating
Services in April 2000. We incurred a one-time loss of $19.0 million,
principally a non-cash item. There was no such loss for the year ended December
31, 1999.

OPERATING INCOME. As a result of these factors, our operating income was
$202.2 million for the year ended December 31, 2000, as compared to operating
income of $34.4 million for the year ended December 31, 1999.

INTEREST EXPENSE. Our interest expense was $168.7 million for the year
ended December 31, 2000, as compared to $25.8 million for the year ended
December 31, 1999. The increase in interest expense was due to our new bank
credit agreement for the acquisition of our assets located in Cleveland,
Pittsburgh, West Pittsburg and Youngstown, the $400 million senior notes issued
in April and May 2000, and the revolving credit facility entered into in July
2000. Additionally, in 2000, we had a full year of interest expense under our
bank credit facility related to the acquisition of our hydroelectric assets and
our assets located in New York City during 1999. Interest expense also includes
amortization of deferred financing costs from the establishment of Orion Power
MidWest, L.P.'s credit facility, the senior notes and the revolving credit
facility, all occurring in 2000.

INTEREST INCOME. Our interest income was $15.3 million for the year ended
December 31, 2000, as compared to $1.8 million for the year ended December 31,
1999. The increase was due to the increase of cash on hand from operations
(excluding restricted cash) resulting from a full year of operations in 2000 of
our hydroelectric assets and our assets located in New York City, the
acquisition during 2000 of our assets located in Cleveland, Pittsburgh, West
Pittsburg and Youngstown, and the additional cash raised as part of our initial
public offering in November 2000.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 2001, we obtained cash from operations
and from borrowings under the credit facilities of our subsidiaries as well as
through our public offerings in June 2001 of common stock and convertible senior
notes. This cash was used to fund operations, service debt obligations, fund our
development and construction projects at Kelson Ridge, Astoria, Avon Lake,
Liberty, Ceredo, and Cheswick, and meet other cash and liquidity requirements.

For 2002, our principal sources of liquidity will be cash from operations
as well as fundings from our existing credit facilities including any
refinancing of our Orion Power Holdings revolving credit facility and of our New
York and MidWest credit facilities. Such refinancing may be provided by external
sources or via intercompany loans or equity injections provided by Reliant
Resources, Inc. The major risk to our liquidity sources for 2002 are significant
increases in interest rates as we refinance our existing facilities, or the
inability to refinance such facilities.

Depending on our performance and market conditions prevailing at the time
of the expiration of these credit facilities, Reliant may not be able to arrange
for the necessary replacement of these facilities on terms that are acceptable
to us. If we are unable to obtain financing to replace these facilities on terms
that are acceptable to us, our financial condition and future results of
operations would be materially adversely affected.

Operating activities for the year ended December 31, 2001, provided $171.2
million of cash. This resulted from a $36.2 million increase in operating
assets, including restricted cash and notes receivable balances, and a $31.0
million net decrease in deferred tax assets. This also included a $69.2 million
decrease in operating liabilities, $154.4 million of depreciation and
amortization, $100.6 million of net income, $2.5 million of deferred
compensation, including the tax benefit from the exercise and $11.9 million gain
on derivative instruments.

Investing activities for the year ended December 31, 2001, used
approximately $26.3 million of cash for the acquisition of our Atlantic project,
a 250 megawatt gas-fired baseload combined cycle facility to be constructed in
Florida, with the remaining $475.9 million being used for facilities upgrades
and improvements.

Financing activities for the year ended December 31, 2001, provided
approximately $378.9 million of cash. We received net proceeds of $448.4 million
on borrowings under the convertible senior notes and the Liberty credit
facility, and $272.6 million of net proceeds from the issuance of common stock.
Approximately $332.0 million of debt primarily related to our Midwest credit
facility was paid down with the funds from these offerings and operations.
Additionally, we paid $12.7 million for financing costs under the senior
convertible notes and had proceeds of $2.5 million from officers' notes
receivable.

As of December 31, 2001, cash and cash equivalents were $183.7 million and
adjusted working capital was $628.3 million (adjusted working capital excludes
$1,614.3 million of the current portion of long-term debt). Of this working
capital, we had restricted cash of $336.7 million that can only be used pursuant
to our credit facilities in certain circumstances to fund the business
activities of the subsidiaries that hold our hydroelectric assets, our assets
located in New York City, our assets located in Cleveland, Pittsburgh, West
Pittsburg and Youngstown and the assets in development that we acquired in
connection with our purchase of Columbia Electric Corporation.

The credit facility of Orion Power New York, L.P. (Orion Power New York) is
a credit agreement between Orion Power New York and a group of lending
institutions. Under the credit facility agreement, Orion Power New York incurred
$700 million of indebtedness to finance the acquisition of our hydroelectric
assets and our assets located in New York City, of which $578.5 million was
outstanding at December 31, 2001. Amounts outstanding under the facility bear a
floating rate of interest. In addition, Orion Power New York has a $30 million
working capital revolving credit facility as part of the facility, of which $0
was outstanding as of December 31, 2001, and $10 million was used to provide a
letter of credit in favor of Consolidated Edison of New York. This credit
facility is available only to Orion Power New York and not for Orion Power
Holdings' operations. It provides, among other things, that the amount of
dividends and distributions that Orion Power New York may pay cannot exceed $100
million over the life of the facility. As of December 31, 2001, distributions of
$86.5 million had been paid. This credit facility contains various business
covenants that are typical for limited or non-recourse project financings. Such
covenants include, among others, restrictions on dividends, capital
expenditures, additional indebtedness, liens and investments, as well as
requirements regarding insurance, approval of operating budgets and commercial
contracts. The facility also includes a requirement that Orion Power New York
maintain a debt service coverage ratio of 1.5 to 1.0. These covenants are not
anticipated to materially restrict us from borrowing funds or obtaining letters
of credit under the working capital facility. The credit facility has a maturity
date of December 2002. Orion Power New York plans to refinance this credit
facility as described above.

The credit facility of Orion Power MidWest, L.P. is a credit agreement
between Orion Power MidWest and a group of lending institutions. Under the
credit facility, Orion Power MidWest incurred $1.11 billion of indebtedness to
finance the acquisition of our assets located in Cleveland, Pittsburgh, West
Pittsburg and Youngstown, $1.01 billion of which was outstanding at December 31,
2001. Amounts outstanding under the credit facility bear a floating rate of
interest. In addition, Orion Power MidWest has a $90 million working capital
facility, of which $10.0 million was outstanding as of December 31, 2001, and
$10 million was used to provide a letter of credit in favor of Duquesne Light
Company as well as an additional $5 million letter of credit to support various
services. This credit facility is available only to Orion Power MidWest and not
for Orion Power Holdings' operations. It provides, among other things, that the
cumulative amount of dividends and distributions that Orion Power MidWest may
pay cannot exceed $175 million over the life of the facility. As of December 31,
2001, no dividends or distributions had been paid. This credit facility contains
various business covenants that are typical for limited or non-recourse project
financings. Such covenants include, among others, restrictions on dividends,
capital expenditures, additional indebtedness, liens and investments, as well as
requirements regarding insurance, approval of operating budgets, fuel and power
marketing plans and commercial contracts. The facility also includes a
requirement that Orion MidWest maintain a debt service coverage ratio of 1.5 to
1.0; provided that, for the quarter ended March 31, 2002 we could alternatively
make a prepayment of $25,000,000, which was done on March 22, 2002. Orion Power
MidWest anticipates that it may not be able to meet this covenant and would need
to seek a waiver or amendment for the quarter ended June 30, 2002. If a waiver
or amendment is required, we have no assurance that Orion Power MidWest will be
able to obtain such a waiver or amendment from its lenders. The credit facility
has a maturity date of October 2002. Orion Power MidWest plans to refinance this
credit facility as described above.

Under the New York Credit Agreement and the MidWest Credit Agreement
(collectively, the "Credit Agreements"), Orion Power New York and Orion Power
MidWest are restricted from distributing cash to Orion Power. These credit
agreements provide for various accounts to be created, into which all operating
revenues and other cash receipts are deposited, and from which operating
expenses, repayments of the loan facilities and distributions to Orion Power may
be made.

The $400 million, 12% Senior Notes are due on May 1, 2010. The proceeds
were used to assist in the financing of the acquisition of the Midwest Assets.
Interest is paid semiannually in May and November of each year. The senior notes
are senior unsecured obligations and rank pari passu with all of Orion Power
Holdings' existing and future unsecured indebtedness. Before May 1, 2003, Orion
Power Holdings may redeem up to 35 percent of the notes issued under the
indenture at a redemption price of 112 percent of the principal amount of the
notes redeemed, plus accrued and unpaid interest and special interest, with the
net cash proceeds of an equity offering provided that certain provisions under
the indenture are met. Orion Power Holdings is not required to make any
mandatory redemption or sinking fund payments with respect to the Senior Notes.
Each holder of the Senior Notes has the right to require Orion Power Holdings to
repurchase the notes pursuant to a change of control offer as set forth in the
indenture. The indenture requires that Orion Power offer a cash payment
equivalent to 101% of the aggregate principal amount of the repurchased notes
plus any accrued or unpaid interest through the date of the repurchase upon
completion of the merger with Reliant. This offer was made to noteholders as the
merger with Reliant qualified as a change in control. The Senior Notes are not
guaranteed by any of Orion Power Holdings' subsidiaries. The senior notes
indenture contains covenants restricting our ability to pay dividends, incur
indebtedness, sell assets, transact with affiliates, enter into sale and
leaseback transactions, place liens on our property or change our line of
business.

Pursuant to certain change of control provisions, Orion Power Holdings
commenced an offer to repurchase the $400 million 12% senior notes on March 21,
2002. The offer to repurchase expires on April 18, 2002 and payment to holders
accepting the offer will be made on April 19, 2002. Orion Power Holdings does
not expect any note holders will accept the offer and that it will not
repurchase any of the $400 million 12% senior notes. To the extent that Orion
Power Holdings does not have sufficient cash with which to make such repurchase,
it is anticipated that Reliant Resources will make such repurchase with its own
cash.

The $75 million revolving senior credit facility matures in December 2002.
Amounts outstanding under the facility bear interest at a floating rate. The
facility is unsecured and ranks pari passu with all of Orion Power Holdings'
senior debt. As of December 31, 2001, there were no outstanding amounts borrowed
under this facility and $69.9 million in letters of credit were outstanding:
$46.0 million related to Liberty with the remaining $23.9 million for the
Atlantic project. This credit facility contains various business covenants. Such
covenants include, among others, restrictions on dividends, additional
indebtedness and indebtedness of subsidiaries, liens, investments, capital
expenditures and prepayment/redemption of debt. The facility also includes a
requirement that we maintain a consolidated leverage ratio of less than 5.0 to
1.0 (after April 1, 2002), a consolidated interest coverage ratio of 1.75 to
1.0, a minimum consolidated tangible net worth of $700,000,00, and a borrower
debt service coverage ratio of 1.4 to 1.0. The failure of Orion Power Holdings
to meet any of these financial covenants for two consecutive fiscal quarters
constitutes an event of default, which could lead to the requirement to pay any
outstanding borrowings prior to maturity and to cash collateralize outstanding
letters of credit. Orion Power Holdings did not meet the borrower debt service
coverage ratio for the quarter ended March 31, 2002; if Orion Power Holdings
needs to seek a waiver or amendment of this covenant because it has not been met
for the quarter ended June 30, 2002, there is no assurance that Orion Power
Holdings will be able to obtain such a waiver or amendment from its lenders.

The Liberty Electric Power, LLC (Liberty Electric) credit facility was
assumed by us in connection with our acquisition of Columbia Electric
Corporation in December of 2000. The credit facility provides for up to
approximately $334 million of borrowings under multiple tranches. With the
exception of $41 million, which is supported by a letter of credit issued under
Orion Power Holdings credit facility described above, the credit facility is
recourse only to the assets and cash flows of Liberty Electric and is
non-recourse to Orion Power Holdings. As of December 31, 2001, $282.8 million
was outstanding under the facility. The credit facility is available only to
Liberty Electric and not for Orion Power Holdings' operations. This credit
facility contains various business covenants that are typical for limited or
non-recourse project financings. Such covenants include, among others,
restrictions on distributions, capital expenditures, additional indebtedness,
liens and investments, as well as requirements regarding insurance, approval of
operating budgets, fuel and power marketing plans and commercial contracts.

The equity bridge loan matures on the earlier of October 1, 2002, or a date
on which the conditions precedent to conversion to a term loan are met. The debt
service reserve letter of credit becomes available for use when the conditions
precedent to conversion to a term loan are met and matures five years
thereafter. The working capital facility becomes available for use six months
prior to the scheduled conversion date and matures five years thereafter. The
construction/term loan matures on the earlier of October 1, 2002, or a date on
which the conditions precedent to conversion to a term loan are met and matures
10 years thereafter. The institutional term loan has a final maturity date of
April 15, 2026.

Liberty Electric Power Plant is expected to be completed in April 2002 at
which time we also expect to meet the conditions precedent to permit conversion
of the construction loan to a term loan. The output of this plant is contracted
under a tolling agreement for a term of approximately 14 years. Under this
agreement the counterparty will have the exclusive right to receive all energy,
capacity and ancillary services produced by the plant. The counterparty will pay
for, and be responsible for, all fuels used by the plant under the tolling
agreement.

On June 6, 2001, Orion Power Holdings issued $200 million aggregate
principal amount of 4.50 percent convertible senior notes, due on June 1, 2008.
The notes are convertible into shares of Orion Power Holdings' common stock at a
conversion price of $34.19 per share, and are first subject to redemption at a
premium by Orion Power Holdings on June 4, 2004. Upon completion of the merger
with Reliant, holders of the convertible senior notes have the right to require
Orion Power Holdings to repurchase some or all of the notes at a price equal to
100 percent plus accrued and unpaid interest. Concurrently with this offering,
Orion Power Holdings and certain selling stockholders completed a $355.6 million
common stock offering, comprised of approximately 10,400,000 shares sold by
Orion Power Holdings and approximately 2.6 million shares sold by the selling
stockholders at a per share price of $27.35. A portion of the proceeds from
these offerings was used to repay approximately $100 million of outstanding debt
held by Orion Power Holdings' subsidiaries. To the extent that Orion Power
Holdings does not have sufficient cash with which to make such repurchase, it is
anticipated that Reliant Resources will make such repurchase with its own cash.

Pursuant to certain change of control provisions, Orion Power Holdings
commenced an offer to repurchase the $200 million 4.5% convertible senior notes
on March 1, 2002. The offer to repurchase expires on April 10, 2002 and payment
to holders accepting the offer will be made on April 12, 2002. Orion Power
Holdings expects all note holders will accept the offer and that it will
repurchase the $200 million 4.5% convertible senior notes. To the extent that
Orion Power Holdings does not have sufficient cash with which to make such
repurchase, it is anticipated that Reliant Resources will make such repurchase
with its own cash.

We will require cash to meet the debt service obligations under our notes
and credit facilities. Debt service obligations will fluctuate depending on
variations in the interest rate and the balance on the working capital portion
of the facilities. The following table summarizes the outstanding indebtedness
as of December 31, 2001:



SOURCE AMOUNT INTEREST RATE
- ------ ------ -------------
(dollars in millions)

Orion Power New York Credit Facility..................... $ 578 5.66%
Orion Power MidWest Credit Facility...................... 1,023 5.37
12% Senior Notes due 2010................................ 400 12.00
4.5% Convertible Senior Notes due 2008................... 200 4.50
Orion Power Holdings Revolving Senior Credit Facility.... -- N/A
Liberty Electric Credit Facility ........................ 283 6.55(a)
----- -----

Total............................................... $ 2,484 6.57%(a)
====== =====


_______________
(a) Weighted average interest rate.

Including the outstanding debt noted above, we have the following
contractual obligations for the next five years and beyond (in thousands):



Maturity Period
Contractual Obligations < 1 Year 1-3 years 4-5 years After 5 years Total
- ---------------------------------------------------------------------------------------------------------------------

Debt $1,614,334 $ - $ - $ 870,000 $2,484,334
Capital and Operating Lease Obligations 1,796 3,611 1,927 6,099 13,433
Turbine Purchase Obligations 200,100 364,100 5,800 - 570,000
Other Long-Term Obligations 3,238 4,687 - 4,175 12,100
--------------------------------------------------------------------
Total Contractual Obligations $1,819,468 $372,398 $ 7,727 $ 880,274 $3,079,867
====================================================================


Debt includes the senior notes and convertible senior notes held by Orion
Power Holdings as well as the three credit facilities held by the operating
subsidiaries, Orion Power New York, Orion Power Midwest and Liberty Electric. We
will attempt to refinance the Orion Power Holdings, Orion Power New York and
Orion Power Midwest credit facilities expire in 2002. We will attempt to
refinance the Orion Power Holdings, Orion Power New York and Orion Power Midwest
facilities as described above and below. The capital and operating leases relate
to various office space and other equipment. The turbine purchase obligations
are for contracts entered into by Orion Power Holdings for new development as
well as repowering projects currently under way or planned. These obligations
will be funded through operating funds and debt, as necessary. The other
long-term obligations relate to environmental liabilities assumed at acquisition
for the New York Assets as well as the Midwest Assets. These obligations are the
projected remediation costs to satisfy our environmental obligations and would
be funded through operating funds.

Additionally, Orion Power Holdings has other commercial commitments, in the
form of unused lines of credits, letters of credit, and purchase obligations
under its coal contracts. The following table highlights those costs and timing
of obligation (in thousands):

Other Commercial Amount of Commitment Expiration per period
Commitments < 1 Year 1-3 years 4-5 years After 5 years Total
- --------------------------------------------------------------------------------
Unused Lines of Credit $115,078 $ - $ - $ 5,000 $120,078
Letters of Credit 94,922 - - - 94,922
Fuel Contracts 144,742 51,765 9,118 - 205,625
---------------------------------------------------------
Total Commercial
Commitments $354,742 $ 51,765 $ 9,118 $ 5,000 $420,625
=========================================================

The unused lines of credits are part of the existing credit facilities and
expire in conjunction with each individual facility. The letters of credit are
part of and expire in conjunction with the existing credit facilities. The
long-term unused line of credit is part of the Liberty credit facility and
becomes due five years following conversion of the construction facility to a
term loan facility. The fuel contracts represent minimum purchase obligations at
contracted fixed rates under the current contracts for the operating facilities.

We, as a wholly-owned subsidiary of Reliant, will need to refinance our
indebtedness under the Orion Power New York credit facility, which becomes due
in December 2002, and the Orion Power MidWest credit facility, which becomes due
in October 2002. We are currently exploring financing alternatives to replace
and/or retire this debt. Entering into a new credit facility and issuing an
additional series of notes are among the alternatives being considered.

We, as a wholly-owned subsidiary of Reliant, review potential acquisition
and development opportunities on an on-going basis. In the near future, we may
seek to acquire and/or develop additional facilities, which, depending on the
size and structure of these acquisitions or development projects, may require
significant cash resources. We currently have not made any commitments or
entered into any binding agreements with respect to any such transaction. We may
incur substantial additional indebtedness to finance future acquisitions and
development opportunities. This indebtedness may be incurred by us or by one or
more of our subsidiaries. Any increase in the level of indebtedness will
increase the amount of interest paid.

In addition, we plan to improve the operational efficiency of our
generating facilities and, in some cases, to expand our facilities on-site. This
on-site expansion may come either through the construction of additional
generating plants at existing sites, referred to in the industry as "brownfield"
development, or through the repowering of existing plants. Our ability to expand
the capacity of our facilities is subject to numerous factors, including
restrictions imposed by environmental regulations. We anticipate capital
expenditure upgrades of between $30 and $40 million annually for the next
several years in connection with our assets. We also may incur significant
additional expenditures for capital improvements following 2002 for future major
maintenance projects as well as continued modernization of some of the older
facilities.

Additionally, we expect that capital expenditures on environmental projects
will total approximately $300 million over the next seven years, the majority of
which is expected to be expended between 2002 and 2006. We believe that a
substantial portion of this will be funded out of operating cash flow. This
amount may change, however, and the timing of any necessary capital expenditures
could be accelerated in the event of a change in environmental regulations or
any enforcement proceeding being commenced against us.

In order to execute our business strategy and finance our anticipated
capital expenditures, we may need to incur additional debt. If we incur
additional debt, we will refinance our existing indebtedness and/or incur new
debt in compliance with the restrictions of our existing indebtedness or with
the consent of our existing lenders. Any increase in our level of indebtedness
will increase the amount of interest we must pay.

We are restricted in our ability to incur additional indebtedness and make
acquisitions and capital expenditures by the terms and conditions of our senior
notes, our revolving credit facility and the credit facilities of our
subsidiaries. We may incur additional indebtedness under the terms of:

o the senior notes if the ratio of consolidated cash flow to fixed
charges is at least 2.0 times, taking into account the additional
indebtedness;

o the revolving credit facility if the amount outstanding at any time
does not exceed $5,000,000 and (i) the debt under the credit facility
ranks senior or pari passu with such debt and (ii) such debt does not
contain terms that are more restrictive than the provisions of the
revolving credit facility;

o the Orion Power New York, L.P. credit facility so long as the debt is
less than $1,000,000 or, if over $1,000,000, with the consent of
two-thirds of the Orion Power New York lenders;

o the Orion Power MidWest credit facility as long as the debt is less
than $5,000,000; if in excess of $5,000,000, the debt must have a
maturity date of longer than 36 months and must not limit or restrict
the lenders under the Orion Power MidWest credit facility in
exercising their rights thereunder in any way that is more limiting or
restrictive than the provisions of the senior notes.

The Liberty Electric credit facility has no limitations on Orion Power
Holdings' ability to incur additional indebtedness.

SEASONALITY

Our operations vary depending upon the season and regional weather
conditions, although the impact of seasonality can vary depending upon the
geographic location of our facilities. In many areas, the demand for electric
power peaks during the hot summer months, with energy and capacity prices
correspondingly being the highest at that time. We can earn a substantial amount
of our net income from a few days during the peak demand for electric power on
the hottest days of summer. In some areas, demand also increases during the
coldest winter months. Additionally, hydroelectric plants show seasonality
depending upon the availability of water flows, which generally will be high
during rainy months or as a result of snowmelt in the late winter and spring.
Prices will generally fluctuate with demand, being highest at times of greatest
demand. This fluctuation is currently somewhat mitigated by the existence of the
hydro-transition power sales agreement and the provider of last resort contract,
both of which have constant prices for the entire year. Our overall future
operating results may reflect different seasonal aspects, depending upon the
location and characteristics of any additional facilities we acquire.

RISK MANAGEMENT ACTIVITIES

Orion Power Holdings uses derivative instruments to manage exposures to
interest rate and commodity price risks. Orion Power's objectives for holding
derivatives are to minimize the variability in Orion Power's cash flow using the
most effective methods to eliminate or reduce the impacts of these risks. Orion
Power Holdings does not use derivative instruments for speculative or trading
purposes.

INTEREST RATE RISK

Orion Power's debt service payments from its credit facilities are subject
to interest rate risk resulting in variability in future cash flows. Orion Power
Holdings uses pay-fixed interest rate swaps to mitigate the risk of increasing
interest rates for a portion of Orion Power's floating rate debt. These
derivatives serve to hedge Orion Power's exposure to cash flow variability for
future interest payments in the event of significant changes in interest rates.

COMMODITY PRICE RISK

Orion Power Holdings executes both physical and financial commodity
contracts to serve as economic hedges of certain commodity purchase and sale
activity. These contracts serve to hedge price volatility for some aspects of
its operations due to inflation, rising fuel costs, and flat or decreasing
energy prices. Orion Power Holdings executes financial contracts for the forward
sale of electricity, the forward purchases of natural gas and oil as well as
financial tolling contracts. The forward sales of electricity are treated as
cash flow hedges of the forecasted electricity sales, with the exception of one
long-term contract, which is classified as no hedging designation. The fair
value changes of contracts that are not designated in qualifying hedge
accounting relationships are recorded in earnings in the period they occur. The
net gain attributable to the change in these derivative contracts included in
the operating expenses on the accompanying consolidated statements of operations
was approximately $11,919,000 for the year ended December 31, 2001. Orion
Power's use of derivative instruments, whether designated as an accounting hedge
or not, is designed to lock in energy sale prices and the associated fuel costs
to effectively create a fixed energy margin.

MARKET RISK

Market risk is the potential loss Orion Power Holdings may incur as a
result of changes in the market or fair value of a particular instrument or
commodity. All financial and commodities-related instruments, including
derivatives, are subject to market risk. Orion Power's exposure to market risk
is determined by a number of factors, including the size, duration, composition,
and diversification of positions held, the absolute and relative levels of
interest rates, as well as market volatility and illiquidity. The most
significant factor influencing the overall level of market risk to which Orion
Power Holdings is exposed is its use of hedging techniques to mitigate such
risk. Orion Power Holdings manages market risk by actively monitoring compliance
with stated risk management policies as well as monitoring the effectiveness of
its hedging policies and strategies. Orion Power's risk management policies
limit the amount of total net exposure and rolling net exposure during stated
periods. These policies, including related risk limits, are regularly assessed
to ensure their appropriateness given Orion Power's objectives. Subsequent to
the merger with Reliant, we will be subject to the risk management structure and
policies of Reliant.

CREDIT RISK

Orion Power Holdings is exposed to losses in the event of nonperformance by
counterparties to its derivative instruments. Credit risk is measured by the
loss Orion Power Holdings would record if its counterparties failed to perform
pursuant to terms of their contractual obligations and the value of collateral
held, if any, was not adequate to cover such losses. Orion Power Holdings has
established controls to determine and monitor the creditworthiness of
counterparties, as well as the quality of pledged collateral, and uses master
netting agreements whenever possible to mitigate Orion Power's exposure to
counterparty credit risk. Additionally, Orion Power Holdings may require
counterparties to pledge additional collateral when deemed necessary.

Concentrations of credit risk from financial instruments, including
contractual commitments, exist when groups of counterparties have similar
business characteristics or are engaged in like activities that would cause
their ability to meet their contractual commitments to be adversely affected, in
a similar manner, by changes in the economy or other market conditions. Orion
Power Holdings monitors credit risk on both an individual and group counterparty
basis.

ACCOUNTING CHANGE

Effective January 1, 2001, the Orion Power Holdings adopted Statement of
Financial Accounting Standard (SFAS) No. 133, (the Statement) as amended by SFAS
Nos. 137 and 138. This Statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. All derivatives, whether designated
in hedging relationships or not, are required to be recorded on the balance
sheet at fair value. If the derivative is designated as a cash flow hedge, the
effective portions of the changes in fair value of the derivative are recorded
in Other Comprehensive Loss (OCL) and are recognized in the income statement
when the hedged item affects earnings. Ineffective portions of changes in fair
value of cash flow hedges are recognized as earnings.

The adoption of the Statement resulted in a one-time pre-tax reduction of
$57.0 million ($33.3 million after taxes) to Accumulated Other Comprehensive
Loss (AOCL), a component of Stockholders' Equity. The reduction to AOCL during
2001 resulted from the recognition of Orion Power Holdings' contracts meeting
the definition of a derivative at fair value.

At December 31, 2001, Orion Power Holdings had net derivative assets of
approximately $25.0 million, derivative liabilities of approximately $91.7
million and AOCL of approximately $(51.1 million), after tax, related to fair
values of Orion Power Holdings' derivatives. The gain on derivative instruments
was approximately $11.9 million recognized in the consolidated statement of
operations for the year ended December 31, 2001. The following table provides a
rollforward of the derivative activities for the year ended December 31, 2001
(in thousands):



Electric Oil Gas Financial Coal Interest Rate
Sales Purchases Purchases Tolling Contracts Swaps Total
-----------------------------------------------------------------------------------------

Transition Value -
January 1, 2001 $ 1,707 $(1,456) $ 2,318 $(3,001) $ - $(56,543) $(56,975)
Prior year's
contracts settled
during 2001 (1,216) 1,582 (2,318) 3,689 - - 1,737
Changes in fair value of
contracts 22,765 (5,928) - 1,092 (236) (29,144) (11,451)
-----------------------------------------------------------------------------------------
Fair value -
December 31, 2001 $23,256 $(5,802) $ - $ 1,780 $ (236) $(85,687) $(66,689)
=========================================================================================


The financial tolling, oil purchase, and electric sales commodities mature
in less than one year with the exception of one agreement, which matures in May
2004. The agreement that matures in May 2004 has no hedge designation and is
marked to market through the Statement of Operations. The fair market value of
that agreement at December 31, 2001, was an $11.1 million asset. All of these
agreements are valued using prices provided by publicly produced industry
specific indicies. The Interest Rate Swaps mature as follows:



Fair Value of Agreements at Period-End

Less than One to Three Four to Five Greater than
One Year Years Years Five Years Total
------------------------------------------------------------------

Interest Rate Swaps $ (4,166) $(18,982) $(15,310) $(47,229) $(85,687)
==================================================================


These values are determined using actively quoted prices including LIBOR
and US Treasury rates.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
standard prohibits the use of pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001, and applies to all business
combinations accounted for under the purchase method that are completed after
June 30, 2001. Orion Power does not expect that implementation of this standard
will have a significant impact on its financial statements.

Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This standard eliminates the amortization of goodwill, and
requires goodwill to be reviewed periodically for impairment. This standard also
requires the useful lives of previously recognized intangible assets to be
reassessed and the remaining amortization periods to be adjusted accordingly.
This standard is effective for fiscal years beginning after December 15, 2001,
for all goodwill and other intangible assets recognized on our balance sheet at
that date, regardless of when the assets were initially recognized. Orion Power
does not expect that implementation of this standard will have a significant
impact on its financial statements.

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This standard is effective for fiscal years beginning
after June 15, 2002, and provides accounting requirements for asset retirement
obligations associated with tangible long-lived assets. Orion Power does not
expect the implementation of this standard will have a significant impact on its
financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This standard addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. It supersedes FASB Statement No. 121 but retains Statement 121's
fundamental provisions for (a) recognition/measurement of impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sale. This standard also supersedes the
accounting/reporting provisions of APB Opinion No. 30 for segments of a business
to be disposed of but retains APB 30's requirement to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that either has been disposed of or is classified as held
for sale. This standard is effective for fiscal years beginning after December
15, 2001. Orion Power does not expect that implementation of this standard will
have a significant impact on its financial statements.

In October 2001, amended in December 2001, the Financial Accounting
Standards Board (FASB) approved two interpretations issued by the Derivatives
Implementation Group (DIG) that change the definitions of normal purchase and
sales for certain power and commodity contracts. Certain of our derivative
commodity contracts may no longer be exempt from the requirements of SFAS No.
133. We are evaluating the impact of the implementation guidance on our
financial statements, and will implement this guidance, as applicable, on a
prospective basis.

RELATED-PARTY TRANSACTIONS

We do not rely on significant related party transactions in our operations.
During 2001, we were involved in several contracts with current or former owners
related to the operations of certain of our facilities. Additionally, we had
several notes receivable from officers which were outstanding at December 31,
2001. The notes were required to purchase shares of Orion Power's common stock
under their employment agreements. This balance was paid off at the completion
of the merger with Reliant on February 19, 2002. Please refer to footnote 6 of
our Consolidated Financial Statements for a more detailed discussion of each of
our related party transactions.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We attempt to hedge some aspects of our operations against the effects of
fluctuations in inflation, interest rates, and commodity prices. (See Risk
Management Activities Section above and footnote 12 of the Orion Power Holdings
Consolidated Financial Statements for further discussions on derivatives, market
and credit risks). Because of the complexity and potential cost of hedging
strategies and the diverse nature of our operations, our results, although
hedged, will likely be affected by fluctuations in these variables and these
fluctuations may result in material improvement or deterioration of operating
results. Results would generally improve with lower interest rates and fuel
costs, and with higher prices for energy, capacity, and ancillary services,
except where we are subject to fixed price agreements such as the provider of
last resort contract. Our operating results are also sensitive to the difference
between inflation and interest rates, and would generally improve when increases
in inflation are higher than increases in interest rates. We do not use
derivative instruments for speculative or trading purposes.

As of December 31, 2001, we were party to four interest rate swap
agreements designed to fix the variable rate of interest on $350 million of the
credit facility of Orion Power New York, L.P. The weighted average fixed rate of
interest for the related swap agreements are approximately 7.0%. In addition, we
were party to four interest rate swap agreements designed to fix the variable
rate of interest on $600 million of the credit facility of Orion Power MidWest,
L.P. The weighted average fixed rate of interest for the related swap agreement
is approximately 7.4%. As of December 31, 2001, if we sustained a 100 basis
point change in interest rates for all variable rate debt, the change would have
affected net pretax income by $7.7 million over a twelve month period.

As of December 31, 2001, we had entered into forward sale agreements to
sell power for a fixed price. We hedge these forward energy sales with fixed
price fuel purchases to lock in a net margin. We sold forward a total of 828,800
total megawatt hours during 2001, which locked in a net margin of $30.0 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our financial statements and the related notes, together with the
Independent Auditors' Report thereon, are set forth beginning on page F-1 of
this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Omitted in reliance upon General Instruction I.1(a) and (b) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

Omitted in reliance upon General Instruction I.1(a) and (b) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Omitted in reliance upon General Instruction I.1(a) and (b) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Omitted in reliance upon General Instruction I.1(a) and (b) of Form 10-K.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following documents are filed as a part of this report on Form 10-K:

1. Financial Statements: Our financial statements and notes thereto are
set forth beginning on page F-1 of this Annual Report on Form 10-K.

2. Schedules to Financial Statements: All financial statement schedules
have been omitted because they are either inapplicable or the
information required is provided in the Company's Financial Statements
and Notes thereto, included in Part II, Item 8 of this Annual Report
on Form 10-K.

3. Exhibits: See "Exhibit Index."

(b) A Current Report on Form 8-K was filed by us on each of December 14 and 26,
2001, pursuant to Item 2 relating to our merger with Reliant Resources,
Inc.



ORION POWER HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of Orion Power Holdings, Inc.:

Report of Independent Public Accountants.....................................F-2

Consolidated Balance Sheets as of December 31, 2000 and 2001.................F-3

Consolidated Statements of Operations for the Years Ended
December 31, 1999, 2000 and 2001.............................................F-5

Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1999, 2000 and 2001.............................F-6

Consolidated Statements of Cash Flows for the Period for the
Years Ended December 31, 1999, 2000 and 2001.................................F-7

Notes to Consolidated Financial Statements as of December 31,
1999, 2000 and 2001..........................................................F-8



Condensed Financial Statements of Orion Power Holdings, Inc.:

Report of Independent Public Accounts ......................................F-31

Condensed Balance Sheets as of December 31, 2000 and 2001...................F-32

Condensed Statements of Income for the Years Ended
December 31, 1999, 2000 and 2001............................................F-33

Condensed Statements of Cash Flows for the Years Ended
December 31, 1999, 2000 and 2001............................................F-34

Notes to Condensed Financial Statements as of December 31,
2000 and 2001...............................................................F-35



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orion Power Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of Orion Power
Holdings, Inc. (a Delaware corporation) and subsidiaries (Orion Power) as of
December 31, 2000 and 2001, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of Orion Power's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Orion Power
Holdings, Inc. and subsidiaries as of December 31, 2000 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1, 2001,
Orion Power changed its method of accounting for derivative financial
instruments.

/s/ Arthur Andersen LLP

Vienna, Virginia
February 19, 2002



ORION POWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)


DECEMBER 31, DECEMBER 31,
2000 2001
------------ ------------
ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 135,834 $ 183,719
Restricted cash 283,426 336,714
Accounts receivable, net of allowance
for bad debts of $1,458 and $1,631
at December 31, 2000 and December 31,
2001, respectively 154,777 134,113
Inventories and supplies 44,881 58,969
Deferred income tax asset 14,920 3,754
Derivative assets - 13,472
Prepaid expenses and other current assets 28,307 22,544
------------ ------------
Total current assets 662,145 753,285

PROPERTY AND EQUIPMENT, NET 3,083,546 3,350,893

OTHER NONCURRENT ASSETS:
Prepaid expenses and other noncurrent assets 12,134 7,089
Derivative assets - 11,563
Identifiable purchased intangibles, net of
accumulated amortization of $4,998 and
$10,203 at December 31, 2000 and December
31, 2001, respectively 70,786 65,734
Goodwill, net of accumulated amortization
of $0 and $857 at December 31, 2000 and
December 31, 2001, respectively - 101,972
Deferred financing costs, net of accumulated
amortization of $13,587 and $30,084 at
December 31, 2000 and December 31, 2001,
respectively 41,579 37,762
------------ ------------
Total other noncurrent assets 124,499 224,120
------------ ------------

Total assets $ 3,870,190 $ 4,328,298
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable $ 111,338 $ 76,336
Accrued expenses 56,373 26,432
Accrued interest 18,641 17,276
Deferred revenue 1,836 1,875
Current portion of long-term debt 261 1,614,334
Derivative liabilities - 3,090
------------ ------------
Total current liabilities 188,449 1,739,343

Long-term debt 2,367,637 870,000
Deferred income tax liabilities 8,931 1,204
Derivative liabilities - 88,634
Other long-term liabilities 50,391 47,487
------------ ------------
Total liabilities 2,615,408 2,746,668
------------ ------------

COMMITMENTS AND CONTINGENCIES (SEE NOTE 8)

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 200,000,000
shares authorized; 93,095,926 and
103,648,909 shares issued and outstanding
at December 31, 2000 and December 31, 2001,
respectively 931 1,037
Additional paid-in capital 1,230,467 1,503,891
Deferred compensation (3,359) (1,763)
Notes receivable from officers (5,916) (3,736)
Accumulated other comprehensive loss - (51,061)
Retained earnings 32,659 133,262
------------ ------------
Total stockholders' equity 1,254,782 1,581,630
------------ ------------

Total liabilities and stockholders' equity $ 3,870,190 $ 4,328,298
============ ============

The accompanying notes are an integral part of these consolidated balance sheets



ORION POWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1999 2000 2001
---------- ---------- ----------
$ 134,074 $ 957,569 $1,178,380
OPERATING REVENUES

OPERATING EXPENSES:
Fuel 20,463 437,763 470,433
Gain on derivative instruments - - (11,919)
Operations and maintenance 22,732 97,607 129,413
General and administrative 16,755 37,082 58,315
Taxes other than income taxes 20,785 60,751 57,388
Depreciation and amortization 18,938 103,196 137,932
Cost on buyout of operations and
maintenance contracts with related party - 19,000 -
---------- ---------- ----------
Total operating expenses 99,673 755,399 841,562

OPERATING INCOME 34,401 202,170 336,818

INTEREST INCOME 1,824 15,281 21,529

INTEREST EXPENSE (25,767) (168,670) (202,825)
---------- ---------- ----------

INCOME BEFORE PROVISION FOR INCOME TAX 10,458 48,781 155,522

INCOME TAX PROVISION 4,796 20,242 54,919
---------- ---------- ----------

NET INCOME $ 5,662 $ 28,539 $ 100,603
========== ========== ==========

Earnings per average common share:
Basic $ 0.39 $ 0.46 $ 1.02
========== ========== ==========
Diluted $ 0.38 $ 0.44 $ 0.97
========== ========== ==========

The accompanying notes are an integral part of these consolidated financial
statements.



ORION POWER HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE DATA)



Notes Accumulated
Additional Receivable Other
Common Stock Paid-In Deferred From Comprehensive Retained Comprehensive
Shares Amount Capital Compensation Officers Loss Earnings Total Income
------------ ------ ---------- ------------ ---------- ------------- ---------- ---------- -------------

Balance, December 31, 1998 $ 1,864,542 $ 19 $ 18,626 $ - $ (35) $ - $ (1,542) $ 17,068
Sale of common stock,
net of fees 34,298,087 343 382,623 - (636) - - 382,330
Distribution to
stockholders - - (9,750) - - - - (9,750)
Deferred compensation
pursuant to issuance
of stock options - - 1,917 (1,917) - - - -
Amortization of deferred
compensation - - - 106 - - - 106
OTHER COMPREHENSIVE
INCOME (LOSS)
Net income - - - - - - 5,662 5,662 $ 5,662
------------
COMPREHENSIVE INCOME $ 5,662
-------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 36,162,629 362 393,416 (1,811) (671) - 4,120 395,416
Sale of common stock,
net of fees 56,933,297 569 851,250 - (5,001) - - 846,818
Distribution to
stockholders - - (17,050) - - - - (17,050)
Deferred compensation
pursuant to issuance
of stock options - - 2,851 (2,851) - - - -
Amortization of deferred
compensation - - - 1,303 - - - 1,303
Change in notes receivable - - - - (244) - - (244)
OTHER COMPREHENSIVE
INCOME (LOSS)
Net Income - - - - - - 28,539 28,539 $ 28,539
------------
COMPREHENSIVE INCOME $ 28,539
-------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 93,095,926 931 1,230,467 (3,359) (5,916) - 32,659 1,254,782
Sale of common stock,
net of fees 10,552,983 106 272,497 - - - - 272,603
Change in notes receivable - - - - 2,180 - - 2,180
Amortization of deferred
compensation - - - 1,596 - - - 1,596
Tax benefit from exercise
of stock options - - 927 - - - - 927
OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX
Cumulative effect of
adoption of SFAS
No. 133 - - - - - (33,330) - (33,330) (33,330)
Net loss from current
period hedging
transactions - - - - (17,731) - (17,731) (17,731)
Net income - - - - - - 100,603 100,603 100,603
------------
COMPREHENSIVE INCOME $ 49,542
-------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $103,648,909 $1,037 $1,503,891 $ (1,763) $ (3,736) $ (51,061) $ 133,262 $1,581,630
=========================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.







ORION POWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001
(IN THOUSANDS)

1999 2000 2001
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 5,662 $ 28,539 $ 100,603

Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Deferred income taxes 3,017 (8,000) 30,986
Deferred compensation 106 1,303 1,596
Tax benefit from exercise of options - - 927
Gain on derivative financial instruments - - (11,919)
Interest income on officers note receivable (21) (244) (318)
Cost of buyout of operations and maintenance
contracts with related party - 18,900 -
Depreciation and amortization 21,116 114,496 154,429
Change in assets and liabilities:
Restricted cash (30,243) (169,268) (53,288)
Accounts receivable (37,249) (117,506) 20,664
Inventories and supplies (4,182) 7,930 (14,088)
Prepaid expenses and other current assets 6,004 (13,928) 5,763
Prepaid expenses and other noncurrent assets 3,164 (2,147) 5,045
Accounts payable 23,166 83,286 (35,002)
Accrued expenses 14,185 36,260 (29,941)
Other long-term liabilities 397 3,629 (2,904)
Deferred revenue 1,794 42 39
Accrued interest 3,540 13,952 (1,365)
----------- ----------- -----------
Net cash provided by (used in) operating activities 10,456 (2,756) 171,227
----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and related
assets in acquisitions (1,024,332) (1,975,252) (26,336)
Purchase of property and equipment in operations (22,835) (137,881) (475,863)
----------- ----------- -----------
Net cash used in investing activities (1,047,167) (2,113,133) (502,199)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net 382,330 756,832 272,603
Distributions to stockholders (9,750) (17,050) -
Payments from officers' notes receivable - - 2,498
Proceeds from debt 720,000 1,629,537 448,400
Payments on debt (4,000) (109,333) (331,964)
Funding of reserve accounts established with
Credit Agreement (restricted cash) (26,000) (55,000)
Payments on deferred financing fees (17,941) (31,812) (12,680)
Proceeds from notes payable to shareholders 110,539 - -
Payments on notes payable to shareholders (41,188) - -
Payment on note payable (333) - -
----------- ----------- -----------
Net cash provided by financing activities 1,113,657 2,173,174 378,857
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 76,946 57,285 47,885

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,603 78,549 135,834
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING OF PERIOD $ 78,549 $ 135,834 $ 183,719
=========== =========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for:
Interest $ 20,070 $ 144,436 $ 188,930
=========== =========== ===========
Income taxes $ 640 $ 25,111 $ 55,632
=========== =========== ===========
Noncash disclosure:
Notes receivable from officers $ 615 $ 5,001 $ -
=========== =========== ===========
Other long-term liabilities assumed
in acquisition $ 21,990 $ 24,375 $ -
=========== =========== ===========
Conversion of note payable to equity $ - $ 71,086 $ -
=========== =========== ===========
Debt assumed at acquisition $ - $ 131,100 $ -
=========== =========== ===========

The accompanying notes are an integral part of these consolidated financial
statements.




ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 2001

1. ORGANIZATION

Orion Power Holdings, Inc. (Orion Power or the Company) and subsidiaries, a
Delaware corporation, is engaged in the business of acquiring, developing,
owning and managing electric power generating facilities in North America. Orion
Power was incorporated on March 10, 1998, by Constellation Power Source, Inc.
(CPS), a Delaware corporation and an affiliate of Baltimore Gas and Electric
Company (BG&E), and GS Capital Partners II, L.P. along with certain other
affiliated private investment funds managed by Goldman, Sachs & Co.
(collectively GSCP). On November 5, 1999, certain affiliates of Mitsubishi
Corporation (Mitsubishi) and Tokyo Electric Power Company International B.V.
(TEPCO) became stockholders of Orion Power. In December 1999, CPS transferred
its interest in Orion Power to an affiliate - Constellation Enterprises, Inc.
(Constellation). In December 2001, Constellation transferred its interest in
Orion Power to two of its affiliates - Constellation Holdings, Inc. and
Constellation Real Estate, Inc.

On February 19, 2002, Orion Power was acquired by merger by a wholly owned
subsidiary of Reliant Resources, Inc. (Reliant Resources). As a result, Orion
Power became a wholly owned subsidiary of Reliant Resources, which files reports
with the Securities and Exchange Commission.

There are significant risks associated with the Company's business, including
possible changes in federal and state government regulations, possible increased
environmental regulations and changing market structures. As the impact of the
deregulation of the energy industry evolves in areas in which Orion Power
operates, certain changes may adversely impact the Company's operations.
However, since Orion Power operates in several markets (see Note 3) and has
certain long-term contracts in place, management does not believe that such
changes would have an immediate adverse impact on operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Orion
Power and its wholly owned subsidiaries. All material intercompany transactions
have been eliminated in the accompanying consolidated financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

The purchase prices of the acquisitions (see Note 3) were allocated to the
acquired assets, including identifiable intangible assets, goodwill and assumed
liabilities. Property and equipment, goodwill, and intangible assets were
recorded based on the advice of independent valuation experts. Certain assets
and liabilities have been recorded based on estimates and are subject to
adjustment based upon receipt of final information or resolution of
uncertainties. As of December 31, 2000, Orion Power has reallocated certain
identifiable intangible assets to generation assets based on the advice of
independent valuation experts.

CASH AND CASH EQUIVALENTS

Orion Power considers all investments with an original maturity of three months
or less to be cash equivalents.

RESTRICTED CASH

Restricted cash includes cash, which is restricted under the terms of certain
wholly owned subsidiaries' credit and operating agreements. Restricted cash
includes amounts restricted for major maintenance, debt service, and operations
and maintenance costs (see Note 5).

INVENTORIES AND SUPPLIES

Inventories and supplies are valued at the lower of cost or market using the
weighted average cost method. Inventories and supplies are comprised of the
following as of December 31, 2000 and 2001 (in thousands):

2000 2001
---- ----

Fuel $ 17,439 $ 31,029
Supplies 27,442 27,940
------ ------
$ 44,881 $ 58,969
====== ======

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost or is recorded based on a valuation
performed by an independent expert at the time of acquisition and is depreciated
on a straight-line basis over the useful life of the asset. The valuations
considered the current replacement cost for similar capacity, market value and
discounted cash flows. Other equipment is carried at cost or at the fair value
determined at acquisition.

As of December 31, 2000 and 2001, the components of property and equipment, net
are as follows (in thousands):

2000 2001 Useful Lives
------------ ------------ ------------
Structures and improvements $ 637,650 $ 643,895 15-40
Production assets 1,640,693 1,969,587 10-30
Accessories and other equipment 458,152 401,041 3-30
----------- ------------
2,736,495 3,014,523
Less: accumulated depreciation (116,861) (247,543)
----------- ------------
2,619,634 2,766,980
Land 66,610 70,636
Construction in progress 397,302 513,277
----------- ------------

Property and equipment, net $ 3,083,546 $ 3,350,893
=========== ============

Depreciation expense for the years ended December 31, 1999, 2000 and 2001 was
(in thousands) $18,081, $99,026 and $131,870, respectively.

Repairs and maintenance costs are expensed as incurred.

Construction in progress is attributable to projects under development during
2001. Orion Power capitalizes interest on projects during the development and
construction period. There was (in thousands) $3,885 and $23,796 of capitalized
interest as of December 31, 2000 and 2001, respectively.

PROJECT DEVELOPMENT COSTS

Project development costs represent amounts incurred for professional services,
direct salaries, permits, options on real property and other direct incremental
costs related to the development of new property and equipment, principally
electric generating facilities. These costs are expensed as incurred until
development reaches a stage when it is probable that the project will be
completed. A project is considered probable of completion upon meeting one or
more milestones, which may include a power sales contract or securing
construction or operating permits, among others. Project development costs that
are incurred after a project is considered probable of completion but prior to
starting physical construction are capitalized. Project development costs are
included in construction in progress when physical construction begins. Orion
Power periodically assesses project development costs for impairment. Project
development costs are included in prepaid expenses and other noncurrent assets
in the accompanying consolidated balance sheets.

GOODWILL AND IDENTIFIABLE PURCHASED INTANGIBLES

Goodwill represents the excess of cost over identifiable net assets acquired in
a business acquisition. Historically, goodwill was amortized over 30 years.

Identifiable purchased intangibles include certain Federal Energy Regulatory
Commission (FERC) licenses for its hydroelectric plants. These items are
recorded based on an estimated fair value determined from an independent expert
valuation and amortized on a straight-line basis over the life of the related
license, ranging from 8 to 40 years.

The balance in goodwill and identifiable purchased intangibles as of December
31, 2000 and 2001, included the following (in thousands):

2000 2001
------------ ------------
Goodwill (Note 3) $ -- $ 102,829
FERC licenses 60,348 60,348
POLR contract (Note 3) 14,288 14,288
Other 1,148 1,301
Accumulated amortization (4,998) (11,060)
------------ ------------
Total $ 70,786 $ 167,706
============ ============

Amortization expense related to goodwill and identifiable purchased intangibles
for the years ended December 31, 1999, 2000 and 2001, was (in thousands) $857,
$4,170 and $6,062, respectively.

DEFERRED FINANCING COSTS

Financing costs, consisting primarily of the costs incurred to obtain debt
financing, are deferred and amortized using the effective interest method, over
the term of the related permanent financing. Amortization expense is included in
interest expense on the accompanying statements of operations.

DERIVATIVE INSTRUMENTS

Derivative instruments (Derivatives) are contracts which typically derive value
from changes in interest rates, foreign exchange rates, credit spreads, prices
of securities or financial or commodity indices. The timing of cash receipts and
payments for derivatives is generally determined by contractual agreement.
Derivatives can be either standardized contracts that are traded on an organized
exchange or privately negotiated contracts. Futures contracts are examples of
standard exchange-traded derivatives. Privately negotiated derivative contracts
include forwards, interest rate swaps and certain option contracts. The Company
enters into interest rate swap agreements and commodity forward contracts as an
end user for purposes other than trading. Derivatives used for purposes other
than trading serve to economically hedge variable cash flows on floating rate
debt and hedging the purchase and sale price of various commodities.

Interest rate swaps are contractual agreements to exchange periodic interest
payments at specified intervals. The notional amounts of interest rate swaps are
not exchanged; they are used in conjunction with the agreed-upon fixed and/or
floating interest rates to calculate the periodic interest payments.

Commodity swaps are contractual commitments to exchange the fixed price of a
commodity for a floating price. Commodity forwards are privately negotiated
agreements to purchase or sell a specific amount of a commodity at an
agreed-upon price and settlement date.

The Company accounts for its derivative instruments at fair value as assets or
liabilities. All derivatives held by the Company either qualify as cash flow
hedges or are accounted for with no hedging designation. To qualify for cash
flow hedge accounting, the hedge relationship must be formally designated and
documented at inception and be anticipated to be highly effective. If the
requirements for hedge accounting are not met, the Company classifies the
derivative as no hedging designation, accounting for derivative fair value
changes currently through the statement of operations.

The Company reports interest rate swaps at fair value with changes in the swap
fair value reported in either other comprehensive loss (OCL) or earnings as
determined by whether the contract is designated in a qualifying hedge
relationship. For interest rate swaps qualifying for hedge accounting, the
effective portion of the gains/losses on the interest rate swaps are reported as
a component of OCL. Deferred gains and losses from effective hedge relationships
will be reclassified into earnings as adjustments to interest expense over the
life of the forecasted variable interest payments being hedged. If the swap does
not qualify for hedge accounting, any change in fair value is reported currently
in earnings.

The Company accounts for financial contracts for the forward purchase and sale
of various commodities as derivatives at fair value. The classification for
reporting the change in fair values depends on whether the contract qualifies
for hedge accounting. For those contracts that qualify for hedge accounting, the
effective portion of the derivative fair value change for those contracts are
reported as a component of OCL. Gains/losses on the commodity forward contracts
are reclassified from OCL to earnings in the same period(s) that the hedged
forecasted transactions involving the commodity impacts earnings. For those
commodity contracts to which hedge accounting is not applied, the Company
reports any change in fair value currently in earnings.

The Company also has certain commodity purchase contracts for the physical
delivery of goods in quantities expected to be used in the normal course of
business. These contracts meet the definition of a derivative, however, they are
considered to be exempt from the requirement to record the contract on the
financial statements under the normal purchases and sales exception, and thus
are not reflected on the balance sheet at fair value.

In October 2001, amended in December 2001, the Financial Accounting Standards
Board (FASB) approved two interpretations issued by the Derivatives
Implementation Group (DIG) that change the definitions of normal purchase and
sales for certain power and commodity contracts. Certain of our derivative
commodity contracts may no longer be exempt from the requirements of SFAS No.
133. We are evaluating the impact of the implementation guidance on our
financial statements, and will implement this guidance, as applicable, on a
prospective basis.

INCOME TAXES

Orion Power accounts for income taxes under the asset and liability method
prescribed by Statement of Financial Accounting Standard (SFAS) No. 109,
"Accounting for Income Taxes," and, accordingly, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using existing enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rates would be recognized in income in the period
that includes the enactment date.

ASSET IMPAIRMENT

Orion Power periodically reviews its long-lived assets, including property and
equipment, and identifiable purchased intangibles for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the expected future undiscounted cash flows
are less than the carrying amount of an asset, an impairment loss would be
recognized.

REVENUE RECOGNITION

Revenues from the sale of electricity are recorded based on output delivered and
capacity provided at rates specified under contract terms or received in the
wholesale marketplace.

CUSTOMER CONCENTRATION

For the year ended December 31, 1999, revenues recognized on contracts with
Niagara Mohawk Power Corporation (Niagara Mohawk), Consolidated Edison Company
of New York, Inc. (Consolidated Edison) and the New York Independent System
Operator (NY-ISO) were approximately $30,961,000, $72,481,000, and $22,237,000,
representing approximately 23, 54 and 17 percent of total operating revenue,
respectively.

For the year ended December 31, 2000, revenues recognized on contracts with
Niagara Mohawk, the NY-ISO and Duquesne Light Company were approximately
$92,376,000, $413,157,000, and $283,389,000, representing approximately 10, 43
and 30 percent of total operating revenue, respectively.

Accounts receivable from the NY-ISO and Duquesne Light Company as of December
31, 2000, were approximately $64,236,000, and $65,434,000, representing
approximately 42 and 42 percent of the total accounts receivable balance,
respectively.

For the year ended December 31, 2001, revenues recognized on contracts with the
NY-ISO and Duquesne Light Company were approximately $567,111,000, and
$405,815,000, representing approximately 48 and 34 percent of total operating
revenue, respectively.

Accounts receivable from the NY-ISO and Duquesne Light Company as of December
31, 2001, were approximately $38,782,000 and $68,090,000, representing 29 and 51
percent of the total accounts receivable balance, respectively.

STOCK-BASED COMPENSATION

As described in Note 9, Orion Power accounts for stock-based employee
compensation arrangements using the intrinsic value method in accordance with
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is recognized based on the difference, if any, on the date of
grant between the fair value of the Company's stock and the amount an employee
must pay to acquire the stock.

EARNINGS PER SHARE

Basic net income per share is computed by dividing income attributable to common
stockholders by the weighted average number of common shares outstanding for the
period. The diluted net income per share data is computed using the
weighted-average number of common shares outstanding plus the dilutive effect of
common stock equivalents, unless the common stock equivalents are antidilutive.

COMPREHENSIVE INCOME

The Company's comprehensive income consists of net income and other items
recorded directly to the equity accounts. The objective is to report a measure
of all changes in equity of an enterprise that result from transactions and
other economic events of the period other than transactions with owners. The
Company's other comprehensive loss consists principally of gains and losses on
derivative instruments that qualify for cash flow hedge treatment.

ACCOUNTING CHANGE

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, (the Statement) as amended by SFAS Nos. 137 and 138.
This Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. If the derivative is designated as a cash flow hedge, the
effective portions of the changes in fair value of the derivative are recorded
in OCL and are recognized in the income statement when the hedged item affects
earnings. Ineffective portions of changes in fair value of cash flow hedges are
recognized as earnings.

The adoption of the Statement resulted in a one-time pre-tax reduction of
approximately $57,000,000 ($33,330,000 after taxes) to OCL, a component of
Stockholders' Equity. The reduction to OCL resulted from the recognition of the
Company's contracts meeting the definition of a derivative at fair value.

At December 31, 2001, the Company had net derivative assets of approximately
$25,000,000, derivative liabilities of approximately $92,000,000 and OCL of
approximately $(51,000,000), after tax, related to fair values of the Company's
derivatives.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
standard prohibits the use of pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001, and applies to all business
combinations accounted for under the purchase method that are completed after
June 30, 2001. The Company does not expect that implementation of this standard
will have a significant impact on its financial statements.

Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This standard eliminates the amortization of goodwill, and requires
goodwill to be reviewed periodically for impairment. This standard also requires
the useful lives of previously recognized intangible assets to be reassessed and
the remaining amortization periods to be adjusted accordingly. This standard is
effective for fiscal years beginning after December 15, 2001, for all goodwill
and other intangibles assets recognized on our balance sheet at that date,
regardless of when the assets were initially recognized. The Company does not
expect that implementation of this standard will have a significant impact on
its financial statements.

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This standard is effective for fiscal years beginning after June
15, 2002, and provides accounting requirements for asset retirement obligations
associated with tangible long-lived assets. The Company does not expect the
implementation of this standard will have a significant impact on its financial
statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This standard addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets. It supersedes
FASB Statement No. 121 but retains Statement 121's fundamental provisions for
(a) recognition/measurement of impairment of long-lived assets to be held and
used and (b) measurement of long-lived assets to be disposed of by sale. This
standard also supersedes the accounting/reporting provisions of APB Opinion No.
30 for segments of a business to be disposed of but retains APB 30's requirement
to report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been disposed
of or is classified as held for sale. This standard is effective for fiscal
years beginning after December 15, 2001. The Company does not expect that
implementation of this standard will have a significant impact on its financial
statements.

RECLASSIFICATIONS

Certain 2000 balances have been reclassified to conform with the current year
financial statement presentation.

3. ACQUISITIONS

1999 ACQUISITIONS

NIAGARA MOHAWK. On July 30, 1999, Orion Power, through its wholly owned
subsidiary Erie Boulevard Hydropower, L.P. (Erie Blvd.), purchased certain
hydroelectric generating assets and assumed certain liabilities (see Notes 7 and
8) from Niagara Mohawk, for approximately $425,000,000 in cash including
acquisition costs of approximately $1,700,000. These facilities consist of 70
hydro power plants with a capacity of 650 MW (the Hydro Assets).

In connection with this acquisition, Erie Blvd. entered into a Transition Power
Purchase Agreement (the Erie Sales Agreement) with Niagara Mohawk from the
closing date through September 30, 2001. Under the terms of the Erie Sales
Agreement, Erie Blvd. produced and delivered tiered amounts of electric energy
to Niagara Mohawk. As consideration, Erie Blvd. received capacity payments and
energy revenue based on the amount of electric energy produced and sold to
Niagara Mohawk. If Erie Blvd. had failed to produce contractual minimum levels
of electric energy, it would have been required to pay a penalty based on
formulas set forth in the Erie Sales Agreement. In the third quarter of 1999,
Erie Blvd. failed to meet the minimum threshold under this contract due to a
drought. This resulted in additional costs to meet the obligation of
approximately $1,700,000 for the year, which are recorded in fuel expense in
1999 in the accompanying financial statements. As part of the independent
valuation performed of the acquisition of the Hydro Assets, the third party
considered these agreements with Niagara Mohawk and determined that such
agreements were at market value. Therefore, no asset or liability related to the
Erie Sales Agreements has been recognized by Orion Power.

In March 2001, Orion Power entered into a new three-year power supply agreement
with Niagara Mohawk. Niagara Mohawk will pay for capacity and energy at fixed
rates for all 650 megawatts of the Hydro Assets. The agreement commenced in
October 2001, upon expiration of the previous power supply agreement with
Niagara Mohawk.

CONSOLIDATED EDISON. On August 20, 1999, Orion Power, through its wholly owned
subsidiary Astoria Generating Company, L.P. ("Astoria"), purchased certain
generating assets located in New York City and assumed certain liabilities (see
Notes 7 and 8) from Consolidated Edison, for approximately $550,000,000 in cash
including acquisition costs of approximately $2,100,000. The Astoria facilities
consist of four gas-or oil-fired plants with a capacity of 2,030 MW (the New
York City Assets).

In connection with this acquisition, Astoria entered into a Transition Capacity
Agreement and a Transition Energy Sales Agreement (collectively, the Astoria
Sales Agreements) with Consolidated Edison. As consideration, Astoria received
capacity payments and energy revenue based on the amounts of electric energy
produced and sold to Consolidated Edison. The Transition Energy Sales Agreement
had a term from the closing date through the commencement of the energy market
administered by the NY-ISO. The Transition Energy Sales Agreement was terminated
on the commencement of the NY-ISO, which occurred on November 18, 1999. The
Transition Capacity Agreement had a term from the closing date through the later
of (a) the earlier of (i) December 31, 2002 or (ii) the date on which Astoria
receives written notice from the NY-ISO that none of the electric capacity of
the Astoria assets is required for meeting the installed capacity requirements
in New York City as determined by the NY-ISO, or (b) the date the NY-ISO
capacity market commences. The NY-ISO capacity market began operations on May 1,
2000. Under the terms of the Astoria Sales Agreements, during the period of the
Transition Energy Sales Agreement, Consolidated Edison provided all of the fuel
to the Astoria facilities and received from the facilities all of the capacity
and electric energy. As part of the independent valuation performed of the
acquisition of the New York City Assets, the third party valued these agreements
with Consolidated Edison and determined that such agreements were at market
value. Therefore, no asset or liability related to these agreements has been
recognized by Orion Power.

2000 ACQUISITIONS

CONSTELLATION OPERATING SERVICES, INC.. On April 26, 2000, Orion Power purchased
all of the outstanding stock of the three subsidiaries of Constellation
Operating Services, Inc. ("COSI"), which pursuant to certain operation and
maintenance service agreements operated all of Orion Power's assets. Orion Power
also acquired another subsidiary that was established to perform operations and
maintenance services for the Midwest Assets following the completion of the
acquisition. COSI is a wholly owned subsidiary of Constellation Energy, Inc. The
purchase price was approximately $19,000,000 payable at the time of the
acquisition by issuing COSI 1,219,355 shares of Orion Power common stock valued
at $15.50 per share plus $100,000 cash. Orion Power has accounted for this
transaction as the settlement of the operation and maintenance contracts with
COSI. The entire cost of the transaction was charged to expense.

COSI agreed to assist in the transition process of operating the Orion Power
assets by cooperating with Orion Power for six months following the closing.
Additionally, COSI agreed to make its software available to Orion Power.
Furthermore, COSI agreed to provide technical support in the form of
professional, supervisory, managerial, administrative, and technical operating
assistance, until the earlier of December 31, 2002, or the date of repayment in
full of the New York Credit Facility (Note 5).

DUQUESNE LIGHT COMPANY. On April 28, 2000, Orion Power, through its wholly owned
subsidiary Orion Power MidWest, L.P. (Orion Power MidWest) purchased seven power
plants located in Ohio and Pennsylvania (the Midwest Assets) with a generating
capacity of 2,861 MW from Duquesne Light Company (Duquesne). The net purchase
price for the assets was approximately $1,764,000,000 in cash including
approximately $17,000,000 in acquisition costs. In association with this
acquisition, Orion Power MidWest assumed certain liabilities related to employee
benefits and environmental remediation (See Notes 7 and 8).

The acquisition of the Midwest Assets requires Orion Power MidWest to assume
Duquesne's responsibility as "provider of last resort" (Provider of Last
Resort). As Provider of Last Resort, Orion Power MidWest will be obligated to
supply electricity at predetermined tariff rates to all customers in Duquesne's
service area who do not select another electricity supplier through December 31,
2004. While Orion Power MidWest should have the capacity to meet these
obligations under the contract (POLR Contract) most of the time, there may be
times when the energy required to meet the obligation may exceed the amounts
that can be produced from the Midwest Assets. If the obligation exceeds Orion
Power MidWest's energy production levels, Orion Power MidWest will be required
to purchase additional energy from outside sources at market rates, and in
certain circumstances, pay a penalty of currently $1,000 per megawatt hour. The
value of this contract, at acquisition, was reviewed by independent experts and
determined to be favorable. As such, an intangible asset of approximately
$14,300,000 was recorded at the time of the purchase. The intangible asset is
being amortized over the life of the contract.

To supplement the generating capacity to meet Orion Power's responsibilities
under the Provider of Last Resort Contract with Duquesne, Orion Power purchased
698,400 net megawatt hours for the period of May through October 2000. The cost
for the purchases was approximately $57,000,000 and was paid upon delivery of
the energy. Orion Power resold all excess energy not required to meet the
Provider of Last Resort responsibility into the market and realized the
prevailing price at that time.

COLUMBIA ELECTRIC CORPORATION. On December 11, 2000, Orion Power, through its
wholly owned subsidiary Orion Power Development, L.P. (Orion Power Development),
acquired all the outstanding stock of Columbia Electric Corporation for
approximately $209,000,000 in cash, including approximately $1,300,000 in
acquisition costs. In connection with this acquisition, Orion Power agreed to
assume a $334,000,000 credit facility, of which approximately $131,100,000 was
outstanding at the date of the acquisition. Orion Power Development also assumed
from Columbia Energy Group, former parent of Columbia Electric Corporation,
construction contract and tolling agreement guarantees of approximately
$5,000,000 as well as equity investment obligations of approximately
$41,000,000. The facilities acquired were under various stages of development,
and Columbia Electric Corporation planned to have total capacity of
approximately 3,220 MW. One facility began operations in June 2001, and another
is scheduled to start in the second quarter of 2002. The remaining facilities
have been postponed due to capital market and economic considerations, as well
as supply and demand balance in their respective markets.

The acquisition was recorded under the purchase method of accounting. The
purchase price has been allocated to assets acquired and liabilities assumed
based on the estimated fair market value at the date of acquisition. The final
allocation of the purchase price is as follows (in thousands):

Current assets $ 2,906
Property and equipment 233,457
Noncurrent assets 12,127
Goodwill 102,829
Debt and other liabilities assumed (142,319)
-----------
$ 209,000
===========

2001 ACQUISITIONS

COMPETITIVE POWER VENTURES - ATLANTIC. In October 2001, the Company purchased
one combined-cycle power project located in Florida from Competitive Power
Ventures Holdings, LLC, a subsidiary of Competitive Power Ventures, Inc., for
approximately $26,336,000 in cash (Atlantic Project). This is a 250 MW project
located near Palm Beach with substantial expansion capability. However, at this
time, the Company has decided to postpone the 250 MW Atlantic Project because of
capital market and economic considerations. With improved capital market
conditions and the required approvals from Florida authorities on a newly
configured 500 MW design, the Company would proceed with construction in the
future.

The acquisition was recorded under the purchase method of accounting. The
purchase price has been allocated to assets acquired and liabilities assumed
based on the estimated fair market value at the date of acquisition. The
purchase price allocation for this acquisition is preliminary and further
refinements will be made based on final valuations. The initial allocation of
the purchase price is as follows (in thousands):

Current assets $ 5,018
Property and equipment 21,318
-----------
$ 26,336
===========

4. FUEL CONTRACTS

Orion Power has entered into various fuel contracts for oil and coal to operate
its generating assets. These contracts expire at various dates through September
30, 2005. The contracts generally require the supplier to have certain
quantities of fuel available but do not require a minimum purchase by Orion
Power, except for certain coal contracts. Prices are set at current market
indices based on the type of fuel, time of year and advance notice from Orion
Power to the supplier.

5. DEBT

CREDIT AGREEMENTS

NEW YORK CREDIT AGREEMENT. On July 30, 1999, Orion Power New York, LP (Orion
NY), a wholly owned subsidiary of Orion Power, entered into a $730,000,000
secured credit agreement. The banks agreed to provide an acquisition facility in
an amount of up to $700,000,000 (the Acquisition Loans), and a revolving working
capital facility in an amount of up to $30,000,000 (the Working Capital
Facility) (collectively, the New York Credit Agreement). The New York Credit
Agreement matures on December 31, 2002, for all indebtedness. The net proceeds
under the New York Credit Agreement were used to finance the Hydro Assets and
New York City Assets acquisitions.

The borrowings under each facility bear interest at a floating rate. At Orion
Power NY's option, the interest rate will be determined as either the Base Rate
as defined or LIBOR plus an applicable margin. The rate as of December 31, 2000
and 2001, was 8.097 percent and 5.661 percent, respectively. The Acquisition
Loans and Working Capital Facility are secured by substantially all of the
assets of Orion NY.

As of December 31, 2000 and 2001, Orion NY had $650,000,000 and $578,533,700 of
the Acquisition Loans outstanding, respectively. As of December 31, 2000, and
2001, Orion NY had no amounts outstanding under the Working Capital Facility.
Under the Working Capital Facility, $10,000,000 is used to provide a letter of
credit in favor of Consolidated Edison in conjunction with the New York City
Assets acquisition.

In accordance with the New York Credit Agreement, Orion NY entered into a
Deposit Account Agreement with Bank of America, N.A. Accordingly, Orion NY
established 12 restricted use accounts for the disbursement of its revenues. As
of December 31, 2000 and 2001, the total balance in these restricted use
accounts totaled $116,478,000 and $259,432,000, respectively.

MIDWEST CREDIT AGREEMENT. On April 28, 2000, Orion Power MidWest entered into a
$1,200,000,000 secured credit agreement. The banks agreed to provide acquisition
loans of $1,110,000,000 (the Acquisition Loans) and a revolving working capital
facility of $90,000,000 (the Working Capital Facility) (collectively, the
"MidWest Credit Agreement"). In November 2001, the revolving working capital
credit facility was reduced to $75,000,000. The MidWest Credit Agreement matures
on October 28, 2002, for all indebtedness. The net proceeds under the MidWest
Credit Agreement were used to finance the acquisition of the Midwest Assets.

As of December 31, 2000, Orion Power MidWest had $1,110,000,000 and $60,137,000
of Acquisition Loans and Working Capital Facility outstanding, respectively. As
of December 31, 2001, Orion Power MidWest had $1,013,000,000 and $10,000,000 of
Acquisition Loans and Working Capital Facility outstanding, respectively. Under
the Working Capital Facility, Orion Power MidWest is required to provide a
$10,000,000 letter of credit in favor of Duquesne as part of the POLR contract.
Orion Power MidWest also maintains an additional $5,000,000 letter of credit to
support various services.

The borrowings under the MidWest Credit Agreement bear interest at a floating
rate. At Orion Power MidWest's option, the interest rate will be determined as
either the Base Rate as defined or LIBOR plus an applicable margin. The rate as
of December 31, 2000 and 2001, was 8.489 percent and 5.371 percent,
respectively. The credit agreement is secured by substantially all the assets of
Orion Power MidWest.

In accordance with the MidWest Credit Agreement, Orion Power MidWest entered
into a Deposit Account Agreement with Bank of America, N.A. Accordingly, Orion
Power MidWest established 12 restricted use accounts for the disbursement of its
revenues. As of December 31, 2000 and 2001, the total balances in these
restricted accounts were approximately $62,884,000 and $49,655,600,
respectively.

Under the New York Credit Agreement and the MidWest Credit Agreement
(collectively, the "Credit Agreements"), Orion Power New York and Orion Power
MidWest are restricted from distributing cash to Orion Power. These credit
agreements provide for various accounts to be created, into which all operating
revenues and other cash receipts are deposited, and from which operating
expenses, repayments of the loan facilities and distributions to Orion Power may
be made. The lenders under each credit agreement have a security interest in all
amounts on deposit in the accounts and if there is an event of default under the
appropriate credit agreement, the lenders will be able to immediately exercise
their security interest on any funds contained in that credit facility's
accounts.

Distributions to Orion Power may only be made after satisfaction of the
following - (1) all operating expenses of the applicable subsidiary; (2) all
debt service payments under the appropriate credit agreement; (3) 50 percent of
the Excess Cash Flow, as defined, has been used to prepay each credit agreement;
and (4) any other required prepayments. After satisfaction of the aforementioned
items, the Credit Agreements allow Orion NY and Orion Power MidWest to pay
dividends and make other distributions to Orion Power up to the limit of
$100,000,000 over the life of the New York Credit Agreement and $175,000,000
over the life of the MidWest Credit Agreement. As of December 31, 2001, no
dividends or distributions had been made to Orion Power by Orion Power MidWest.
Orion Power NY had made $0 and $86,466,318 in distributions to Orion Power
during 2000 and 2001, respectively.

Among other restrictions, the Credit Agreements also contain customary
affirmative covenants and significant negative covenants including a requirement
that expenditures be within 105 percent of their budgeted amounts and that a
debt service coverage ratio of at least 1.5 to 1.0 be maintained. In addition,
the following events are also events of default under the New York Credit
Agreement - reduction in the rule requiring New York City power retailers to
procure capacity equal to at least 80 percent of forecasted peak demand from
in-city generation sources to less than 75 percent and a reduction in the price
cap for capacity from in-city generators from $105 per kilowatt year to less
than $90 per kilowatt year.

LIBERTY CREDIT AGREEMENT. In December 2000, in connection with Orion Power's
acquisition of Columbia Electric Corporation, the Company assumed a credit
facility entered into by Liberty Electric Power, LLC (Liberty), a wholly-owned
subsidiary of Columbia Electric Corporation. This credit facility, entered into
by Liberty in July 2000, provides for the following:

(1) a construction/term loan in an amount of up to $105,000,000;

(2) an institutional term loan in an amount of up to $165,000,000;

(3) an equity bridge loan in an amount of up to $41,000,000;

(4) a revolving working capital facility for an amount of up to
$5,000,000; and

(5) a debt service reserve letter of credit of $17,500,000.

Amounts outstanding under the facility bear interest at a floating rate for a
portion of the facility, which may be either the Base Rate as defined or LIBOR
plus an applicable margin, and a fixed rate for the remainder.

At December 31, 2000, the interest rate was 7.81 percent on the floating rate
component and 9.15 percent on the fixed rate portion. As of December 31, 2000,
Orion Power Development had $73,200,000 and $74,300,000 of the floating rate and
fixed rate portions of the facility outstanding, respectively. At December 31,
2001, the interest rate was 3.10 percent on the floating rate component and 9.02
percent on the fixed rate portion. As of December 31, 2001, Orion Power
Development had $117,800,000 and $165,000,000 of the floating rate and fixed
rate portions of the facility outstanding, respectively.

The lenders have a security interest in substantially all of the assets of
Liberty and have negative pledges on other fixed assets. Liberty also pays
facility fees on the working capital facility and the debt service reserve
letter of credit.

The equity bridge loan matures on the earlier of October 1, 2002, or a date on
which the conditions precedent to conversion to a term loan are met. The debt
service reserve letter of credit becomes available for use when the conditions
precedent to conversion to a term loan are met and matures five years
thereafter. The working capital facility becomes available for use six months
prior to the scheduled conversion date and matures five years thereafter. The
construction/term loan matures on the earlier of October 1, 2002, or a date on
which the conditions precedent to conversion to a term loan are met and matures
10 years thereafter. The institutional term loan has a final maturity date of
April 15, 2026.

Each credit agreement, with the exception of the $41 million letter of credit
issued under Orion Power Holdings in relation to the equity bridge loan of
Liberty Electric, is an independent non-recourse project financing secured by
the assets of the applicable borrower without recourse to any other Orion Power
financing facility.

NOTES PAYABLE

In conjunction with Orion Power's acquisition of the Carr Street facility (see
Note 6), Orion Power entered into a non-interest bearing note payable with US
Generating Company, LLC in the amount of $1,000,000. Payments were due annually
starting November 19, 1999 through November 19, 2001. Orion Power recognized a
discount (8 percent) on this note at acquisition of $141,000.

SENIOR NOTES

In April and May 2000, Orion Power issued a total of $400,000,000 of 12 percent
senior notes, due 2010 (the Senior Notes). The proceeds were used to assist in
the financing of the acquisition of the Midwest Assets. Interest is paid
semiannually in May and November of each year. The Senior Notes are senior
unsecured obligations and rank pari passu with all of Orion Power's existing and
future unsecured indebtedness.

Before May 1, 2003, Orion Power may redeem up to 35 percent of the notes issued
under the indenture at a redemption price of 112 percent of the principal amount
of the notes redeemed, plus accrued and unpaid interest and special interest,
with the net cash proceeds of an equity offering provided that certain
provisions under the indenture are met. Orion Power is not required to make any
mandatory redemption or sinking fund payments with respect to the Senior Notes.

Upon completion of the merger with Reliant Resources, each holder of the Senior
Notes had the right to require Orion Power to repurchase the notes pursuant to a
change of control offer as set forth in the indenture. The indenture states that
Orion Power will offer a cash payment equivalent to 101% of the aggregate
principal amount of the repurchased notes plus any accrued or unpaid interest
through the date of purchase. The Senior Notes are not guaranteed by any of
Orion Power's subsidiaries.

REVOLVING SENIOR CREDIT FACILITY

On July 27, 2000, Orion Power entered into a $75,000,000 revolving senior credit
facility. The credit facility matures in December 2002. Amounts outstanding
under the facility bear interest at a floating rate. The facility is unsecured
and ranks pari passu with all of Orion Power's senior debt. As of December 31,
2000, there were no outstanding amounts under this facility, while $46,000,000
had been used to post letters of credit to support obligations under the Liberty
project. As of December 31, 2001, there were no outstanding amounts under this
facility, while a total of $69,922,000 had been used to post letters of credit
related to Liberty and the Atlantic project.

CONVERTIBLE SENIOR NOTES

On June 6, 2001, Orion Power issued a $200 million aggregate principal amount of
4.50 percent convertible senior notes, due on June 1, 2008. The notes are
convertible into shares of Orion Power Holdings' common stock at a conversion
price of $34.19 per share, and are first subject to redemption at a premium by
Orion Power on June 4, 2004. Upon completion of the merger with Reliant
Resources, holders of the convertible senior notes had the right to require
Orion Power to repurchase some or all of the notes at a price equal to 100
percent plus accrued and unpaid interest. Concurrent with this offering, Orion
Power Holdings and certain selling stockholders completed a $355.6 million
common stock offering, comprised of approximately 10,400,000 shares sold by
Orion Power Holdings and approximately 2.6 million shares sold by the selling
stockholders at a per share price of $27.35. A portion of the proceeds from
these offerings was used to repay approximately $100 million of outstanding debt
held by Orion Power Holdings' subsidiaries.

PRINCIPAL PAYMENTS ON DEBT OBLIGATIONS

The following is a schedule of principal payments due under the credit
facilities and senior notes as of December 31, 2001 (in thousands):

2002 $ 1,614,334
After 2006 870,000
-----------
Total $ 2,484,334
===========

Total interest expense under the debt obligations, including amortization of
deferred financing costs, for the years ended December 31, 1999, 2000 and 2001,
was (in thousands) $25,767, $168,670 and $202,825, respectively.

INTEREST RATE SWAP AGREEMENTS

Orion Power has entered into a number of interest rate swaps designed to fix the
rate of interest on portions of its New York and MidWest Credit Facilities.
Interest rate swaps consist of a total notional amount of $350,000,000 on the
New York Credit Facility with an average maturity of 6 years and an average
fixed rate of approximately 7.0 percent and $600,000,000 on the MidWest Credit
Facility with an average maturity of 4 years and an average fixed rate of 7.4
percent. (See Note 12.)

Counterparties to the interest rate swap agreements are major financial
institutions. While Orion Power may be exposed to credit losses in the event of
non-performance by these counterparties, Orion Power does not anticipate losses.

6. RELATED-PARTY TRANSACTIONS

CAPACITY SALE AND TOLLING AGREEMENT

On November 18, 1998, Carr Street, a 102 megawatt natural gas-fired facility
acquired from US Generating Company, LLC, entered into a Capacity Sale and
Tolling Agreement (the Sales Agreement) with CPS for a period of five years.
Under the terms of the Sales Agreement, CPS provides all fuel to the Carr Street
facility and receives from the facility all of the capacity, electric energy and
other products generated by the facility. As consideration, Carr Street will
receive capacity payments, electric revenue based on the amount of electric
energy produced and sold to CPS, certain start-up fees and market steam
reimbursable costs. The minimum required payment to be received by Carr Street
is $3,769,000 in 2002, and $3,863,000 in 2003.

OPERATION AND MAINTENANCE SERVICES AGREEMENT

Each operating subsidiary of Orion NY entered into Operation and Maintenance
Services Agreements (the O&M Agreements) with COSI for a term of five years,
whereby COSI provided ongoing operating and maintenance services. Under the
terms of the O&M Agreements, Carr Street, Astoria, and Erie Blvd. paid COSI for
direct materials and expenses, plus a base fee and certain bonuses, as set forth
in the O&M Agreements. The base fee and the bonuses were subject to annual
adjustments. Expenses incurred under the O&M Agreements for the years ended
December 31, 1999, and 2000, were approximately $19,846,000 and $7,900,000,
respectively. See Note 3 for discussion of Orion Power's acquisition of the COSI
subsidiaries that eliminated the O&M agreements.

STOCKHOLDER FEES

As part of the original stockholders agreement between CPS and GSCP and the
Second Amended and Restated Stockholders Agreement, Orion Power was required to
pay a total of 1 percent of the aggregate consideration paid in an acquisition
to its stockholders--GSCP, CPS, Mitsubishi, and TEPCO. Orion Power paid a total
of $9,750,000 in August and September 1999 to GSCP and CPS, and paid a total of
$17,050,000 in June 2000, to the four primary stockholders. These payments are
recognized as a distribution to stockholders in the accompanying statement of
stockholders' equity.

Additionally, Goldman Sachs had the right to provide all investment banking
services to Orion Power on an arms' length basis with regard to terms,
conditions and pricing. In association with the investment by Mitsubishi and
TEPCO on November 5, 1999 and April 28, 2000, Orion Power was required to pay a
2 percent fee to Goldman Sachs, in accordance with the Second Amended and
Restated Stockholder's Agreement. The amounts of these payments are
approximately $2,400,000 and $1,600,000, respectively. Orion Power charged the
fee against additional paid-in capital. This amount was included in accounts
payable in the consolidated balance sheets as of December 31, 2000 and 2001.

NOTES RECEIVABLE FROM OFFICERS

Certain officers were required to purchase shares of Orion Power's common stock
under their employment agreements. As of December 31, 1999, these officers owed
Orion Power $671,000 related to the purchase of approximately 97,500 shares of
common stock and related interest. As of December 31, 2000, these officers owed
Orion Power $5,916,000 related to the purchase of 742,700 shares of common
stock, and accrued interest. As of December 31, 2001, the officers owed Orion
Power $3,736,000 related to the purchase of 645,200 shares of common stock, and
accrued interest. The Company expects the balance to be paid off in conjunction
with the merger (see Note 1).

7. RETIREMENT PLANS

As part of the acquisitions of the Hydro Assets, New York City Assets and
Midwest Assets, Orion Power was required to assume the defined benefit pension
plans and other postretirement benefit plans (OPEB) for employees that remained
at the facilities subsequent to each acquisition. These former Consolidated
Edison, Niagara Mohawk, Duquesne and First Energy employees were hired by COSI
in the same capacity as with their former employers. The plans were being
maintained by COSI, through the date of the COSI acquisition (see Note 3). It
was the subsidiary's responsibility to fund these obligations. As of April 26,
2000, the plans were transferred to Orion Power's control.

The following table reconciles the plans' funded status to the accrued cost
recorded as other long-term liabilities in the consolidated balance sheets as of
December 31, 2000 and 2001 (in thousands):



DEFINED BENEFIT PLANS OPEB
---------------------------- ----------------------------
2000 2001 2000 2001
---- ---- ---- ----

Change in benefit obligation-
Benefit obligation at January 1 $ 17,398 $ 30,927 $ 4,318 $ 17,405
Benefit obligation assumed in acquisition 10,071 -- 9,504 --
Service cost 2,215 2,996 886 1,297
Interest cost 1,868 2,301 826 1,348
Plan Amendments -- 2,457 -- --
Benefits paid (1,085) (1,121) -- (28)
Actuarial loss 460 1,497 1,871 1,757
---------- ---------- ---------- ----------
Benefit obligation at December 31 $ 30,927 $ 39,057 $ 17,405 $ 21,779
========== ========== ========== ==========
Change in plan assets-
Fair value of plan assets at January 1 $ 11,967 $ 12,264 $ -- $ --
Actual return on plan assets 785 518 -- --
Employer contributions 597 8,120 -- 28
Benefits paid (1,085) (1,121) -- (28)
---------- ---------- ---------- ----------
Fair value of plan assets at December 31 $ 12,264 $ 19,781 $ -- $ --
========== ========== ========== ==========
Funded status-
Funded status of the plans at December 31 $ (18,663) $ (19,276) $ (17,405) $ (21,779)
Unrecognized actuarial net (losses)/gains (887) 1,250 1,603 3,298
Unrecognized prior service cost -- 2,253 -- --
---------- ---------- ---------- ----------
Accrued benefit cost $ (19,550) $ (15,773) $ (15,802) $ (18,481)
========== ========== ========== ==========


As of December 31, 2000, the defined benefit pension plan for employees covered
by the Erie Boulevard Plan, included in the table above, had plan assets in
excess of benefit obligations of approximately $242,000.

The components of Orion Power's net periodic benefit cost and related actuarial
assumptions for the years ended December 31, 1999, 2000 and 2001, were as
follows (in thousands):






DEFINED BENEFIT PLANS OPEB
------------------------------ ------------------------------
1999 2000 2001 1999 2000 2001
---- ---- ---- ---- ---- ----

Components of net periodic benefit cost:
Service cost $ 629 $ 2,215 $ 2,996 $ 238 $ 886 $ 1,297
Interest cost 517 1,868 2,301 121 826 1,348
Expected return on plan assets (413) (1,017) (1,139) -- -- --
Amortization of prior service cost -- - 205 -- -- --
Amortization of actuarial (gain)/loss -- (38) (19) -- -- 62
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 733 $ 3,028 $ 4,344 $ 359 $ 1,712 $ 2,707
======== ======== ======== ======== ======== ========
Assumptions as of December 31:
Discount rate 7.75% 7.75% 7.25% 7.75% 7.75% 7.25%
Expected return on plan assets 8.50% 8.50% 8.50% N/A N/A N/A
Rate of compensation increase 4.50% 4.00% 4.00% N/A N/A N/A


The assumed healthcare cost trend rates for fiscal year 2001, for Medicare
eligible and non-Medicare eligible retirees is 8.5 percent; this rate is
expected to decrease gradually to 5.0 percent in 2008 and remain at that level
thereafter. The assumed healthcare trend rate has a significant effect on the
amounts reported for the healthcare plans. A one-percentage-point change in the
assumed healthcare trend rate would have the following effects:

1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
Increase (decrease) total service and
interest cost components $ 655 $ (607)
Increase (decrease) OPEB obligation $ 4,740 $(4,169)

During 2001, two of the defined benefit plans were amended to further clarify
the Company's obligation related to the cost sharing of certain early retirement
costs. These amendments clarified the cost to be borne by the prior employer for
the employees' periods of service and age at the time of acquisition by the
Company for those employees electing early retirement. Through this
clarification, the Company was better able to segregate the total obligation to
an employee electing early retirement between the Company and the prior
employer. The total cost of these amendments is $2,457,000 and is being
amortized over 12 years.

Effective January 1, 1999, Orion Power established a 401(k) retirement plan for
the benefit of all eligible employees. The plan is for all employees of Orion
Power with no minimum age or minimum service requirements. Participants may
contribute up to 15 percent of their annual compensation, subject to statutory
limits. Employee contributions are fully vested. Orion Power's matching
contribution is discretionary and therefore will be determined on an annual
basis. Employees will fully vest in any discretionary contributions ratably over
five years. Orion Power made $0, $614,000, and $8,148,000 in contributions in
1999, 2000, and 2001, respectively.

8. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL LIABILITIES

Orion Power has recorded a liability for the estimated cost of environmental
remediation associated with the acquisition of the Hydro Assets and New York
City Assets based on valuation reports provided by independent environmental
liability assessment experts. In conjunction with these valuations, Orion Power
has developed remediation plans for each item specifically identified. For
environmental items at Astoria, the New York State Department of Environmental
Conservation has issued consent orders requiring active investigation and
remediation of past releases of petroleum and other substances by the prior
owners. The consent order also contains obligations related to continuing
compliance with environmental regulations. The total liability assumed and
recorded by Orion NY totaled approximately $9,150,000, on an undiscounted basis.
Through December 31, 2001, Orion NY had spent approximately $1,850,000 toward
completion of its remediation plans and anticipates that the remaining portion
will be paid out through 2009.

In association with the Midwest Acquisition, Orion Power MidWest has recorded a
liability for the estimated cost of environmental remediation, based on
valuations performed by independent environmental liability assessment experts.
In conjunction with these valuations, Orion Power MidWest has developed
remediation plans for the known liabilities. The total liability assumed by
Orion Power MidWest totaled approximately $4,800,000 on an undiscounted basis
and is recorded in other long-term liabilities. Through December 31, 2001 no
funds had been spent toward completion of its remediation plans. Management
anticipates that the remaining portion will be paid out through 2009.

On an ongoing basis, Orion Power monitors its compliance with environmental
laws. Due to the uncertainties associated with environmental compliance and
remediation activities, future costs of compliance or remediation could be
higher or lower than the amount currently accrued.

TAX SAVINGS SHARING AGREEMENT WITH NIAGARA MOHAWK

As part of the acquisition of the Hydro Assets, Orion NY has entered into a tax
savings sharing agreement with Niagara Mohawk. Niagara Mohawk will receive 25
percent of any funds received from settlement of prior Niagara Mohawk filed
property tax litigation or future property tax reduction agreements not to
exceed $20,000,000. Since this amount due to Niagara Mohawk is contingent on
future events, amounts due to Niagara Mohawk will only be recognized when a
settlement has been reached with a local jurisdiction and related payment
received. In 2000, no such payments were received from local tax jurisdictions
that would require Orion NY to make payment to Niagara Mohawk. In 2001, Orion NY
received a favorable ruling from one local jurisdiction and accrued
approximately $1,000,000 to be paid to Niagara Mohawk.

TURBINE PURCHASES

In September 2000, Orion Power entered into a letter of intent for the delivery
over the next four years of 10 combustion turbine generators from Siemens
Westinghouse Power Corporation as part of the repowering and new development
efforts. The total purchase price made is approximately $372,000,000,
substantially all of which is payable at various times in 2002 through 2004. As
part of Orion Power's acquisition of Columbia Electric Corporation, Orion Power
acquired the rights to purchase eight additional turbine generators, which will
be installed in the projects under construction. In February and March 2001, the
Company entered into two letters of intent for delivery of turbine generators
for the Company's development projects for a total of approximately
$287,300,000. The Company signed purchase contracts in August 2001 for turbines
within these letters of intent related to the Kelson Ridge facility. In
conjunction with the Company's acquisition of the Atlantic project, the Company
assumed a turbine purchase agreement for $37,500,000. As of December 31, 2001,
the Company has committed to pay approximately $697,000,000 for turbine purchase
of which $570,000,000 remains outstanding.

LABOR SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS

As of December 31, 2001, approximately 61 percent of the Company's employees are
subject to one of five collective bargaining agreements. Such agreements expire
at various times between April 2003 through May 2006.

LEASES

Orion Power and its subsidiaries have entered into various noncancelable
operating lease arrangements for office space, storage space, office furniture
and vehicles. These leases terminate at various dates through December 2021.

On November 10, 1999, Erie Blvd. entered into a capital lease arrangement for
the land at the Watertown hydroplant located in Potsdam, New York. This land
will house a maintenance facility and a regional headquarters for the Hydro
Assets. The lease began at the completion of the facility, in October 2000, and
expires in 2014. Under the terms of the lease, the monthly payments are $10,500.
Erie Blvd. has the option to purchase the land for $450,000 at the end of the
lease term.

Future minimum payments due under these leases are as follows (in thousands):

Year ending December 31, Capital Operating
- ------------------------ ------- ---------
2002 $ 126 $ 1,670
2003 126 1,681
2004 126 1,678
2005 126 1,156
2006 126 519
Thereafter 1,019 5,080
----- -----
1,649 11,784
Interest portion (522) --
----- ------
Total $ 1,127 $ 11,784
===== ======

Total rental expense for the years ended December 31, 1999, 2000 and 2001, was
(in thousands) $373, $1,831, and $1,795, respectively.

LITIGATION AND CLAIMS

Orion Power is directly or indirectly involved in various pending lawsuits and
claims. Litigation reserves are recorded when a loss is determined to be
probable and the amount can be reasonably estimated. In the opinion of
management, the ultimate outcome of the claims will not have a material impact
on Orion Power's financial position or the results of its operations.

During 2000 and 2001, Orion Power, through Orion NY, provided certain services
to Con Edison under the local electric system reliability rules. Con Edison has
questioned its obligation to make separate payment to Orion Power related to
these services. As of December 31, 2001, the amount requested by Orion Power for
these services was approximately $36,000,000. Since Orion Power management and
its counsel cannot reasonably estimate the amount Orion Power will ultimately
collect, no amount has been recognized in these consolidated financial
statements. The parties are discussing resolution to this item. At such time as
this issue is resolved, Orion Power will recognize the gain, if any.

9. STOCK OPTION PLAN

On May 21, 1998, Orion Power adopted the 1998 Stock Incentive Plan (the "Plan")
to provide for granting of stock options and other equity based awards to
directors, officers, employees, and consultants. The Plan, as amended, provides
that up to 7,500,000 shares of common stock may be issued pursuant to such
options and other awards. Stock options may be granted at an exercise price as
determined by the Board of Directors or a committee designated by the Board of
Directors. Options generally are granted at fair market value at the date of
grant, are exercisable in installments beginning one year from the date of
grant, and expire 10 years after the date of grant. The plan permits the
issuance of either incentive stock options or non-qualified stock options.

Orion Power utilizes the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock Based Compensation," which defines a "fair value based method" of
accounting for stock-based compensation and applies APB Opinion No. 25 and
related interpretations in accounting for its stock option and stock purchase
plans.

Orion Power has granted options to acquire shares of its common stock at an
exercise price less than the fair value of Orion Power's common stock. As of
December 31, 2001, Orion Power has recognized deferred compensation of
$4,768,000 to be amortized over the three-year vesting period. Orion Power
recorded $106,000, $1,303,000 and $1,596,000 of compensation expense related to
these options for the years ended December 31, 1999, 2000 and 2001,
respectively.

THE FOLLOWING SUMMARIZES OPTIONS GRANTED TO DIRECTORS, OFFICER AND EMPLOYEES:

Number Weighted-average
of shares exercise price
--------- ----------------
Outstanding at December 31, 1998 49,970 $ 10.00
Granted 1,621,014 10.82
---------
Outstanding at December 31, 1999 1,670,984 10.79
Granted 3,598,571 17.28
Forfeited (32,176) (14.91)
---------
Outstanding at December 31, 2000 5,237,379 15.23
Granted 468,000 24.10
Forfeited (37,128) (20.72)
Exercised (165,906) (10.67)
---------
Outstanding at December 31, 2001 5,502,345 16.17
=========
Options exercisable at December 31, 1999 118,163 10.00
---------
Options exercisable at December 31, 2000 678,352 10.66
---------
Options exercisable at December 31, 2001 1,871,744 13.08
---------

Exercise prices for options outstanding as of December 31, 2001, ranged from $10
to $29.80. The following table provides certain information with respect to
stock options outstanding at December 31, 2001:

Weighted-average
remaining
Stock options Weighted-average contractual life
Range of exercise prices outstanding exercise price (in yrs.)
- --------------------------------------------------------------------------------
$10.00 - $15.50 2,833,345 $12.03 8.47
$15.51 - $20.00 2,308,000 19.84 8.92
$20.01 - $29.80 361,000 25.24 9.44
- --------------------------------------------------------------------------------
5,502,345 $16.17 8.72
- --------------------------------------------------------------------------------

The following table provides certain information with respect to stock options
exercisable at December 31, 2001:

Stock options Weighted-average
Range of exercise prices exercisable exercise price
- --------------------------------------------------------------------------------
$10.00 - $15.50 1,492,415 $11.31
$15.51 - $20.00 375,478 $20.00
$20.01 - $29.80 3,851 $26.53
- --------------------------------------------------------------------------------
1,871,744 $13.08
- --------------------------------------------------------------------------------

The weighted-average fair values at date of grant for options granted during
1999, 2000 and 2001 were $8.96, $15.60, and $9.64, respectively, and were
estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:

1999 2000 2001
- -----------------------------------------------------------------------
Expected life in years 10 10 10
Risk-free interest rate 5.12% 5.11% 5.03%
Volatility 16.40% 35.00% 9.80%
Dividend yield -- -- --
- -----------------------------------------------------------------------

Orion Power's pro forma information for the years ended December 31, 1999, 2000
and 2001, prepared in accordance with the provisions of SFAS No. 123, is
provided below. For purposes of pro forma disclosures, stock-based compensation
is amortized to expense on a straight-line basis over the vesting period.

(Dollars in thousands, except per share 1999 2000 2001
amounts)
- ------------------------------------------------------------------------------
Pro forma net income $4,711 $17,853 $86,071
Pro-forma net income per common share-basic $0.33 $0.29 $0.87
Pro forma net income per common share -
assuming dilution $0.32 $0.28 $0.83
- ------------------------------------------------------------------------------

10. INCOME TAXES

The sources of and differences between the financial accounting and tax basis of
Orion Power's assets and liabilities which give rise to the net deferred tax
assets and net deferred tax liabilities as of December 31, 2000 and 2001,
respectively, are as follows (in thousands):



2000 2001
---------------------- ----------------------
Current Long-Term Current Long-Term
---------- ---------- ---------- ----------

Accumulated deferred income taxes:
Deferred tax assets-
Accruals and Prepaids $ 15,352 $ 1,090 $ 5,112 $ 1,128
Net operating loss and
credit carryforwards -- 5,853 655 10,084
Amortization differences on
intangibles 517 6,720 364 2,119
Long-term liabilities assumed in
Acquisitions -- 17,964 -- 18,533
Deferred compensation -- 532 -- 1,178
Derivative contracts -- -- -- 25,188
Acquisition costs 122 3,172 122 290
---------- ---------- ---------- ----------
Total deferred tax assets 15,991 35,331 6,253 58,520
---------- ---------- ---------- ----------
Deferred tax liabilities-
Depreciation differences on
property and equipment -- (25,582) -- (43,555)
Difference in asset basis of
property and equipment -- (18,680) -- (16,169)
Derivative contracts -- -- (2,499) --
Other (1,071) -- -- --
---------- ---------- ---------- ----------
Total deferred liabilities (1,071) (44,262) (2,499) (59,724)
---------- ---------- ---------- ----------
Net accumulated deferred income tax
assets (liabilities) $ 14,920 $ (8,931) $ 3,754 $ (1,204)
========== ========== ========== ==========


The components of the income tax provision for the years ended December 31,
1999, 2000 and 2001, are as follows:

1999 2000 2001
------------ ------------ ------------
Current:
Federal $ 1,378 $ 14,417 $ 27,323
State 401 13,825 (3,390)
------------ ------------ ------------
1,779 28,242 23,933
------------ ------------ ------------
Deferred:
Federal 2,418 1,079 27,110
State 599 (9,079) 3,876
------------ ------------ ------------
3,017 (8,000) 30,986
------------ ------------ ------------
Total income tax provision $ 4,796 $ 20,242 $ 54,919
------------ ------------ ------------

The tax provision differs from the amounts obtained by applying the statutory
U.S. Federal income tax rate to pre-tax income from operations. The differences
are reconciled as follows (in thousands):

1999 2000 2001
------------ ------------ ------------
Income tax provision computed at
Federal statutory rates $ 3,660 $ 17,073 $ 54,433
Permanent differences 484 84 93
State income taxes, net of Federal
income tax benefit 650 3,085 10,793
State tax credits 2 -- (10,400)
------------ ------------ ------------
Total $ 4,796 $ 20,242 $ 54,919
============ ============ ============

As of December 31, 2001, the Company had state net operating loss and credit
carryforwards of (in thousands) $13,903, which are due to expire in tax years
2011 through 2021.

The rate reductions for the twelve months ended December 31, 2000 and 2001,
respectively, are related to the implementation of several tax planning
strategies, including utilization of several tax savings incentive programs,
primarily focused on the high tax jurisdictions in which the Company has
substantial operations.

11. EARNINGS PER SHARE

The impact of 2,500 stock options from the second quarter of 2000, 2,077,000
stock options from the fourth quarter of 2000, and 1,420, 36,146, and 5,715 from
the second, third and fourth quarters of 2001, respectively, have been excluded
from diluted shares outstanding due to their antidilutive effect. The following
table shows the computation of Orion Power's basic and diluted EPS for 1999,
2000 and 2001 (in thousands, except share and per share data).

PER SHARE
NET INCOME SHARES(a) AMOUNT
---------- ---------- ----------
For the year ended December 31, 1999:
Basic EPS- $ 5,662 14,344,400 $ 0.39
Effect of dilutive securities:
Stock options -- 83,700
Warrants -- 518,800
---------- ----------
Diluted EPS- $ 5,662 14,946,900 $ 0.38
========== ========== ==========

For the year ended December 31, 2000:
Basic EPS- $ 28,539 61,755,269 $ 0.46
Effect of dilutive securities:
Stock options -- 480,364
Warrants -- 2,202,685
---------- ----------
Diluted EPS- $ 28,539 64,438,318 $ 0.44
========== ========== ==========

For the year ended December 31, 2001:
Basic EPS- $ 100,603 99,070,881 $ 1.02
Effect of dilutive securities:
Stock options -- 1,163,367
Warrants -- 3,936,450
Convertible securities 3,414 3,413,894
---------- ----------
Diluted EPS- $ 104,017 107,584,592 $ 0.97
========== ========== ==========

(a) - Basic shares are calculated on a weighted average.

Upon completion of the merger with Reliant, all outstanding options and warrants
become fully vested and payable. The merger was completed on February 19, 2002
(see Note 1) and all options and warrants were paid out in cash at the stated
merger price of $26.80 per share.

12. DERIVATIVES, MARKET AND CREDIT RISKS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS

The Company uses derivative instruments to manage exposures to interest rate and
commodity price risks. The Company's objectives for holding derivatives are to
minimize the variability in the Company's cash flow using the most effective
methods to eliminate or reduce the impacts of these risks. The Company does not
use derivative instruments for speculative or trading purposes.

INTEREST RATE RISK

The Company's debt service payments from its credit facilities are subject to
interest rate risk resulting in variability in future cash flows. The Company
uses pay-fixed interest rate swaps to mitigate the risk of increasing interest
rates for a portion of the Company's floating rate debt. These derivatives serve
to hedge the Company's exposure to cash flow variability for future interest
payments in the event of significant changes in interest rates.

COMMODITY PRICE RISK

The Company executes both physical and financial commodity contracts to serve as
economic hedges of certain commodity purchase and sale activity. These contracts
serve to hedge price volatility for some aspects of its operations due to
inflation, rising fuel costs, and flat or decreasing energy prices. The Company
executes financial contracts for the forward sale of electricity, the forward
purchases of natural gas and oil as well as financial tolling contracts. The
forward sales of electricity are treated as cash flow hedges of the forecasted
electricity sales, with the exception of one long-term contract, which is
classified as no hedging designation. The fair value changes of all contracts
that are not designated in qualifying hedge accounting relationships are
recorded in earnings. The net gain attributable to the change in these
derivative contracts included in the operating expenses on the accompanying
consolidated statements of operations was approximately $11,919,000 for the year
ended December 31, 2001. The Company's use of derivative instruments, whether
designated as an accounting hedge or not, is designed to lock in energy sale
prices and the associated fuel costs to effectively create a fixed energy
margin.

As of December 31, 2001, the maximum length of time over which the Company has
hedged its exposure to the variability in future cash flows associated with
commodity price risk is through September 2005. The maximum length of time over
which the Company has hedged its exposure to the variability in future cash
flows associated with interest rate risk is through March 2010.

Ineffectiveness associated with the Company's qualifying cash flow hedges is
immaterial for the year ended December 31, 2001. The Company's estimated net
derivative gains or losses included in accumulated other comprehensive loss as
of December 31, 2001, that are expected to be reclassified into earnings within
the next twelve months are a net gain of approximately $7,100,000. The actual
amounts reclassified from accumulated other comprehensive loss to earnings can
differ as a result of market price changes.

The schedule below summarizes the activities affecting accumulated other
comprehensive loss, from derivative instruments for the year ended December 31,
2001(in thousands):

Beginning derivative losses included in accumulated
other comprehensive loss at January 1, 2001 $ 56,975
Net loss from current period hedging transactions and
price changes 10,677
Net reclassification to earnings 10,956
Tax effect (27,547)
--------
Ending accumulated other comprehensive loss at
December 31, 2001 $ 51,061
========

MARKET RISK

Market risk is the potential loss Orion Power may incur as a result of changes
in the market or fair value of a particular instrument or commodity. All
financial and commodities-related instruments, including derivatives, are
subject to market risk. Orion Power's exposure to market risk is determined by a
number of factors, including the size, duration, composition, and
diversification of positions held, the absolute and relative levels of interest
rates, as well as market volatility and illiquidity. The most significant factor
influencing the overall level of market risk to which Orion Power is exposed is
its use of hedging techniques to mitigate such risk. Orion Power manages market
risk by actively monitoring compliance with stated risk management policies as
well as monitoring the effectiveness of its hedging policies and strategies.
Orion Power's risk management policies limit the amount of total net exposure
and rolling net exposure during stated periods. These policies, including
related risk limits, are regularly assessed to ensure their appropriateness
given Orion Power's objectives.

CREDIT RISK

Orion Power is exposed to losses in the event of nonperformance by
counterparties to its derivative instruments. Credit risk is measured by the
loss Orion Power would record if its counterparties failed to perform pursuant
to terms of their contractual obligations and the value of collateral held, if
any, was not adequate to cover such losses. Orion Power has established controls
to determine and monitor the creditworthiness of counterparties, as well as the
quality of pledged collateral, and uses master netting agreements whenever
possible to mitigate Orion Power's exposure to counterparty credit risk.
Additionally, Orion Power may require counterparties to pledge additional
collateral when deemed necessary.

Concentrations of credit risk from financial instruments, including contractual
commitments, exist when groups of counterparties have similar business
characteristics or are engaged in like activities that would cause their ability
to meet their contractual commitments to be adversely affected, in a similar
manner, by changes in the economy or other market conditions. Orion Power
monitors credit risk on both an individual and group counterparty basis.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents,
restricted cash, accounts receivable, interest, taxes and other accounts
payable, accrued expenses, notes payable and long-term debt. The fair value of
these financial instruments, except for notes payable, senior notes, convertible
senior notes and the fixed rate component of the Liberty Credit Facility,
approximates their carrying value as of December 31, 2001, due to their
short-term nature or due to the fact that the interest rate paid on the debt is
variable.

The carrying amount of the notes payable, senior notes, convertible senior notes
and the fixed component of the Liberty Credit facility as of December 31, 2000
and 2001, was approximately $474,300,000 and $765,000,000, respectively, with a
fair value of approximately $529,289,000 and $865,812,000, respectively. The
fair value was estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rate and the approximate carrying value
based on quoted market prices for similar types of borrowing arrangements.

The fair value of interest rate swap agreements is estimated by determining the
difference between the fixed payments on the agreements and what the fixed
payments would be based on current market fixed rates for the appropriate
maturity, then calculating the present value of that difference for the
remaining terms of the agreements at current fixed market rates. The estimated
value of interest rate swap agreements was a liability of approximately
$56,500,000 and $85,700,000 at December 31, 2000 and 2001, respectively.

13. STOCKHOLDERS' EQUITY

In accordance with the Second Amended and Restated Stockholder's Agreement (the
Agreement) dated November 5, 1999, the stockholders were required to purchase
common stock when capital was needed for the acquisition and management of
portfolio assets, as defined in the Agreement. As of April 28, 2000, the
stockholders had fulfilled their commitments under the Agreement.

The Agreement also states that at the time of a capital call, Orion Power shall
issue warrants to GSCP and CPS for shares of Orion Power common stock in
accordance with certain formulas, as defined in the Agreement. Under the terms
of the original stockholders agreement between CPS and GSCP, only GSCP was
entitled to receive warrants. The warrants will have an exercise price equal to
the subscription price of the common stock ($10.00 or $15.50) and expire on the
tenth anniversary of their issuance. The warrant holder may exercise the
warrants for an equivalent number of shares of Orion Power common stock when
accompanied by payment of the full exercise price. The warrant holder may also
exercise the warrant without payment and would be entitled to a number of shares
of Orion Power common stock equivalent to (x) the difference between the
aggregate Current Market Price, as defined, less the aggregate exercise price,
divided by (y) the Current Market Price of one share of common stock. As of
December 31, 2000 and 2001, 6,400,400 warrants had been issued by Orion Power to
GSCP and 705,900 warrants have been issued to Constellation Holdings, Inc.,
respectively. No warrants have been exercised as of December 31, 2001, and
accordingly, all warrants are outstanding. No more capital is subject to call
under this agreement and no more warrants are issuable.

In March 1998, November 1998, December 1998, June 1999, July 1999, September
1999 and April 2000, GS Capital Partners II, L.P. and affiliated investment
partnerships and Constellation Enterprises made equity investments pursuant to
capital calls based upon their respective commitments. These funds were
primarily used to finance acquisitions. GS Capital Partners II, L.P. and
affiliated investment partnerships purchased 30,000,000 shares and Constellation
Enterprises and affiliates purchased 17,500,000 shares pursuant to those capital
calls. Pursuant to the stockholders' agreement, in connection with several
capital calls, we issued warrants to GS Capital Partners II, L.P. and affiliated
investment partnerships to purchase a total of 5,034,257 shares of our common
stock at an exercise price of $10.00 per share and 1,366,143 shares at an
exercise price of $15.50 per share, and to Constellation Enterprises to purchase
a total of 705,900 shares at an exercise price of $10.00 per share. All of these
warrants expire ten years from the date of issuance.

In April 2000, our existing stockholders made equity investments to help finance
the acquisition of the assets located in Ohio and Pennsylvania. First, all our
existing stockholders satisfied their remaining commitments under the
stockholders' agreement at $10.00 per share for GS Capital Partners II, L.P. and
affiliated investment partnerships and Constellation Enterprises and at $15.50
per share for affiliates of Mitsubishi Corporation and Tokyo Electric Power
Company International B.V. Second, GS Capital Partners II, L.P. and affiliated
investment partnerships invested approximately $69 million and Constellation
Enterprises invested approximately $31 million over and above the amount that
they had previously committed to invest pursuant to the stockholders' agreement
at $15.50 per share.

On November 14, 2000, the Company completed its initial public offering in the
amount of $550.0 million, comprised of 31,625,000 shares. Net proceeds were
approximately $443.5 million, approximately $209 million of which were used to
acquire Columbia Electric Corporation. The remaining $243.5 million will be used
for other acquisitions and/or development projects and for general corporate
purposes, of which $100.0 million was used to fund construction of the Ceredo
Generating Station, $23.5 million was used for general corporate operating
expenses, and $120.0 million remained available as cash at December 31, 2000.
The proceeds were invested in AAA-rated short-term securities and will continue
to be until the funds are appropriately deployed. None of such payments were
made to directors, officers or 10% or more stockholders or to any associates or
affiliates of the foregoing.

On June 6, 2001, the Company completed a $355,600,000 common stock offering,
comprised of 10,400,000 shares sold by the Company and 2,600,000 shares sold by
certain selling stockholders at a gross per share offering price of $27.35,
resulting in net proceeds to the Company of approximately $272,600,000.
Concurrent with this offering, the Company completed a $200,000,000 offering of
4.50% convertible senior notes (see Note 5). The net proceeds from these
offerings are being used by the Company to repay debt and to fund the
development of a generating station. Additionally, excess proceeds will be used
to fund future acquisitions.

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

Orion Power's quarterly operating results have fluctuated in the past and may
continue to do so in the future as a result of a number of factors, including,
but not limited to, the timing and size of acquisitions, the completion of
development projects, and variations in levels of production. The following
quarterly information is in thousands, except for per share amounts.



QUARTER ENDED
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------

2001

Operating Revenues $ 274,251 $ 305,561 $ 366,999 $ 231,569
Operating Income $ 73,379 $ 82,973 $ 138,954 $ 41,512
Net Income (Loss) $ 15,117 $ 21,334 $ 64,874 $ (722)
Net Income (Loss) per share - basic $ 0.16 $ 0.22 $ 0.63 $ (0.01)
Net Income (Loss) per share - diluted $ 0.15 $ 0.21 $ 0.58 $ (0.01)

2000

Operating Revenues $ 105,506 $ 236,168 $ 343,010 $ 272,885
Operating Income $ 28,918 $ 65,689 $ 59,586 $ 47,977
Net Income $ 8,294 $ 5,456 $ 3,921 $ 10,868
Net Income per share - basic $ 0.23 $ 0.09 $ 0.05 $ 0.13
Net Income per share - diluted $ 0.22 $ 0.09 $ 0.05 $ 0.13




REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orion Power Holdings, Inc.:

We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Orion Power Holdings,
Inc. and subsidiaries, incorporated by reference in this Form 10-K, and have
issued our report thereon dated February 19, 2002. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule listed in the index of financial statements is
the responsibility of the company's management and is presented for the purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

/s/ Arthur Andersen LLP

Vienna, Virginia
February 19, 2002



ORION POWER HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 2001
(IN THOUSANDS)

2000 2001
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 133,653 $ 168,607
Restricted cash - 518
Due from affiliates 149,910 231,916
Current deferred tax asset - 253
Prepaid expenses and other current assets 1,294 657
------------ ------------
TOTAL CURRENT ASSETS 284,857 401,951

Property and equipment, net 2,769 3,009

Non current deferred tax asset 28,212 11,219
Deferred financing costs, net of accumulated
amortization of $1,082 and $3,580 at
December 31, 2000 and 2001, respectively 12,118 16,322
Prepaid expenses and other noncurrent assets 2,200 1,736
Investment in subsidiaries 1,350,831 1,817,359
------------ ------------

TOTAL ASSETS $ 1,680,987 $ 2,251,596
============ ============

LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 4,742 $ 4,560
Accrued expenses 13,226 5,383
Accrued interest 8,237 8,962
------------ ------------
TOTAL CURRENT LIABILITIES 26,205 18,905

Long term debt 400,000 600,000
------------ ------------
TOTAL LIABILITIES 426,205 618,905

Stockholders' Equity
Common stock 931 1,037
Additional paid in capital 1,230,467 1,503,891
Deferred compensation (3,359) (1,763)
Notes receivable from officers (5,916) (3,736)
Retained earnings 32,659 133,262
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,254,782 1,632,691
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,680,987 $ 2,251,596
============ ============

The accompanying notes are an integral part of these condensed balance sheets



ORION POWER HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS)

FOR THE YEAR ENDED DECEMBER 31,
1999 2000 2001
------------ ------------ ------------

REVENUE $ - $ - $ -

EXPENSES
General and administrative 4,441 12,513 22,908
Depreciation and amortization 218 346 1,278
Charge for buyout of operations
and maintenance contracts with
a related party - 19,000 -
------------ ------------ ------------
4,659 31,859 24,186
------------ ------------ ------------

OPERATING LOSS (4,659) (31,859) (24,186)
------------ ------------ ------------
Interest income 265 6,019 9,435
Interest expense (2,933) (35,633) (56,172)
------------ ------------ ------------

LOSS BEFORE (BENEFIT)PROVISION FOR
INCOME TAXES (7,327) (61,473) (70,923)
Income tax (benefit)/provision (2,905) (24,301) 16,740
Equity in earnings from subsidiaries 10,084 65,711 188,266
------------ ------------ ------------
NET INCOME $ 5,662 $ 28,539 $ 100,603
============ ============ ============

The accompanying notes are an integral part of these condensed financial
statements.




ORION POWER HOLDINGS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS)

FOR THE YEAR ENDED DECEMBER 31,
1999 2000 2001
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,662 $ 28,539 $ 100,603
Adjustments to reconcile net income
to net cash used in operating
activities
Equity in earnings from subsidiaries (10,084) (65,711) (188,266)
Deferred income taxes (2,905) (24,301) 16,740
Depreciation and amortization 218 1,428 3,776
Deferred compensation 106 1,303 1,596
Change in notes receivable from
officers - (244) 2,180
Change in assets and liabilities:
Restricted cash (651) 651 (518)
Due from affiliates (17,112) (132,798) (82,006)
Prepaid expenses and other assets (130) (3,362) 1,101
Accounts payable - 742 (182)
Accrued expenses 4,123 12,497 (7,843)
Accrued interest 2,107 6,076 725
------------ ------------ ------------
Net cash used in operating activities (18,666) (175,180) (152,094)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,936) (397) (1,518)
Distributions received from subsidiary - - 86,466
Investment made in subsidiaries (342,377) (914,333) (364,728)
------------ ------------ ------------
Net cash used in investing activities (345,313) (914,730) (279,780)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from stockholders 382,330 758,682 273,530
Payments of deferred financing costs - (13,200) (6,702)
Distribution to stockholders (9,750) - -
Proceeds from senior notes and
credit facility - 420,000 200,000
Payments on credit facility - (20,000) -
Proceeds from notes payable to
stockholders 110,539 - -
Payments on notes payable to
stockholders (41,188) - -
------------ ------------ ------------
Net cash provided by financing
activities 441,931 1,145,482 466,828
------------ ------------ ------------
Change in cash and equivalents 77,952 55,572 34,954
Cash and cash equivalents, beginning
of period 129 78,081 133,653
------------ ------------ ------------
Cash and cash equivalents, end
of period $ 78,081 $ 133,653 $ 168,607
============ ============ ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for
Interest $ 826 $ 28,475 $ 52,949
============ ============ ============
Income taxes $ - $ - $ -
============ ============ ============
Noncash disclosures -
Notes receivable from officers $ - $ 5,001 $ -
============ ============ ============
Conversion of notes payable to
equity $ - $ 71,086 $ -
============ ============ ============

The accompanying notes are an integral part of these condensed financial
statements.


ORION POWER HOLDINGS, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 2001

A) The accompanying condensed financial information of Orion Power
Holdings, Inc. ("Orion Power") presents the financial position, results of
operations and cash flows of the Parent Company with the investment in, and
operations of, consolidated subsidiaries with restricted net assets on the
equity method of accounting. This information should be read in conjunction with
the Orion Power Holdings, Inc. and Subsidiaries Consolidated Financial
Statements as December 31, 2000 and 2001.

On February 19, 2002, Orion Power was acquired by merger by a wholly owned
subsidiary of Reliant Resources, Inc. (Reliant Resources). As a result, Orion
Power became a wholly owned subsidiary of Reliant Resources, which files reports
with the Securities and Exchange Commission.

B) DEFERRED FINANCING COSTS

Deferred financing costs, consisting primarily of the costs incurred to
obtain debt financing, are deferred and amortized using effective interest
method, over the term of the related permanent financing. Amortization expense
is included in interest expense on the accompanying condensed statements of
income.

C) CREDIT AGREEMENTS

NEW YORK CREDIT AGREEMENT. On July 30, 1999, Orion Power New York, LP
(Orion NY), a wholly owned subsidiary of Orion Power, entered into a
$730,000,000 secured credit agreement. The banks agreed to provide an
acquisition facility in an amount of up to $700,000,000 (the Acquisition Loans),
and a revolving working capital facility in an amount of up to $30,000,000 (the
Working Capital Facility) (collectively, the New York Credit Agreement). The New
York Credit Agreement has a maturity of December 31, 2002, for all indebtedness.
The net proceeds under the New York Credit Agreement were used to finance the
Hydro Assets and New York City Assets acquisitions.

The borrowings under each facility bear interest at a floating rate. At
Orion Power NY's option, the interest rate will be determined as either the Base
Rate as defined or LIBOR plus an applicable margin. The rate as of December 31,
2000 and 2001, was 8.097 percent and 5.661 percent, respectively. The
Acquisition Loans and Working Capital Facility are secured by substantially all
of the assets of Orion NY.

As of December 31, 2000 and 2001, Orion NY had $650,000,000 and
$578,533,700 of the Acquisition Loans outstanding, respectively. As of December
31, 2000, and 2001, Orion NY had no amounts outstanding under the Working
Capital Facility. Under the Working Capital Facility, an additional $10,000,000
is used to provide a letter of credit in favor of Consolidated Edison in
conjunction with the New York City Assets acquisition.

In accordance with the New York Credit Agreement, Orion NY entered into a
Deposit Account Agreement with Bank of America, N.A. Accordingly, Orion NY
established 12 restricted use accounts for the disbursement of its revenues. As
of December 31, 2000 and 2001, the total balance in these restricted use
accounts totaled $116,478,000 and $259,432,000, respectively.

MIDWEST CREDIT AGREEMENT. On April 28, 2000, Orion Power MidWest entered
into a $1,200,000,000 secured credit agreement. The banks agreed to provide
acquisition loans of $1,110,000,000 (the Acquisition Loans) and a revolving
working capital facility of $90,000,000 (the Working Capital Facility)
(collectively, the "MidWest Credit Agreement"). The MidWest Credit Agreement has
a maturity date of October 28, 2002, for all indebtedness. The net proceeds
under the MidWest Credit Agreement were used to finance the acquisition of the
Midwest Assets.

As of December 31, 2000, Orion Power MidWest had $1,110,000,000 and
$60,137,000 of Acquisition Loans and Working Capital Facility outstanding,
respectively. As of December 31, 2001, Orion Power MidWest had $1,013,000,000
and $10,000,000 of Acquisition Loans and Working Capital Facility outstanding,
respectively. Under the Working Capital Facility, Orion Power MidWest is
required to provide a $10,000,000 letter of credit in favor of Duquesne as part
of the POLR contract. Orion Power MidWest also maintains an additional
$5,000,000 letter of credit to support various services.

The borrowings under the MidWest Credit Agreement bear interest at a
floating rate. At Orion Power MidWest's option, the interest rate will be
determined as either the Base Rate as defined or LIBOR plus an applicable
margin. The rate as of December 31, 2000 and 2001, was 8.489 percent and 5.371
percent, respectively. The credit agreement is secured by substantially all the
assets of Orion Power MidWest.

In accordance with the MidWest Credit Agreement, Orion Power MidWest
entered into a Deposit Account Agreement with Bank of America, N.A. Accordingly,
Orion Power MidWest established 12 restricted use accounts for the disbursement
of its revenues. As of December 31, 2000 and 2001, the total balances in these
restricted accounts were approximately $62,884,000 and $49,655,600,
respectively.

Under the New York Credit Agreement and the MidWest Credit Agreement
(collectively, the "Credit Agreements"), Orion Power New York and Orion Power
MidWest are restricted from distributing cash to Orion Power. These credit
agreements provide for various accounts to be created, into which all operating
revenues and other cash receipts are deposited, and from which operating
expenses, repayments of the loan facilities and distributions to Orion Power may
be made. The lenders under each credit agreement have a security interest in all
amounts on deposit in the accounts and if there is an event of default under the
appropriate credit agreement, the lenders will be able to immediately exercise
their security interest on any funds contained in that credit facility's
accounts.

Distributions to Orion Power may only be made after satisfaction of the
following - (1) all operating expenses of the applicable subsidiary; (2) all
debt service payments under the appropriate credit agreement; (3) 50 percent of
the Excess Cash Flow, as defined, has been used to prepay each credit agreement;
and (4) any other required prepayments. After satisfaction of the aforementioned
items, the Credit Agreements allow Orion NY and Orion Power MidWest to pay
dividends and make other distributions to Orion Power up to the limit of
$100,000,000 over the life of the New York Credit Agreement and $175,000,000
over the life of the MidWest Credit Agreement. As of December 31, 2001, no
dividends or distributions had been made to Orion Power by Orion Power MidWest.
Orion Power NY had made $0 and $86,466,318 in distributions to Orion Power
during 2000 and 2001, respectively.

Among other restrictions, the Credit Agreements also contain customary
affirmative covenants and significant negative covenants including a requirement
that expenditures be within 105 percent of their budgeted amounts and that a
debt service coverage ratio of at least 1.5 to 1.0 be maintained. In addition,
the following events are also events of default under the New York Credit
Agreement - reduction in the rule requiring New York City power retailers to
procure capacity equal to at least 80 percent of forecasted peak demand from
in-city generation sources to less than 75 percent and a reduction in the price
cap for capacity from in-city generators from $105 per kilowatt year to less
than $90 per kilowatt year.

LIBERTY CREDIT AGREEMENT. In December 2000, in connection with Orion
Power's acquisition of Columbia Electric Corporation, the Company assumed a
credit facility entered into by Liberty Electric Power, LLC (Liberty), a
wholly-owned subsidiary of Columbia Electric Corporation. This credit facility,
entered into by Liberty in July 2000, provides for the following:

(1) a construction/term loan in an amount of up to $105,000,000;

(2) an institutional term loan in an amount of up to $165,000,000;

(3) an equity bridge loan in an amount of up to $41,000,000;

(4) a revolving working capital facility for an amount of up to
$5,000,000; and

(5) a debt service reserve letter of credit of $17,500,000.

Amounts outstanding under the facility bear interest at a floating rate for
a portion of the facility, which may be either the Base Rate as defined or LIBOR
plus an applicable margin, and a fixed rate for the remainder.

At December 31, 2000, the interest rate was 7.81 percent on the floating
rate component and 9.15 percent on the fixed rate portion. As of December 31,
2000, Orion Power Development had $73,200,000 and $74,300,000 of the floating
rate and fixed rate portions of the facility outstanding, respectively. At
December 31, 2001, the interest rate was 3.10 percent on the floating rate
component and 9.02 percent on the fixed rate portion. As of December 31, 2001,
Orion Power Development had $117,800,000 and $165,000,000 of the floating rate
and fixed rate portions of the facility outstanding, respectively.

The lenders have a security interest in substantially all of the assets of
Liberty and have negative pledges on other fixed assets. Liberty also pays
facility fees on the working capital facility and the debt service reserve
letter of credit.

The equity bridge loan matures on the earlier of October 1, 2002, or a date
on which the conditions precedent to conversion to a term loan are met. The debt
service reserve letter of credit becomes available for use when the conditions
precedent to conversion to a term loan are met and matures five years
thereafter. The working capital facility becomes available for use six months
prior to the scheduled conversion date and matures five years thereafter. The
construction/term loan matures on the earlier of October 1, 2002, or a date on
which the conditions precedent to conversion to a term loan are met and matures
10 years thereafter. The institutional term loan has a final maturity date of
April 15, 2026.

Each credit agreement is an independent non-recourse project financing
secured by the assets of the applicable borrower without recourse to any other
Orion Power financing facility.

D) NOTES PAYABLE

In conjunction with Orion Power's acquisition of the Carr Street facility,
Orion Power entered into a non-interest bearing note payable with US Generating
Company, LLC in the amount of $1,000,000. Payment was due annually starting
November 19, 1999 through November 19, 2001. Orion Power recognized a discount
(8 percent) on this note at acquisition of $141,000.

E) SENIOR NOTES

In April and May 2000, Orion Power issued a total of $400,000,000 of 12
percent senior notes, due 2010 (the Senior Notes). The proceeds were used to
assist in the financing of the acquisition of the Midwest Assets. Interest is
paid semiannually in May and November of each year. The Senior Notes are senior
unsecured obligations and rank pari passu with all of Orion Power's existing and
future unsecured indebtedness.

Before May 1, 2003, Orion Power may redeem up to 35 percent of the notes
issued under the indenture at a redemption price of 112 percent of the principal
amount of the notes redeemed, plus accrued and unpaid interest and special
interest, with the net cash proceeds of an equity offering provided that certain
provisions under the indenture are met. Orion Power is not required to make any
mandatory redemption or sinking fund payments with respect to the Senior Notes.

Each holder of the Senior Notes will have the right to require Orion Power
to repurchase the notes pursuant to a change of control offer as set forth in
the indenture. The indenture states that Orion Power will offer a cash payment
equivalent to 101% of the aggregate principal amount of the repurchased notes
plus any accrued or unpaid interest through the date of purchase. The Senior
Notes are not guaranteed by any of Orion Power's subsidiaries.

F) REVOLVING SENIOR CREDIT FACILITY

On July 27, 2000, Orion Power entered into a $75,000,000 revolving senior
credit facility. The credit facility matures in December 2002. Amounts
outstanding under the facility bear interest at a floating rate. The facility is
unsecured and ranks pari passu with all of Orion Power's senior debt. As of
December 31, 2000, there were no outstanding amounts under this facility, while
$46,000,000 had been used to post letters of credit to support obligations under
the Liberty project. As of December 31, 2001, there were no outstanding amounts
under this facility, while a total of $69,922,000 had been used to post letters
of credit related to Liberty and the Atlantic project.

G) CONVERTIBLE SENIOR NOTES

On June 6, 2001, Orion Power completed a $200,000,000 offering of 4.50
percent convertible senior notes, which mature on June 1, 2008. The notes are
convertible into shares of Orion Power's common stock at a conversion price of
$34.19 per share, representing a 25 percent conversion premium and are first
subject to call by Orion Power on June 4, 2004. Concurrently with this offering,
the Orion Power and certain selling stockholders completed a $355,600,000 common
stock offering, comprised of approximately 10,400,000 shares sold by Orion Power
and approximately 2,600,000 shares sold by the selling stockholders at a per
share price of $27.35. A portion of the proceeds from these offerings was used
to repay approximately $100,000,000 of outstanding debt held by Orion Power's
subsidiaries.

H) INTEREST EXPENSE

Total interest expense under the debt obligations, including amortization
of deferred financing costs, for the years ended December 31, 1999, 2000, and
2001 was (in thousands) $2,933, $35,633, and $56,172, respectively.

I) STOCKHOLDER FEES

As part of the original stockholders agreement between CPS and GSCP and the
Second Amended and Restated Stockholders Agreement, Orion Power was required to
pay a total of 1 percent of the aggregate consideration paid in an acquisition
to its stockholders--GSCP, CPS, Mitsubishi, and TEPCO. Orion Power paid a total
of $9,750,000 in August and September 1999 to GSCP and CPS, and paid a total of
$17,050,000 in June 2000, to the four primary stockholders. These payments are
recognized as a distribution to stockholders in the accompanying statement of
changes in stockholders' equity.

Additionally, Goldman Sachs had the right to provide all investment banking
services to Orion Power on an arms' length basis with regard to terms,
conditions and pricing. In association with the investment by Mitsubishi and
TEPCO on November 5, 1999 and April 28, 2000, Orion Power was required to pay a
2 percent fee to Goldman Sachs, in accordance with the Second Amended and
Restated Stockholder's Agreement. The amounts of these payments are
approximately $2,400,000 and $1,600,000, respectively. Orion Power charged the
fee against additional paid-in capital. This amount was included in accounts
payable on the balance sheet at December 31, 2000 and 2001.

Both of the obligations related to payments of shareholders fees ended
during 2000.

J) NOTES RECEIVABLE FROM OFFICERS

Certain officers were required to purchase shares of Orion Power's common
stock under their employment agreements. As of December 31, 1999, these officers
owed Orion Power $671,000 related to the purchase of approximately 97,500 shares
of common stock and related interest. As of December 31, 2000, these officers
owed Orion Power $5,916,000 related to the purchase of 742,700 shares of common
stock, and related interest. As of December 31, 2001, the officers owed Orion
Power $3,736,000 related to the purchase of 645,200 shares of common stock, and
related interest. The Company expects the balance to be paid off in conjunction
with the merger.

K) TURBINE PURCHASES

In September 2000, Orion Power entered into a letter of intent for the
delivery over the next four years of 10 combustion turbine generators from
Siemens Westinghouse Power Corporation as part of the repowering and new
development efforts. The total purchase price made is approximately
$372,000,000, substantially all of which is payable at various times in 2002
through 2004. As part of Orion Power's acquisition of Columbia Electric
Corporation, Orion Power acquired the rights to purchase eight additional
turbine generators, which will be installed in the projects under construction.
In February and March 2001, the Company entered into two letters of intent for
delivery of turbine generators for the Company's development projects for a
total of approximately $287,300,000. The Company signed purchase contracts in
August 2001 for turbines within these letters of intent related to the Kelson
Ridge facility. As of December 31, 2001, the Company has committed to pay
approximately $697,000,000 for turbine purchase of which $570,000,000 remains
outstanding.

L) LEASES

Orion Power has entered in various noncancelable operating lease
arrangements for office space, storage space, and office furniture. These leases
terminate at various dates through December 2005.

Future minimum payments due under these leases are as follows (in
thousands):

Year ending December 31, Operating
------------------------------------------------- ---------
2002 $ 318
2003 318
2004 318
2005 159
---------
$ 1,113
=========

Total rental expense for the years ended December 31, 1999, 2000, 2001 was
(in thousands) $268, $205, and $377, respectively.

M) INCOME TAXES

The income tax expense recorded in the Company's financial statements
reflects changes in the composition of the deferred tax assets of the Company,
including a true-up of prior years' activities.

N) FAIR VALUE OF FINANCIAL INSTRUMENTS

Orion Power's financial instruments consist of cash and cash equivalents,
restricted cash, accounts payable, accrued expenses, accrued interest, note
payable and long-term debt. The fair value of these financial instruments,
except for the senior notes, and convertible senior notes, approximates their
carrying value as of December 31, 2001, due to their short-term nature.

The carrying amount of the senior notes and convertible senior notes as of
December 31, 2000 and 2001, was approximately $400,000,000 and $600,000,000,
respectively, with a fair value of approximately $435,250,000 and $653,200,000,
respectively. The fair value was estimated using discounted cash flow analysis,
based on Orion Power's current incremental borrowing rate and the approximate
carrying value based on quoted market prices for similar types of borrowing
arrangements.



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Houston, State of Texas, on April 1, 2002.

ORION POWER HOLDINGS, INC.

By: /s/ Curtis A. Morgan
-----------------------------------
Name: Curtis A. Morgan
Title: President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.

SIGNATURE TITLE DATE
- --------- ----- ----

/s/ Curtis A. Morgan President and Director April 1, 2002
- ------------------------------ (Principal Executive Officer)
Curtis A. Morgan

/s/ C. Ronald Greenman, Jr. Controller April 1, 2002
- ------------------------------ (Principal Financial and
C. Ronald Greenman, Jr. Accounting Officer)

/s/ Joe Bob Perkins Director April 1, 2002
- ------------------------------
Joe Bob Perkins



EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION
- -------------- -----------

2.1* Agreement and Plan of Merger dated as of September 26, 2001
by and among Reliant Resources, Inc., Reliant Energy Power
Generation Merger Sub, Inc. and Orion Power Holdings, Inc.

3.1.1 Certificate of Merger of Reliant Energy Power Generation
Merger Sub, Inc. into Orion Power Holdings, Inc., dated
February 19, 2002, with Certificate of Incorporation of the
Survivor Corporation attached.

3.1.2 Amendment of Certificate of Incorporation of Reliant Energy
Power Generation Merger Sub, Inc., dated February 19, 2002,
renaming the corporation Orion Power Holdings, Inc.

3.2.1 Amended and Restated Bylaws

3.2.2 Amendment to Amended and Restated Bylaws

4.1** Indenture, dated as of April 27, 2000 between Orion Power
Holdings, Inc. and Wilmington Trust Company.

4.2** Amended and Restated Registration Rights Agreement, dated
April 26, 2000, by and among Orion Power Holdings, Inc., GS
Capital Partners II, L.P. (and certain affiliates),
Constellation Enterprises, Inc., Constellation Operating
Services, Inc., certain affiliates of Mitsubishi Corporation
and Tokyo Electric Power Company International B.V.

4.3** Rights Agreement dated as of November 1, 2000 between Orion
Power Holdings, Inc. and LaSalle Bank National Association,
as Rights Agent.

4.4** Exchange and Registration Rights Agreement dated as of April
27, 2000 by and among Orion Power Holdings, Inc. and the
purchasers of the 12% senior notes due 2010.

4.5*** Indenture dated as of June 6, 2001 between Orion Power
Holdings, Inc. and Wilmington Trust Company.

10.1** Credit Agreement, dated as of July 28, 1999, by and among
Orion Power New York, L.P., Bank of America Securities LLC,
Paribas, and the other financial institutions who are
signatories to the agreement.

10.2*** Amended and Restated Credit Agreement dated as of December
15, 2000, between Orion Power MidWest, L.P., Banc of America
Securities LLC, Goldman Sachs Credit Partners L.P., Paribas,
Deutsche Bank Securities Inc., Bank of America, N.A.,
Deutsche Bank AG New York Branch, and the Lenders named
therein.

10.3** Credit Agreement, dated as of July 27, 2000, by and among
Orion Power Holdings, Inc., Fleet National Bank, Union Bank
of California, N.A. and the other financial institutions who
are signatories to the agreement.

10.4** Asset Purchase Agreement, dated as of March 2, 1999, between
Astoria Generating Company, L.P. and Consolidated Edison
Company of New York, Inc., relating to the acquisition of
the assets located in New York City.

10.5** Asset Purchase Agreement, dated December 2, 1998, between
Erie Boulevard Hydropower, L.P. and Niagara Mohawk Power
Generating Company, L.P., relating to the acquisition of the
Hydro Assets.

10.6** Asset Purchase Agreement, dated as of September 24, 1999
between the Company, Duquesne Light Company, First Energy
Corporation and the other parties named therein.

10.7** Asset Purchase Agreement, dated as of June 23, 1998, between
Carr Street Generating, L.P. and East Syracuse Generating
Company, relating to the acquisition of the Carr Street
Generating Station.

10.8** Transition Capacity Agreement, dated as of July 1, 1999,
between Astoria Generating Company, L.P. and Consolidated
Edison Company of New York, Inc.

10.9** Provider of Last Resort Agreement, dated as of September 24,
1999, between Duquesne Light Company and Orion Power
Holdings, Inc.

10.10** Transition Power Purchase Agreement, dated as of February 4,
1999, between Niagara Mohawk Power Corporation and Erie
Boulevard Hydropower, L.P.

10.11** Capacity Sale and Tolling Agreement, dated as of November
19, 1998, between Carr Street Generating Station, L.P. and
Constellation Power Source, Inc.

10.12** Strategic Alliance Agreement, dated as of March 10, 1998,
between Orion Power Holdings, Inc. and Constellation Power
Source, Inc.

10.13** Non-Competition Agreement, dated as of March 10, 1998,
between Orion Power Holdings, Inc., Baltimore Gas and
Electric Company and Constellation Power, Inc.

10.14** Non-Competition Agreement, dated as of November 5, 1999,
between Orion Power Holdings, Inc. and Mitsubishi
Corporation.

10.15** Non-Competition Agreement, dated as of November 5, 1999,
between Orion Power Holdings, Inc. and Tokyo Electric Power
Company International B.V.

10.16** Form of Amended and Restated Employment Agreement between
Orion Power Holdings, Inc. and Jack A. Fusco.

10.17** Form of Amended and Restated Employment Agreement between
Orion Power Holdings, Inc. and Scott B. Helm.

10.18** Form of Amended and Restated Employment Agreement between
Orion Power Holdings, Inc. and W. Thaddeus Miller.

10.19** Form of Employment Agreement between Orion Power Holdings,
Inc. and E. Thomas Webb.

10.20** Third Amended and Restated Stockholders' Agreement, dated as
of April 26, 2000, by and among Orion Power Holdings, Inc.,
GS Capital Partners II, L.P. (and certain affiliates),
Constellation Enterprises, Inc. (and certain affiliates),
certain affiliates of Mitsubishi Corporation and Tokyo
Electric Power Company International B.V.

10.21** Agency Agreement, dated as of April 28, 2000, by and between
Orion Power MidWest, L.P., Orion Power Holdings, Inc. and
Constellation Power Source, Inc.

10.22** Investor Rights Agreement dated as of April 5, 2000 between
Orion Power Holdings, Inc., Frederic V. Salerno and the
existing stockholders named therein.

10.23** Agreement dated as of April 5, 2000 between Orion Powers
Holdings, Inc. and Frederic V. Salerno.

10.24** Stock Purchase Agreement dated as of April 26, 2000 between
Orion Powers Holdings, Inc. and Constellation Operating
Services, Inc.

10.25** Stock Purchase Agreement dated as of September 29, 2000
between Columbia Energy Group and Orion Power Holdings, Inc.

10.26** Gas Tolling Agreement dated as of September 21, 2000 between
Orion Powers Holdings, Inc. and Constellation Power Source,
Inc.

10.27** Form of Agreement among Orion Powers Holdings, Inc. and the
Goldman Shareholders named therein.

10.28** Form of Agreement among Orion Powers Holdings, Inc. and the
Shareholders named therein.

10.29**** Employment Agreement dated as of December 12, 2000, between
Orion Power Holdings, Inc. and Dr. Michael Gluckman.

10.30*** Master Agreement dated as of July 31, 2000 between Liberty
Electric Power, LLC, Liberty Electric PA, LLC, the
Institutional Lenders named therein, and The Chase Manhattan
Bank as Administrative Agent.

10.31*** Credit Agreement dated as of July 31, 2000 between Liberty
Electric PA, LLC, the Bank Lenders named therein, and the
Chase Manhattan Bank as Administrative Agent.

10.32*** Note Purchase Agreement dated as of July 31, 2000 between
Liberty Electric PA, LLC and the Institutional Lenders named
therein.

10.33**** Amendment No. 4 to Amended and Restated Credit Agreement
dated as of December 15, 2000, between Orion Power MidWest,
L.P., Banc of America Securities LLC, Goldman Sachs Credit
Partners L.P., Paribas, Deutsche Bank Securities Inc., Bank
of America, N.A., Deutsche Bank AG New York Branch, and the
Lenders named therein.

99.1 Confirmation of Receipt of Assurances from Arthur Andersen
LLP, dated March 27, 2002

______________
* Incorporated by reference to Exhibit 2.1 to Form 8-K filed by Orion Power
Holdings, Inc. on September 26, 2001.

** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (File No. 333-44118).

*** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (File No. 333-60796).

**** Incorporated by reference to the Registrant's Registration Statement on
Form S-4, as amended (File No. 333-57110).