EAST COAST POWER LLC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(Mark One)
[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 333-45124

EAST COAST POWER L.L.C.
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 52-2143667
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

EL PASO BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(713) 420-2600

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 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].

STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT: None

98.01 percent of the membership interests of East Coast Power L.L.C. are
owned directly or indirectly by Mesquite Investors, L.L.C., 0.99 percent of its
membership interests are owned by Bonneville Pacific Corporation, and 1 percent
of its membership interests are owned directly or indirectly by East Coast Power
Holding Company, L.L.C. Such membership interests are not publicly traded and
therefore have no separate, quantifiable market value.

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EAST COAST POWER L.L.C.

TABLE OF CONTENTS

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Below is a list of terms that are common to our industry and used
throughout this document:

Btu = British thermal units
klbs = thousand pounds
KWh = kilowatt hour
MMBtu = million British thermal units
MW = megawatt
MWh = megawatt hours
MMWh = thousand megawatt hours

When we refer to "us", "we", "our", "ours", or "East Coast Power", we are
describing East Coast Power L.L.C. and/or our subsidiaries.

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PART I

ITEM 1. BUSINESS

GENERAL

We are a Delaware limited liability company formed in December 1998. We are
owned by three members: Mesquite Investors, L.L.C. directly owns 98.01 percent
of the membership interests in us; Bonneville Pacific Corporation, a wholly
owned subsidiary of Mesquite Investors, owns 0.99 percent of the membership
interests in us; and East Coast Power Holding Company, L.L.C., which is
indirectly owned by Enron Corporation, owns a 1 percent non-voting preferred
membership interest in us. Mesquite Investors obtained its ownership in us
through a series of transactions consummated in 1999 and 2001.

OPERATIONS

Our sole business is the ownership, operation and potential expansion of
the three power generation facilities that we acquired in February 1999 which
are located in Linden, Camden and Bayonne, New Jersey. We also have a facility
that is under construction in Linden (as discussed in Item 8, Note 10). We had
no assets or liabilities and conducted no operations prior to February 1999. The
facilities are commonly referred to as the Linden facility, Camden facility,
Bayonne facility and Linden 6 expansion. The following information summarizes
certain important information with respect to our facilities.

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(1) Facility rating is realizable capacity based on normal operating conditions.

(2) Without credit for steam production.

(3) The fuel supply for the Linden facility is provided under short-term firm
gas supply contracts. The contract price is based on spot gas prices plus a
reservation charge.

COMPETITION

Our Linden and Bayonne facilities sell power under long-term agreements
with investor-owned utilities in New York and New Jersey. The prices of the
power sold under these agreements are specified under the terms of the contract
and are generally based on a fixed component plus variable costs to generate the
power. As a result, our revenues are not significantly impacted by competition
from other sources of generation. The power generation industry is rapidly
evolving, however, and regulatory initiatives have been adopted at the federal
level and in both New York and New Jersey aimed at increasing competition in the
power generation business. As a result, it is likely that when the power
purchase agreements expire (Bayonne's expires in 2008 and Linden's expires in
2017), or when the contemplated restructuring of the power purchase agreements
is completed, these facilities will be operating in the
Pennsylvania/Jersey/Maryland markets in direct competition with other power
generators. Our ability to realize pricing terms similar to those that currently
exist may be difficult.

As a result of the Camden Venture power agreement restructuring in 2001,
the Camden facility sells its power at market based prices in direct competition
with other power generators. This results in the venture operating in a highly
competitive market in which operating efficiency, supply and demand and other
economic factors determine success. Camden faces intense competition from
generation companies throughout the region as well as from the wholesale power
markets.

EMPLOYEES

We have no employees. Our day-to-day administrative operations are
performed by officers and employees of El Paso Merchant Energy, L.P., an
affiliate of one of our members, under an administrative services agreement.
General Electric operates and maintains the Linden facility, Camden facility,
Bayonne facility and Linden 6 Expansion under separate operation and maintenance
agreements.

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INSURANCE

We have a comprehensive insurance program underwritten by recognized
insurance companies licensed to do business in the State of New Jersey. This
insurance program includes:

- commercial general liability, automobile liability and excess liability
insurance;

- property insurance, including "all risks" property damage (including
boiler and machinery); and

- business interruption insurance.

Limits and deductibles in respect of these insurance policies are comparable to
those carried by other electric generating facilities of similar size.

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REGULATION

Our power generation activities are regulated by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act with respect to its
rates, terms and conditions of service. Our cogeneration power production
activities are regulated by the FERC under the Public Utility Regulatory
Policies Act (PURPA) with respect to rates, procurement and provision of
services and operating standards. Our power generation activities are also
subject to federal and state environmental regulations, including the U.S.
Environmental Protection Agency (EPA) regulations. We believe that our
operations are in compliance with the applicable requirements.

The Linden and Bayonne facilities operate as qualifying facilities (QFs)
under PURPA. After the power agreement restructuring, Camden commenced operating
as an Exempt Wholesale Generator (EWG) under the Energy Policy Act of 1992 and
sells electric power under market based power agreements. Certain benefits of
being a QF include 1) not having to comply with extensive federal, state and
local regulations that control the organizational and financial structure of an
entity that owns or operates an electric generating plant and the price and
terms on which electricity may be sold by the plant to a wholesale purchaser,
and 2) utilities purchase needed power from QFs at their "avoided costs."

Our company is subject to complex energy, environmental and other laws and
regulations at the federal, state and local levels in connection with the
ownership and operation of the facilities. Federal laws and regulations govern
transactions by electrical and gas utility companies, the types of fuel which
may be utilized by an electric generating plant, the type of energy which may be
produced by such a plant and the ownership structure of a plant. State utility
regulatory commissions may examine the prudence of the rates and, in some
instances, other terms and conditions under which public utilities purchase
electric power from independent producers and approve the rates for sale of
retail electric power. Energy producing projects also are subject to federal,
state and local laws and administrative regulations which govern the emissions
and other substances produced, discharged or disposed of by a plant and the
geographical location, zoning, land use and operation of a plant.

MANAGEMENT

Our day-to-day operations are managed by officers and employees of El Paso
Merchant Energy, LP, an affiliate of one of our members, under an administrative
services agreement with us. Our principal executive offices are located at 1001
Louisiana Street, Houston, Texas 77002. Our telephone number is (713) 420-2600.

EXECUTIVE OFFICERS AND MANAGERS OF THE REGISTRANT

The following table sets forth information relating to the business
experience of our executive officers and managers:

Clark C. Smith has served as our President since March 2001. Mr. Smith has
also served as President of El Paso Merchant since February 2001. Mr. Smith was
President and Chief Executive Officer of Engage
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Energy, Inc. from 1997 to 2000. Prior to that period, he held the position of
President and Chief Financial Officer of Coastal Gas Marketing Company and held
several positions with Enron Corporation.

John L. Harrison has served as our Senior Vice President, Chief Financial
Officer and Treasurer since March 2001. He has served as our Class A Manager
since February 2001. He has served as Senior Vice President, Chief Financial
Officer and Treasurer of El Paso Merchant since February 2001. Prior to that
period, he served as Vice President and Senior Managing Director of El Paso
Merchant since 2000. Prior to that, he held various positions with El Paso since
1996.

Cecilia T. Heilmann has served as our Vice President, Managing Director and
Controller since March 2001. Ms. Heilmann has also served as Vice President,
Managing Director and Controller of El Paso Merchant since 2000. Prior to that,
she held various positions with El Paso.

Larry M. Kellerman is a Class A Manager of the Management Committee and is
our Vice President and Senior Managing Director. He is also Vice President and
Senior Managing Director of El Paso Merchant Energy North America Company. Prior
to Mr. Kellerman joining El Paso in 1998, he was President of Citizens Power.

John J. O'Rourke is a Class A Manager of the Management Committee and is
our Vice President and Managing Director. He is also Vice President and Managing
Director of El Paso Merchant Energy North America Company. Prior to joining El
Paso in May 2000, Mr. O'Rourke was a Director of Business Management for FPL
Energy.

Mr. Christiansen is a Class B Manager of the Management Committee. Mr.
Christiansen has served as President of Lord Securities Corporation since
October 2000 and since June 1990 has been a principal and shareholder of Acacia
Capital, Inc.

Vice Admiral Mustin (USN, Retired), a Class B Manager, is the Chairman of
the Board of his own consulting company, and serves as a director on a number of
boards and committees. Admiral Mustin formed his company in 1992. From 1989 to
1992, he was the Vice President for International Marketing for the Kaman
Corporation.

All officers have served since March 2001. Our Class A Managers and Vice
Admiral Mustin have served since March 2001. Our Class A Managers serve until
resignation or the next annual meeting of members and until their respective
successors are elected and qualified. Our officers serve until removal or
resignation. Our Class B Managers serve until their successors are elected and
qualified.

Our Class A Managers and our officers are also officers or employees of El
Paso or its affiliates. Such managers and officers may spend a substantial
amount of time managing the business and affairs of El Paso and its affiliates.
Since our day-to-day operations are managed by employees of El Paso Merchant
pursuant to the administrative services agreement, we do not expect that our
managers and officers will face a conflict regarding the allocation of their
time between our interests and the other business interests of El Paso and its
affiliates.

ITEM 2. PROPERTIES

A description of our properties is included in Item 1, Business, under the
heading "Properties", and is incorporated herein by reference.

We believe that we have satisfactory title to the properties owned and used
in our businesses, subject to liens for current taxes, liens incident to minor
encumbrances, and easements and restrictions that do not materially detract from
the value of these properties or our interests therein, or the use of these
properties in our businesses. We believe that our properties are adequate and
suitable for the conduct of our business in the future.

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ITEM 3. LEGAL PROCEEDINGS

A description of our legal proceedings is included in Item 8, Financial
Statements and Supplemental Data, Note 10, and is incorporated herein by
reference.

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

None.

PART II

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

None.

ITEM 6. SELECTED FINANCIAL DATA

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(1) In 2001, we acquired the remaining third party partnership interest in the
Bayonne Venture and the Camden Venture. Since the acquisition of these
interests removed all third party participative rights, we began
consolidating these entities into our financial statements at the date of
the acquisition of the remaining interests.

(2) We acquired our interests in our facilities in February 1999. Predecessor
entities' data reflects results prior to our ownership.

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

GENERAL

We are a Delaware limited liability company formed in December 1998. We are
owned by three members: Mesquite Investors, L.L.C. directly owns 98.01 percent
of the membership interests in us; Bonneville Pacific Corporation, a wholly
owned subsidiary of Mesquite Investors, owns 0.99 percent of the membership
interests in us; and East Coast Power Holding Company, L.L.C., which is
indirectly owned by Enron Corporation, owns a 1 percent non-voting preferred
membership interest in us. Mesquite Investors obtained its ownership in us
through a series of transactions consummated in 1999 and 2001.

Our sole business is the ownership, operation and potential expansion of
the three power generation facilities that we acquired in February 1999 which
are located in Linden, Camden and Bayonne, New Jersey. We also have a facility
that is under construction in Linden. We had no assets or liabilities and
conducted no operations prior to February 1999.

Acquisition of Bayonne Venture and Camden Venture

Through a series of transactions in March 2001, we acquired the remaining
7.875 percent partnership interests in Bayonne Venture from unaffiliated parties
for $16.1 million, net of cash acquired. The acquisition of the remaining
interests in Bayonne Venture removed all participative rights of the other
partners and, as a result, we began consolidating Bayonne Venture into our
financial statements.

Through a series of transactions in November 2001, we effectively acquired
the remaining partnership interests in Camden Venture from an unaffiliated
party. The acquisition of the remaining interests in Camden Venture removed all
participative rights of the other partner and, as a result, we began
consolidating Camden Venture into our financial statements.

For a further discussion of the acquisitions of the Bayonne and Camden
Ventures, see Item 8, Note 5.

Restructuring of Power Purchase Agreements

On December 12, 2001, we distributed the power purchase agreements of our
Bayonne and Camden Ventures with Public Service Electric to our partners. As a
result of this distribution, the Bayonne and Camden facilities were released
from their obligations under these agreements and entered into new power
purchase agreements with El Paso Merchant for the sale of power at market-based
prices, which is currently less than those prices under the original agreements.
The effect of the new power purchase agreements represented a significant change
in the manner these ventures would operate in the future. As a result, we
evaluated the assets of Bayonne and Camden Venture for impairment and recorded
an asset impairment charge of $67.3 million. In connection with the power
contract restructuring, all outstanding debt at Bayonne Venture and Camden
Venture was repaid and a portion of the senior secured notes was repaid. See
Item 8, Notes 5 and 10 to the financial statements for further discussion
regarding the power purchase agreement restructuring and subsequent write-down
of these facilities.

Linden 6 Expansion Project

During February 2000, we entered into an energy services agreement with
Tosco Refining L.P., a subsidiary of Tosco Corporation, under which we are
required to construct, own and operate the Linden 6 facility, a 172-megawatt
cogeneration facility on part of the existing Linden site under a sublease
entered into with Linden Venture. Linden 6 is owned and operated by one of our
wholly owned subsidiaries. The Linden 6 expansion began commercial operations on
January 25, 2002.

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RESULTS OF OPERATIONS

Our results of operations were as follows for each of the years ended
December 31, 2001 and 2000 and the period from inception (February 4, 1999) to
December 31, 1999:

The following are our operating results for the year ended December 31,
2001, compared to the year ended December 31, 2000, and for the year ended
December 31, 2000, compared to the period from inception (February 4, 1999) to
December 31, 1999.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Operating revenues for the year ended December 31, 2001, were $107.6
million higher than the same period in 2000. The increase was due primarily to
the consolidation of Bayonne Venture beginning in March 2001 and Camden Venture
in December 2001 as a result of our acquisition of the remaining partnership
interests.

Operating expenses for the year ended December 31, 2001, were $154.4
million compared to $9.5 million for the same period in 2000. The increase was
due primarily to the consolidation of Bayonne Venture and Camden Venture. Also
included in the 2001 amount is an asset impairment charge on Camden Venture for
$62.8 million and on Bayonne Venture for $4.5 million, as a result of our power
purchase agreement restructurings.

Earnings from unconsolidated affiliates for the year ended December 31,
2001, were $24.2 million higher than the same period in 2000. The increase was
due primarily to higher revenues due to higher realized sales prices on Linden
Venture, partially offset by the consolidation of Bayonne Venture from March 13,
2001 and Camden Venture from December 1, 2001.

Interest and other income increased by $1.0 million as a result of higher
average cash balances and the sale of spare parts. Interest expense decreased by
$0.5 million for the year ended December 31, 2001, compared to the same period
in 2000 due to the increase in capitalized construction costs and a lower
outstanding debt balance.

During 2001, we and our unconsolidated affiliate incurred extraordinary
costs of $23.9 million related to the early extinguishment of debt at Camden
Venture and Bayonne Venture from the restructuring.

Year Ended December 31, 2000 Compared to Period from Inception (February 4,
1999) to December 31, 1999

Operating expenses totaled $9.5 million for the year ended December 31,
2000 compared to $11.2 million in the period from inception (February 4, 1999)
to December 31, 1999. The decrease is primarily due to fewer employees and lower
costs related to travel and entertainment, professional fees, management
information systems, insurance and political and charitable contributions.

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Our earnings from unconsolidated affiliates for the year ended December 31,
2000 totaled $65.7 million compared to $59.7 million for the period from
inception (February 4, 1999) to December 31, 1999. The increase in earnings from
unconsolidated affiliates is primarily attributable to one time charges recorded
in connection with the termination of gas management and management services
agreements recorded on Linden Venture and Camden Venture in 1999, as a component
of operating expenses.

Interest and other income decreased as a result of an $8.9 million gain
recorded in 1999 relating to the cancellation of an interest rate swap
agreement. Interest expense increased by $2.8 million to $91.3 million for 2000
compared to $88.5 million for the period from inception (February 4, 1999) to
December 31, 1999. Interest expense is primarily related to the debt on the
senior subordinated credit facility with Bank of America, the senior secured
notes, and the Linden Ltd. term loan, partially offset by the capitalization of
interest costs related to the Linden 6 expansion project.

COMMITMENTS AND CONTINGENCIES

For a discussion of our commitments and contingencies, see Item 8,
Financial Statements and Supplementary Data, Note 10, incorporated herein by
reference.

RELATED PARTY TRANSACTIONS

Our material related party agreements include administrative services,
power purchase and fuel supply agreements with El Paso Merchant, our affiliate.
The agreements were entered into on terms that we believe were based on market
rates at the date they were negotiated. However, market rates can and do change
and there is no guarantee that the rates we originally agreed to in these
contracts will be indicative of market rates in the future.

LIQUIDITY AND CAPITAL RESOURCES

Cash from Operating Activities

Net cash provided by our operating activities was $68.7 million for the
year ended December 31, 2001, compared to $48.5 million for 2000. The increase
was primarily due to an increase in cash distributions from Linden Venture due
to higher revenues as a result of higher realized sales prices.

Cash from Investing Activities

Net cash used in our investing activities was $153.0 million for the year
ended December 31, 2001. Our 2001 investing activities primarily consisted of
additions to property, plant and equipment in connection with the Linden 6
expansion and the purchase of an additional interest in Bayonne and Camden
Ventures. The cost of the Linden 6 expansion was financed with cash flows from
operations and owner capital contributions. Our expected capital expenditures
for 2002 at Camden Venture and Bayonne Venture are approximately $3.0 million.

Cash from Financing Activities

Net cash provided by our financing activities was $123.0 million for the
year ended December 31, 2001. The 2001 activity includes contributions received
from our members in connection with the power contract restructuring, offset by
payments to retire long-term debt as part of the power contract restructuring.

Future Liquidity

Our primary source of liquidity is cash generated in the form of operating
revenues or distributions from unconsolidated affiliates arising from power
sales under existing and restructured power purchase agreements less the cost of
those sales and cash contributed by our members. We currently intend to
restructure the contracts at our Linden and Bayonne facilities in addition to
the contract restructurings that occurred at our Camden and partially at our
Bayonne facilities in 2001. While we expect our future revenues to decline as a
result of these power purchase agreement restructurings, we intend to reduce our
debt service obligations contemporaneously such that our cash from operations
will continue to be our primary source of liquidity.
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Our loan agreements require us to maintain compliance with certain
financial covenants. We believe that we are in compliance with the terms and
conditions of the loan agreements as of December 31, 2001.

For our significant borrowing and repayment activities during 2001, see
Item 8, Financial Statements and Supplementary Data, Note 7, incorporated herein
by reference.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table outlines our contractual cash obligations by payment
due dates.

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(1) Represents the operating leases' base amount which are adjusted by the
Consumer Price Index annually.

(2) Represents our management services agreement with El Paso Merchant, which
does not have a definitive term and whose term is as long as El Paso
Merchant provides administrative services to us. Therefore, the "After 5
Years" amount includes only one year's obligations. This table displays the
base amount which is adjusted by an inflation component annually.

COMMERCIAL COMMITMENTS

Guarantees. In connection with obtaining the consent of the Linden Venture
partners and lenders for the transactions contemplated by the Linden 6 energy
services agreement, we have indemnified Linden Venture from any and all losses
that may be incurred as a result of the Linden 6 expansion. El Paso Corporation,
our affiliate, guaranteed our obligations under this indemnity in an aggregate
amount of $15.0 million.

Letters of Credit. Under our loan agreements and other commercial
commitments, we maintain letters of credit in the amount of $64.5 million as of
December 31, 2001. No amounts have been drawn under these letters of credit.

CRITICAL ACCOUNTING POLICIES

The selection and application of accounting policies is an important
process that has developed as our business activities have evolved and as the
accounting rules have developed. Accounting rules generally do not involve a
selection among alternatives, but involve an implementation and interpretation
of existing rules, and the use of judgment, to the specific set of circumstances
existing in our business. We make every effort to properly comply with all
applicable rules on or before their adoption, and we believe the proper
implementation and consistent application of the accounting rules is critical.
However, not all situations are specifically addressed in the accounting
literature. In these cases, we must use our best judgment to adopt a policy for
accounting for these situations. We accomplish this by analogizing to similar
situations and the accounting guidance governing them, and often consult with
our independent accountants about the appropriate interpretation and application
of these policies. Our critical accounting policies include policies governing
our derivative instruments, asset impairments and accounting for reserves. Each
of these areas involves complex situations and a high degree of judgment either
in the application and interpretation of existing literature or in the
development of estimates that impact our consolidated financial statements.

Critical Accounting Policies

Derivative Instruments. During the normal course of business, we may enter
into power purchase, fuel supply or other agreements that may qualify as
derivatives under Statement of Financial Accounting

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Standards (SFAS) No. 133. As a result, we are required to evaluate our contracts
each period to determine whether derivative accounting is appropriate or if the
"normal purchases" and "normal sales" exclusion under SFAS 133 applies. As of
December 31, 2001, all of our power purchase agreements and fuel supply
contracts that qualify as derivative instruments meet the normal purchase and
sales exception and are, accordingly, not accounted for as derivative
instruments. If these contracts did not qualify under this election, our
financial statements would look significantly different with the fair value of
the contracts reflected in our balance sheet and changes in the fair values from
period to period in our income statement.

Asset Impairments. The asset impairment accounting rules require us to
determine if an event has occurred indicating that a long-lived asset may be
impaired. In some cases, these events are clear. However, in many cases, a
clearly identifiable triggering event does not occur. Rather, a series of
individually insignificant events occur over a period of time leading to an
indication that an asset may be impaired. We continually monitor our businesses
and the market and business environments and make judgments and assessments
about whether a triggering event has occurred. If an event occurs, we make an
estimate of our future cash flows from these assets to determine if the asset is
impaired. These cash flow estimates require us to make projections and
assumptions for many years into the future for pricing, demand, competition,
operating costs, legal and regulatory issues and other factors and these
variables can, and often do, differ from our estimates. These changes can have
either a positive or negative impact on our estimates of impairment and can
result in additional charges. In addition, further changes in the economic and
business environment can impact our original and ongoing assessments of
potential impairment.

Accounting for Reserves. Our accounting for reserves policies cover a wide
variety of business activities, including reserves for potentially uncollectible
receivables and legal and environmental exposures. We accrue these reserves when
our assessments indicate that it is probable that a liability has been incurred
or an asset will not be recovered, and an amount can be reasonably estimated.
Our estimates for these liabilities are based on currently available facts and
our estimates of the ultimate outcome or resolution of the liability in the
future. Actual results may differ from our estimates, and our estimates can be,
and often are, revised in the future, either negatively or positively, depending
upon the outcome or expectations based on the facts surrounding each exposure.

New Accounting Pronouncements Issued But not Yet Adopted

Accounting for Asset Retirement Obligations.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement requires companies to record a liability
relating to the retirement and removal of assets used in their business. The
liability is discounted to its present value, and the related asset value is
increased by the amount of the resulting liability. Over the life of the asset,
the liability will be accreted to its future value and eventually extinguished
when the asset is taken out of service. The provisions of this statement are
effective for fiscal years beginning after June 15, 2002. We are currently
evaluating the effects of this pronouncement.

Accounting for the Impairment or Disposal of Long-Lived Assets.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell. The standard also expanded the scope
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001. We are currently evaluating the effects of
this pronouncement.

Derivatives Implementation Group Issue C-16.

In September 2001, the Derivatives Implementation Group of the FASB cleared
guidance on Issue C-16, Scope Exceptions: Applying the Normal Purchases and
Normal Sales Exception to Contracts that Combine a Forward Contract and a
Purchased Option Contract. This guidance impacts the accounting for fuel supply
contracts that require delivery of a contractual minimum quantity of a fuel
other than electricity at a fixed
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price and have an option that permits the holder to take specified additional
amounts of fuel at the same fixed price at various times. We use fuel supply
contracts such as these in our power producing operations and currently do not
reflect them in our balance sheet since they are considered normal purchases
that are not classified as derivative instruments under SFAS No. 133. This
guidance becomes effective in the second quarter of 2002, and we may be required
to account for these contracts under SFAS No. 133. We are currently evaluating
the impact of this guidance on our financial statements.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and in good faith,
assumed facts or bases almost always vary from the actual results, and
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, we or
our management express an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions will
generally identify forward-looking statements. All of our forward-looking
statements, whether written or oral, are expressly qualified by these cautionary
statements and any other cautionary statements that may accompany such
forward-looking statements. In addition, we disclaim any obligation to update
any forward-looking statements to reflect events or circumstances after the date
of this report.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to fluctuations in interest rates results from our floating
rate term loan and working capital borrowings of Linden Ltd.

12

The table below shows the maturity of the carrying amounts and related
weighted average interest rates on our interest bearing securities, by expected
maturity dates. As of December 31, 2001, the fair value of the long-term debt
has been estimated based on quoted market prices for the same or similar issues.

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

(1) The interest rates for the floating portion of the Linden Ltd. term loan are
set at LIBOR plus 1.65% while the working capital portion is set at a one
month commercial paper rate plus 0.55%. At December 31, 2001, the LIBOR plus
1.65% was 3.6% and the commercial paper rate plus 0.55% was 2.5%.

13

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

FINANCIAL STATEMENTS OF EAST COAST POWER L.L.C.
Report of Independent Accountants......................... 15
Report of Independent Public Accountants.................. 16
Consolidated Statements of Operations..................... 17
Consolidated Balance Sheets............................... 18
Consolidated Statements of Cash Flows..................... 19
Consolidated Statements of Members' Capital............... 20
Notes to Consolidated Financial Statements................ 21
FINANCIAL STATEMENTS OF COGEN TECHNOLOGIES LINDEN VENTURE,
L.P.
Report of Independent Accountants......................... 38
Report of Independent Public Accountants.................. 39
Statements of Operations.................................. 40
Balance Sheets............................................ 41
Statements of Cash Flows.................................. 42
Statements of Partners' Capital........................... 43
Notes to Financial Statements............................. 44

14

REPORT OF INDEPENDENT ACCOUNTANTS

To the Members of East Coast Power L.L.C.:

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of East Coast Power L.L.C. and its subsidiaries at December 31, 2001,
and the results of their operations and their cash flows for the year then ended
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements of
the Company as of December 31, 2000 and 1999 and for the year ended December 31,
2000 and for the period from inception (February 4, 1999) to December 31, 1999
were audited by other independent accountants whose report dated March 15, 2001
expressed an unqualified opinion on those statements.

As discussed in Notes 2 and 8, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, on January 1, 2001.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
March 28, 2002

15

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To East Coast Power L.L.C.:

We have audited the accompanying consolidated balance sheets of East Coast
Power L.L.C. (a Delaware limited liability company) and subsidiaries as of
December 31, 2000, and the related consolidated statements of operations,
members' equity and cash flows for the year ended December 31, 2000 and for the
period from February 4, 1999 to December 31, 1999. These financial statements
are the responsibility of the Company'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 from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. 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 East Coast
Power L.L.C. and subsidiaries as of December 31, 2000, and the results of their
operations and their cash flows for the year ended December 31, 2000 and for the
period from February 4, 1999 to December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
March 15, 2001

16

EAST COAST POWER L.L.C.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS)

See accompanying notes.

17

EAST COAST POWER L.L.C.

CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

See accompanying notes.

18

EAST COAST POWER L.L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

See accompanying notes.

19

EAST COAST POWER L.L.C.

CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
(IN MILLIONS)

See accompanying notes.

20

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND NATURE OF OPERATIONS

We are a Delaware limited liability company formed in December 1998. We are
owned by three members: Mesquite Investors, L.L.C. directly owns 98.01 percent
of the membership interests in us; Bonneville Pacific Corporation, a wholly
owned subsidiary of Mesquite Investors, owns 0.99 percent of the membership
interests in us; and East Coast Power Holding Company, L.L.C., which is
indirectly owned by Enron Corporation, owns a 1 percent non-voting preferred
membership interest in us. Mesquite Investors obtained its ownership in us
through a series of transactions consummated in 1999 and 2001.

Since the rating on the senior subordinated notes at the time Mesquite
Investors and its subsidiary became the owners of common membership interests in
us with a combined 99 percent sharing ratio was at least as high as the rating
of the notes on the issue date and the ratings agencies confirmed that a rating
downgrade would not result, a change of control, as defined in the indenture,
did not result when Mesquite Investors and its subsidiaries became our owners.

Our sole business is the ownership, operation and potential expansion of
the three power generation facilities that we acquired in February 1999 which
are located in Linden, Camden and Bayonne, New Jersey. We also have a facility
that was under construction in Linden. We had no assets or liabilities and
conducted no operations prior to February 1999.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

Our consolidated financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States. All intercompany accounts and transactions between the
consolidated entities have been eliminated. The prior period financial
statements also include reclassifications which were made to conform to the
current period presentation. These reclassifications had no effect on our
reported net loss or members' capital.

Our investment in Linden Venture is recorded net of excess cost
amortization and is accounted for using the equity method of accounting for all
reporting periods since we have significant influence over, but do not control,
the venture's operations. Our investments in the Camden and Bayonne Ventures
were accounted for under the equity method for the periods ended December 31,
2000 and 1999. We acquired all of the interests in these ventures in 2001, and
therefore, the accounts and results of operations of Camden Venture and Bayonne
Venture have been consolidated in our financial statements since the acquisition
dates.

Cash and Cash Equivalents

We consider short-term investments with original maturities of three months
or less to be cash equivalents.

Restricted Cash

At December 31, 2001, $12.3 million and, at December 31, 2000, $12.7
million of our cash was restricted either to service the debt of Cogen
Technologies Linden Ltd., Linden Venture's managing general partner and our
wholly-owned subsidiary or, if necessary, to make working capital loans to
Linden Venture.

Use of Estimates

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

21

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Allowance for Doubtful Accounts

We establish provisions for losses on accounts receivable if we determine
that we will not collect all or part of the outstanding balance. We regularly
review collectibility and establish or adjust our allowance as necessary using
the specific identification method.

Inventory

Inventory consists of spare parts and kerosene and is valued at the lower
of cost or market. The cost of operational spares and kerosene is determined
using the average cost method.

Property, Plant and Equipment

Our property, plant and equipment is stated at the historical cost of the
assets. Historical costs include all direct costs of the facility, as well as
indirect charges, including capitalized interest costs on debt. Betterments of
major units of property are capitalized, while replacements or additional minor
units of property are expensed. Depreciation on our plant, plant improvements
and capital spares is computed using the straight-line method based on an
estimated useful life of 30 years and an estimated 10 percent salvage value.
Furniture and equipment is depreciated over 5 years with no assumed salvage
value. We believe that the use of the straight-line method is adequate to
allocate the costs of the properties over their estimated useful lives.

We evaluate the impairment of property, plant, and equipment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

Major Maintenance

Our major maintenance costs are expensed as incurred. We schedule
systematic planned outages for major plant overhauls in advance over the
remaining estimated life of the facility. These outages vary in complexity and
duration. As a result, the expenses incurred may vary significantly from year to
year.

Debt Premium

Our subsidiary, Linden Ltd., has long-term debt that is recorded at a
premium. The premium is a result of the debt being adjusted to fair value due to
our acquisition of Linden, Ltd. in February 1999 and is being amortized using
the effective interest method over the term of the debt. Amortization of the
debt premium was approximately $0.7 million during 2001, $0.8 million during
2000, and $0.6 million during 1999.

Revenue Recognition

We recognize revenue when we deliver energy and provide capacity. Revenue
is based on the quantity of capacity provided and energy delivered at rates
specified under contractual terms.

Intangible Assets

Our intangible assets represent the value that was assigned to our power
purchase agreement at Bayonne Venture with Jersey Central Power as a result of
our acquisition of the outstanding partnership interest at Bayonne Venture. The
intangible assets are amortized ratably as we recognize revenue under the power
purchase agreement. During 2001, we recognized $18.4 million of amortization of
our intangible assets. We evaluate the impairment of the intangible assets in
accordance with SFAS No. 121. Under this methodology, when an event occurs that
suggests that an impairment may have occurred, we evaluate the undiscounted net
cash flows of the asset to which the intangible assets relates. If these cash
flows are not sufficient to recover the

22

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

value of the asset, these cash flows are discounted at a risk-adjusted rate with
any difference recorded as a charge to income.

Income Taxes

As limited liability companies and partnerships, we are not subject to
state or federal income taxes. Such taxes accrue to our members and,
accordingly, they have not been recognized in our consolidated financial
statements.

Environmental Costs

We may be exposed to environmental costs in the ordinary course of
business. Expenditures for ongoing compliance with environmental regulations
that relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations, taking into consideration
the likely effects of inflation and other societal and economic factors, and
include estimates of associated legal costs. These amounts also consider prior
experience in remediating contaminated sites, other companies' clean up
experience and data released by the Environmental Protection Agency or other
organizations. These estimated liabilities are subject to revision in future
periods based on actual costs or new circumstances, and are included in the
balance sheet at their undiscounted amounts. As of December 31, 2001 and 2000,
no known material environmental liabilities exist.

Derivative Instruments

Effective January 1, 2001, we began recording all derivative instruments at
their fair value under the provisions of SFAS No. 133, Accounting for
Derivatives Instruments and Hedging Activities as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities.

During the normal course of business, we may enter into contracts that
qualify as derivatives under the provisions of SFAS No. 133. As a result, we
evaluate our contracts to determine whether derivative accounting is
appropriate. Contracts that meet the criteria of a derivative and qualify as
"normal purchases" and "normal sales", as those terms are defined in SFAS No.
133, may be excluded from SFAS No. 133 treatment.

Prior to January 1, 2001, we accounted for our derivatives using hedge
accounting only if the derivative reduced the risk of the underlying hedged
item, was designated as a hedge at its inception, and was expected to result in
financial impacts which were inversely correlated to those of the items being
hedged. When the correlation ceased to exist, we terminated hedge accounting and
mark to market accounting was applied. As the hedged item liquidated, the
settlement of the derivative was recognized as an increase or decrease to the
income classification of the item being hedged.

New Accounting Pronouncements Not Yet Adopted

Accounting for Asset Retirement Obligations.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement requires companies to record a liability
relating to the retirement and removal of assets used in their business. The
liability is discounted to its present value, and the related asset value is
increased by the amount of the resulting liability. Over the life of the asset,
the liability will be accreted to its future value and eventually extinguished
when the asset is taken out of service. The provisions of this statement are
effective for fiscal years beginning after June 15, 2002. We are currently
evaluating the effects of this pronouncement.
23

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accounting for the Impairment or Disposal of Long-Lived Assets.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell. The standard also expanded the scope
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001. We are currently evaluating the effects of
this pronouncement.

Derivatives Implementation Group Issue C-16.

In September 2001, the Derivatives Implementation Group of the FASB cleared
guidance on Issue C-16, Scope Exceptions: Applying the Normal Purchases and
Normal Sales Exception to Contracts that Combine a Forward Contract and a
Purchased Option Contract. This guidance impacts the accounting for fuel supply
contracts that require delivery of a contractual minimum quantity of a fuel
other than electricity at a fixed price and have an option that permits the
holder to take specified additional amounts of fuel at the same fixed price at
various times. We use fuel supply contracts such as these in our power producing
operations and currently do not reflect them in our balance sheet since they are
considered normal purchases that are not classified as derivative instruments
under SFAS No. 133. This guidance becomes effective in the second quarter of
2002, and we may be required to account for these contracts as derivative
instruments under SFAS No. 133. We are currently evaluating the impact of this
guidance.

(3) INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The following table reflects our investments in unconsolidated affiliates
as of December 31, 2001 and 2000 (in millions):

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

(1) In November 2001, we acquired the remaining interest and began consolidating
the venture.

(2) In March 2001, we acquired the remaining 7.875 percent partnership interest
and began consolidating the venture.

Our earnings (loss) from unconsolidated affiliates (net of excess cost
amortization) for 2001, 2000 and 1999 were as follows (in millions):

Included in our investment balance is unamortized excess cost over our
share of underlying venture capital totaling $674.2 million as of December 31,
2001, $1,046.7 million as of December 31, 2000 and $1,125.5 million as of
December 31, 1999. These excess costs arose as a result of our acquisition of
these ventures in February 1999, and are being amortized using the straight line
method over the life of each venture's power purchase agreement. Amortization of
these amounts was $60.2 million for the year ended

24

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2001, $78.8 million for the year ended December 31, 2000 and for
the period from inception to December 31, 1999, it was $72.3 million.

The following table presents summary balance sheet and income statement
information for our unconsolidated affiliates as of and for each of the periods
ended December 31 (in millions):

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

(1) In March 2001 and November 2001, we acquired the remaining interests in
Bayonne and Camden Venture, respectively. As a result of these acquisitions,
we began consolidating the results of Bayonne and Camden in our consolidated
financial statements.

The preceding financial data is shown at historical cost and does not
reflect any of the excess, or amortization of, purchase price we paid when we
acquired these ventures.

Our unconsolidated affiliates distribute cash and allocate income to us
according to the terms of their individual partnership agreements. During the
years ended December 31, 2001 and 2000, distributions from our unconsolidated
affiliates were $142.1 million and $150.3 million and for the period from
inception (February 4, 1999) to December 31, 1999 total distributions were
$117.2 million.

(4) INVENTORY

Our inventory reported on our balance sheet as of December 31, 2001 is as
follows (in millions):

25

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) BAYONNE AND CAMDEN ACQUISITIONS AND RESTRUCTURINGS

Acquisitions

In March 2001, we acquired the remaining 7.875 percent partnership
interests in Bayonne Venture from unaffiliated parties for $24.0 million in
cash. As a result, we are the sole owner of Bayonne Venture, whose financial
statements were consolidated beginning March 13, 2001. We financed these
acquisitions primarily through cash contributions from Mesquite Investors and
Bonneville Pacific.

In November 2001, we contributed $101.6 million to Camden Venture and
Camden Venture redeemed its remaining partnership interests from an unaffiliated
party for $71.7 million in cash and paid $29.9 million to retire its debt.
Through this transaction, we effectively acquired the remaining interests in
Camden Venture and, as a result, we began consolidating Camden Venture from the
acquisition date, December 1, 2001.

Had all the transactions to acquire the remaining partnership interests in
the ventures been effective as of January 1, (or February 4 for the 1999 period)
the proforma revenue and net loss for the periods ended December 31 would have
been (in millions):

These acquisitions were accounted for as purchases and the purchase price
was assigned to the assets and liabilities acquired based upon their estimated
fair value as of the acquisition date. The following is summary information
related to the acquisitions (in millions).

Fair value of assets acquired............................... $ 242.3
Fair value of liabilities assumed........................... (116.7)
-------
Cash paid................................................... 125.6
Less cash acquired.......................................... (15.6)
-------
Net purchase price.......................................... $ 110.0
=======

Restructuring of Camden and Bayonne Power Purchase Agreements

On May 23, 2001, we reached an agreement to restructure the long-term power
purchase agreements with Public Service Electric at our Camden Venture and
Bayonne Venture. On July 19, 2001, the New Jersey Board approved the
restructurings, and we received written approval on July 27, 2001. This order
became final and non-appealable on September 11, 2001 and the restructuring was
completed on December 12, 2001.

In the restructuring, we distributed the Bayonne Venture and Camden Venture
power purchase agreements with Public Service Electric, which had a book value
of approximately $233.7 million, to our common members, Bonneville Pacific
Corporation and Mesquite Investors, L.L.C. In addition, our Camden Venture and
Bayonne Venture facilities were released from their obligations under their
power purchase agreements with Public Service Electric. Camden Venture began
operations under an agreement with El Paso Merchant on December 13, 2001.
Additionally, Bayonne Venture began operations under an agreement with El Paso
Merchant on December 13, 2001 for approximately 24 percent of the electric
energy produced by the Bayonne facility that had been purchased by Public
Service Electric. As a result of our power purchase agreement restructurings and
the changes in the operations of these ventures following restructuring, we
reevaluated the carrying amount of our plant assets and recorded an impairment
charge of $62.8 million on our

26

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Camden facility and $4.5 million on our Bayonne facility to report these assets
at their estimated fair values. These charges are reflected in our consolidated
statement of operations as a component of operating expenses. The estimated fair
value of our plants are based on sales data on similar plants adjusted for
liquidity in the marketplace and locational differences.

In conjunction with the restructurings, we retired $44.7 million of Camden
Venture debt and $55.1 million of Bayonne Venture debt. We also incurred
extraordinary costs of $13.8 million at Bayonne Venture and our unconsolidated
affiliate Camden Venture incurred extraordinary costs of $10.1 million related
to the early extinguishment of debt. These costs have been reported as
extraordinary items in our statement of operations.

The restructurings constituted a power contract buyout under the indenture
executed in connection with our notes (see Note 7). We received confirmation
from the ratings agencies that the restructurings did not cause a rating
downgrade provided that we redeem a portion of our notes. Consequently, we
executed a mandatory redemption of $176.4 million of our notes. On November 9,
2001, we provided a notice of redemption to the trustee and the redemption was
completed on December 12, 2001.

(6) INTERIM OPERATING AGREEMENTS

Camden

During 2000, Camden Venture entered into an interim operating agreement
with Public Service Electric. Under this agreement, Camden Venture agreed to
shut down the facility from November 1, 2000 through May 31, 2001 to allow
Public Service Electric to resell the gas otherwise provided to the facility
under the
gas service agreement. In return, Camden Venture realized an energy and capacity
payment equal to 149 megawatts per hour, every hour, for the term of the
agreement plus 50 percent of the savings realized by Public Service Electric in
this transaction. Revenues, as a result of the interim operating agreements,
were approximately $1.7 million from November 1, 2000 to December 31, 2000 and
$2.9 million from January 1, 2001 through May 31, 2001.

Bayonne

In January 2001, Bayonne Venture entered into interim operating agreements
with Public Service Electric and Jersey Central Power to reduce its electricity
amounts generated. Under these agreements, Public Service Electric agreed to
accept 100 percent of the electricity generated (up to approximately 45
megawatts). The term of the interim operating agreement was from January 21,
2001 through May 31, 2001. As an incentive to enter into this agreement, Public
Service Electric agreed to accept payment of $1.8 million. In addition, Public
Service Electric agreed to waive any variable demand-wheeling charges
(approximately $40,000 per month) it would have otherwise collected from Bayonne
Venture to wheel electricity to Jersey Central Power. Jersey Central Power, in
its interim operating agreement, agreed not to accept any generation from
Bayonne Venture in return for a 5 percent discount off future power purchase
agreement rates. Bayonne Venture rebated Jersey Central Power for the value of
the power it would have otherwise provided (125 megawatts) at wholesale market
rates known as day-ahead location marginal pricing in the Pennsylvania Jersey
Maryland system. In order to manage this price risk, Bayonne Venture also
entered into an electricity price swap agreement with El Paso Merchant to
receive a floating electricity rate, which was derived from the power purchase
agreement, and pay a fixed rate which settled monthly. The electricity price
swap expired on May 31, 2001, and Bayonne Venture recognized a $1.4 million loss
from the swap. Revenues, as a result of the interim operating agreement, were
approximately $31.6 million in 2001.

27

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) DEBT AND FINANCING TRANSACTIONS

Debt at December 31 consisted of the following (in millions of dollars):

The following are aggregate maturities of the principal amounts of our debt
for the next five years and in total thereafter:

Senior Secured Notes

Our senior secured notes consist of three tranches as follows: $296.0
million of 6.737% notes due 2008, $236.0 million of 7.066% notes due 2012 and
$318.0 million of 7.536% notes due 2017. The 2008 notes are repayable beginning
on June 30, 1999 with the final payment due March 31, 2008. The 2012 notes are
repayable beginning on March 31, 2008 with the final payment due March 31, 2012.
The 2017 notes are repayable beginning on March 31, 2012 with the final payment
due June 30, 2017. Interest on the notes is payable quarterly.

The notes are senior secured obligations which rank senior to all existing
and future subordinated indebtedness; rank pari passu in right of payment with
all existing and future senior secured indebtedness; and are structurally
subordinated to all indebtedness and other liabilities, including trade
payables, of our subsidiaries and to the distribution rights of minority
partners in the ventures. The notes are collateralized by the pledge by our
owners of their interest in us and the pledge by us of our ownership interests
in the facilities.

The notes may be redeemed at any time at a redemption price that includes a
make-whole premium based on comparable treasury securities plus 50 basis points.
The notes are mandatorily redeemable at prices specified in the indenture upon
the occurrence of certain events, including certain loss events or, power
contract buyouts. The notes may be redeemed upon a change in control of our
company. In addition, the terms of the notes limit our ability to pay dividends,
incur additional indebtedness, make payments on subordinated debt and make
certain other restricted payments. The terms of the notes also require us to
maintain compliance with certain financial covenants, which we believe we
currently meet.

Subordinated Note with Affiliates

We have a subordinated note payable with affiliates totaling $250.0
million. On April 20, 1999 we repaid $62.1 million of the principal amount of
the subordinated note with a portion of the proceeds from the sale of

28

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the senior secured notes. The prepayment reduced the required principal payments
on a pro rata basis. Amounts outstanding under the subordinated note bear
interest at 9% per annum and interest is payable quarterly. The principal amount
is repayable in 32 installments of varying amounts beginning March 31, 2008,
with the final payment due on December 31, 2015. The subordinated note is
subordinated to the senior secured notes.

The subordinated note contains provisions that allow the lenders to assign
all or a portion of their interest in the loan to third parties. In the event of
such an assignment the lenders may, in consultation with us, adjust the interest
rate and term and other terms and provisions of the agreement, other than the
aggregate principal amount of the loan, to achieve an assignment, which is
satisfactory to the lenders. The subordinated note also contains provisions
that, among other things, may limit our ability to make distributions to our
members. We believe we are in compliance with the terms and conditions of the
note.

Linden Ltd. Term Loan

Our subsidiary, Linden Ltd., has a $250.0 million term loan with General
Electric Capital Corporation which matures in September 2007. At December 31,
2001, $158.7 million was outstanding under the Linden Ltd. term loan comprised
of a fixed rate portion ($71.2 million), a floating rate portion ($77.4 million)
and a working capital portion ($10.0 million). Under the terms of the Linden
Ltd. term loan, the fixed rate portion bears interest at 8.80%, the floating
rate portion bears interest at the London Interbank Offered Rate plus 1.65% and
the working capital portion bears interest at a one month financial commercial
paper rate plus 0.55%. The premium balance of approximately $2.1 million is
being amortized using the effective interest method resulting in an effective
interest rate of 6.61% at December 31, 2001 and 7.80% at December 31, 2000.
Principal and interest payments are made quarterly. Borrowings under the
agreement are collateralized by Linden Ltd.'s interest in Linden Venture. The
agreement limits or prohibits, among other things, the ability of Linden Ltd. to
incur additional indebtedness, pay distributions, make investments, engage in
additional transactions with affiliates, create liens, sell assets and engage in
acquisitions, mergers and consolidations. We believe we are in compliance with
the terms and conditions of this loan agreement.

(8) DERIVATIVE FINANCIAL INSTRUMENTS

On January 1, 2001, we adopted the provisions of SFAS No. 133 and recorded
a cumulative effect transition adjustment of $0.1 million in other comprehensive
income. The initial charge was related to an interest rate swap on the Camden
Venture.

Camden Venture entered into an interest rate swap to effectively hedge
$81.6 million of debt at a fixed rate of 5.945%. The swap was designated as a
cash flow hedge. During 2001, the unrealized loss on the swap increased by $2.2
million. In November 2001 we terminated the swap and paid $2.3 million to
General Electric Capital. This realized loss was reported as interest expense.

(9) RELATED PARTY TRANSACTIONS

Effective as of April 1, 2001, we entered into the administrative and gas
services support agreement with El Paso Merchant to provide gas management,
administrative, accounting and finance services to us. The administrative and
gas services support agreement originally provides for an annual fee of $3.6
million adjusted annually for increases in the Consumer Price Index and is
renewed annually.

During the year ended December 31, 2001, Linden Venture sold inventory to
related parties for approximately $0.6 million and purchased inventory from
related parties for approximately $0.6 million. Linden Venture did not recognize
any gains or losses on these transactions. Additionally, during the year ended
December 31, 1999, Linden Venture sold inventory to related parties for
approximately $0.8 million and recognized a gain of $0.3 million on those sales.

29

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the year ended December 31, 2001, Camden Venture sold inventory to
related parties for approximately $0.6 million and purchased inventory from
related parties for approximately $0.6 million. Camden Venture did not recognize
any gains or losses on these transactions. Additionally, during the years ended
December 31, 2000 and 1999, Camden Venture sold inventory to related parties for
approximately $0.4 million and $0.3 million, respectively, and recognized a gain
of $0.1 million and $0.3 million, respectively, on those sales.

El Paso Corporation, an affiliate, has also provided several letters of
credit for our benefit. In connection with the acquisition on February 4, 1999
and at the request of an affiliate, Bank of America issued two letters of credit
on behalf of us: (i) a $22.25 million letter of credit issued to the lenders
under the Linden Ltd. term loan which collateralizes the obligations under that
loan; and (ii) a $4.3 million letter of credit issued to Public Service Electric
which collateralizes certain obligations pursuant to Bayonne Venture's power
purchase agreement. In connection with the restructuring at Bayonne Venture, the
$4.3 million letter of credit has been terminated.

See Note 10 for additional related party transactions.

(10) COMMITMENTS AND CONTINGENCIES

Linden 6 Expansion Project

During February 2000, we entered into an energy services agreement with
Tosco Refining L.P., a subsidiary of Tosco Corporation, under which we are
required to construct, own and operate the Linden expansion facility, a 172
megawatt cogeneration facility on part of the existing Linden site under a
sublease entered into with Linden Venture.

We were required to pay Tosco liquidated damages if the Linden 6 expansion
was not in service by January 27, 2002 which date was extended from January 23,
2002 by virtue of excusable delays. Our engineering, procurement and
construction agreement with National Energy Production Corporation, an affiliate
of Enron, provided for liquidated damages in the event the completion of the
expansion did not occur by late October 2001. Completion of the facility was
delayed. The Linden 6 expansion began commercial operations on January 25, 2002.
Due to the Enron bankruptcy, the engineering, procurement and construction
contract was amended to allow us to pay National Energy Production
subcontractors directly, and we are precluded from collecting liquidated damages
from National Energy Production until the earlier of their bankruptcy or April
30, 2002. We have fully reserved the $2.2 million receivable from National
Energy Production related to the completion delay of the facility.

Total expenditures for the Linden expansion were recorded as construction
in progress on our balance sheet and were $110.8 million as of December 31, 2001
and $72.9 million as of December 31, 2000. As part of the construction costs, we
capitalized interest of $9.4 million as of December 31, 2001 and $3.5 million as
of December 31, 2000.

In connection with obtaining the consent of the Linden Venture partners and
lenders for the transactions contemplated by the energy services agreement, we
have indemnified Linden Venture from any and all losses that may be incurred as
a result of the Linden 6 expansion. El Paso Corporation, our affiliate,
guaranteed our obligations under this indemnity in an aggregate amount of $15.0
million.

Commitments

Prior to the extinguishment of debt at Bayonne Venture and Camden Venture,
all of our property, rights, titles and interest were pledged as collateral for
the term loan and certain obligations under the power purchase agreements with
Public Service Electric. These commitments no longer exist as of December 2001
effective upon the extinguishment of debt.

30

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Standby Letters of Credit

General Electric Capital had provided a letter of credit under the power
purchase agreement for us to collateralize certain obligations under the first
tranche of the term loan. The letter of credit was canceled as a result of the
Camden Venture power purchase agreement restructuring.

A bank provided a $4.3 million letter of credit for Bayonne Venture to
collateralize certain obligations with Public Service Electric. No amounts were
drawn under the letter of credit and in connection with the restructuring at
Bayonne (see Note 5), the letter of credit has been terminated.

Under our loan agreements and other commercial commitments, we maintain
letters of credit in the amount of $64.5 million as of December 31, 2001. No
amounts have been drawn under these letters of credit.

Operations and Maintenance Agreement -- Camden Venture

In 1997, Camden Venture entered into an operations and maintenance
agreement with General Electric to operate and maintain the facility. This
agreement has a twelve-year term expiring in 2009. The agreement provides for
all operations and maintenance for the facility at direct cost plus a minimum
fee of approximately $16,000 per month and the payment of bonuses if certain
operating targets are met, both of which are escalated by the Consumer Price
Index. Operation and maintenance expenses recognized pursuant to the terms of
this agreement were approximately $2.5 million in 2001, 2000 and 1999. Included
in such amounts are bonuses paid under the terms of the agreement of $0.2
million for the year ended December 31, 2001 and $0.1 million for the years
ended December 31, 2000 and 1999.

Power Purchase Agreement -- Camden Venture

Camden Venture's electrical capacity was sold to Public Service Electric
pursuant to a 20-year power purchase agreement, which was to expire in March
2013. The agreement provided for payments to Camden Venture consisting of a
capacity payment during "on peak" months plus an energy payment, which included
a fixed component plus factors for inflation and fuel costs. On December 12,
2001, Camden Venture distributed the power purchase agreement with Public
Service Electric to us. This distribution was done in connection with the power
purchase agreement restructuring in which Camden Venture's facility was released
from its obligations under the power purchase agreement with Public Service
Electric. Effective December 13, 2001, Camden Venture qualified as an exempt
wholesale generator under the Energy Policy Act of 1992, rather than a
qualifying facility under the Public Utility Regulatory Policies Act of 1978.

The new Camden Venture power purchase agreement with El Paso Merchant is
effective December 13, 2001 through March 5, 2013. Under the agreement, Camden
Venture provides El Paso Merchant (at Merchant Energy's option) with all energy
produced by the facility. The quantity of such energy is approximately 125 MW of
energy per hour during the months of June through September (the Summer Period);
approximately 130 MW of energy per hour during the months of October through May
(the Winter Period), (collectively Primary Energy); and during any month of the
year, approximately 20 MW of additional energy per hour (Peaking Energy) will be
available to be scheduled. The agreement provides for payments for three
components: (1) a monthly reservation fee equal to the product of (a) $6,900/MW
which escalates by 1.25 percent annually and (b) 145 MW during the Summer Period
or 150 MW during the Winter Period, as applicable; (2) an energy component for
each MWh of Primary Energy, an amount equal to the sum of (a) the product of (i)
the Gas Daily midpoint price plus $.02 per MMBtu for the day during which the
Primary Energy was delivered and (ii) a heat rate conversion factor of 8.7
(MMBtu/MWh) during the Summer Period or 8.2 (MMBtu/MWh) during the Winter
Period, as applicable, and (b) $2.60 per MWh which escalates by 4.0 percent
annually and, for each MWh of Peaking Energy, an amount equal to the sum of (i)
the product of (x) the Gas Daily midpoint price plus $.02 per MMBtu for the day
during which the Peaking Energy was delivered and (y) a heat rate conversion
factor of 12.0 (MMBtu/MWh) and (ii) $1.20

31

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

per MWh which escalates by 2.5 percent annually and (3) a start up cost
component equal to the sum of (a) the product of (i) 1,800 MMBtus and (ii) the
Gas Daily midpoint price per MMBtu for such day plus $.02 per MMBtu and (b)
$6,000.00 which escalates by 4.0 percent annually. Total electricity revenues
under this agreement for the years ended December 31, 2001, 2000, and 1999 are
$102.6 million, $94.7 million and $73.4 million, respectively.

The power purchase agreements qualify for the "normal sales" exclusion
under SFAS No. 133 and, accordingly, are not accounted for as derivative
instruments. We evaluate the agreements on an annual basis to verify that the
exclusion continues to apply.

Gas Services Agreement -- Camden Venture

Camden Venture had contracted with Public Service Electric for delivery of
our natural gas supply from the Gulf Coast to our facility through March 2013.
This agreement expired on December 12, 2001 as a result of our power purchase
agreement restructuring. Post restructuring, Camden Venture has a gas services
agreement with Public Service Electric which requires Public Service Electric to
provide firm transportation within their system for 30,000 million British
thermal units of natural gas per day to Camden Venture at published tariff
rates. We also contracted with El Paso Merchant on December 13, 2001 to manage
our fuel. Both of these agreements terminate March 5, 2013. Included in fuel
expenses during 2001, 2000, and 1999 are $57.8 million, $52.3 million and $32.6
million, respectively, recognized under these agreements.

Steam Sale Agreement -- Camden Venture

Camden Venture entered into an agreement on October 31, 2000, to provide
steam to MAFCO Worldwide Corporation which was to expire on March 5, 2013, with
two five-year renewal periods subject to approval of both parties. Under the
terms of the agreement, Camden Venture was to deliver all steam required by
MAFCO for its use in its industrial process unless such steam delivery
interfered with Camden Venture's operations. Camden Venture terminated the MAFCO
steam agreement on December 15, 2001 and has no further steam obligations. Total
steam revenues under this agreement for the year ended December 31, 2001 are
$0.2 million. Camden Venture has no revenues from steam sales for the years
ended December 31, 2000 and 1999.

Electricity Sale Agreements -- Bayonne Venture

Bayonne Venture sells approximately 76 percent of its electric capacity to
Jersey Central Power under a 20-year power purchase agreement that expires in
2008. The agreement establishes the sales price of the electric energy based on
a fixed rate component plus factors for inflation and Jersey Central Power's
cost of natural gas and retail sales prices. The remainder of Bayonne Venture's
output was sold to Public Service Electric pursuant to a 20-year power purchase
agreement that expired in 2008. On December 12, 2001, we distributed the power
purchase agreement with Public Service Electric to our members. See Note 5 for a
further discussion.

Bayonne Venture entered into a new electricity sale agreement with El Paso
Merchant effective December 13, 2001 and terminating on December 31, 2003. This
agreement provides for energy payments based on 24.2 percent of total plant
generation, or approximately 40 MW annually, at $35.00 per megawatt hour. Total
electricity revenues under these agreements for the years ended December 31,
2001, 2000, and 1999 are $119.8 million, $107.9 million and $106.0 million,
respectively.

The electricity sale agreements qualify for the "normal sales" exclusion
under SFAS No. 133 and, accordingly, are not accounted for as derivative
instruments. We evaluate the agreements on an annual basis to verify that the
exclusion continues to apply.

32

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Transmission and Interconnection Agreement -- Bayonne Venture

Bayonne Venture and Public Service Electric entered into a revised
transmission service and interconnection agreement on April 27, 1987. Public
Service Electric agreed to design, construct, own and operate a 138-kilovolt
underground transmission cable circuit and associated terminal facilities to
connect the facility with Public Service Electric's Public Service System at
Public Service Electric's Bayonne Switching Station. The initial term of the
agreement is 20 years. Included in operation and maintenance expense for 2001,
2000, and 1999 is approximately $1.4 million, $1.5 million and $1.6 million,
respectively, recognized pursuant to this agreement.

Steam Sales Agreements -- Bayonne Venture

Bayonne Venture entered into an agreement for the sale of steam and
electricity with International-Matex Tank Terminals on June 13, 1985, which was
amended on May 22, 1986. The International-Matex Steam Sale Agreement provided
for the sale of 100 percent of steam needs at its tank terminal facility and, at
Bayonne Venture's option, the sale of electricity. The International-Matex Steam
Sale Agreement has a base term of 10 years, which has expired, with automatic
renewal thereafter for each following year unless either party elects to
terminate the agreement at the end of a renewal year upon 60 days' notice.
International-Matex agreed to purchase from Bayonne Venture all of the thermal
energy requirements of its tank terminal facility up to the deemed maximum steam
production of 57,000 lbs/hour according to a pricing formula based on
International-Matex avoided cost of steam.

Bayonne Venture and Exxon entered into an agreement for the sale of steam
(the Exxon Steam Sale Agreement) on February 27, 1987, which was amended on
August 21, 1988. Under the terms of the Exxon Steam Sale Agreement, Exxon agreed
to purchase from the facility an average of 50,000 lbs/hour of steam on an
annualized basis. The Exxon Steam Sale Agreement provides for an initial term of
five years. Thereafter, the Exxon Steam Sale Agreement continues on a
year-to-year basis unless either party exercises its right to terminate as
provided in the Exxon Steam Sale Agreement. The Exxon Steam Sale Agreement would
then terminate one year after the notice or at an earlier date upon which the
parties mutually agree. Exxon used the steam at its adjacent terminal facility
for industrial purposes. Exxon sold its terminal facility in Bayonne to IMTT-BX
on April 1, 1993. As a result, IMTT-BX assumed Exxon's rights and obligations
under the Exxon Steam Sale Agreement and is currently performing under the
agreement. Total steam revenues for the years ended December 31, 2001, 2000, and
1999 are $7.1 million, $6.5 million and $3.8 million, respectively.

Gas Services Agreement -- Bayonne Venture

Bayonne Venture has a gas services agreement with Public Service Electric
under which Public Service Electric provides firm transportation for 35,000
million British thermal units of natural gas per day. We also contracted with El
Paso Merchant to manage the venture's fuel supply through October 31, 2008.
Included in fuel expenses for 2001, 2000, and 1999 are $43.3 million, $59.6
million and $41.0 million, respectively, recognized pursuant to this agreement.

Site Lease Agreement -- Bayonne Venture

Bayonne Venture entered into a ground lease agreement with
International-Matex and Bayonne Industries, Inc., dated as of May 22, 1986, with
respect to the facility site within the International-Matex facility. This lease
provides us with both a leasehold estate in the Bayonne site and nonexclusive
easements over other portions of Bayonne Industries' property for various
interconnections to the facility.

The initial term of the Bayonne site lease is 20 years and expires in May
2006. The Bayonne site lease will automatically renew after expiration of the
initial term, for two succeeding terms, the first for two years and

33

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the second for 10 years, unless Bayonne Venture elects to terminate the lease.
Base rent for the facility is prepaid for 20 years.

Kerosene Tank Lease Agreement -- Bayonne Venture

Bayonne Venture entered into a kerosene tank lease agreement dated as of
May 15, 1994 with International-Matex. The kerosene tank lease provides for the
storage of K-1/55 grade kerosene.

The initial term of the kerosene tank lease is 14 years and expires in May
2008. Included in operation and maintenance expense for 2001, 2000 and 1999, is
approximately $0.2 million recognized pursuant to the terms of this agreement.
Annual minimum lease payments are $0.2 million and are escalated annually on May
15 by a consumer price index adjustment.

Operations and Maintenance Agreement -- Bayonne Venture

Bayonne Venture has entered into an operations and maintenance agreement
with General Electric to operate and maintain the facility for an initial term
of 12 years. The agreement provides for all operations and maintenance of the
facility at direct costs plus a minimum fee of $16,000 per month and the payment
of bonuses if certain operating targets are met. Bayonne Venture has recorded
$3.0 million for the year ended December 31, 2001, $2.9 million for the year
ended December 31, 2000 and $3.0 million for the year ended December 31, 1999 in
operation and maintenance expenses pursuant to the terms of this agreement.
Included in such amounts are bonuses paid under the terms of the agreement of
approximately $0.2 million, $0.1 million and $0.1 million for the years ended
December 31, 2001, 2000 and 1999.

Litigation

On June 20, 2000, Infineum USA L.P. filed an action against Linden Venture
in the United States District Court of New Jersey seeking actual and punitive
damages. The suit claims that Linden Venture tortuously interfered with Infineum
USA's ability to sell steam purchased from the Linden facility to Bayway
Refining Company, and that such interference is in violation of the federal and
New Jersey antitrust laws and in breach of Linden Venture's agreement with
Infineum USA. Linden Venture filed an answer and counterclaim on September 26,
2000. On December 21, 2001, the court denied Linden Venture's motion to dismiss
on lack of antitrust grounds. Discovery is now proceeding. No trial date has
been set.

For each of our legal matters, we evaluate the merits of each case, our
exposure to the matter and possible legal or settlement strategies and the
likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we make the necessary accruals. If new
information becomes available, our estimates may change. The impact of these
changes may have a material effect on our results of operations. As of December
31, 2001, we recorded $1.6 million for all outstanding legal matters. While the
outcome of such proceedings cannot be predicted with certainty, we do not expect
these matters to have a material adverse effect on our financial statements.

(11) MEMBERS' CAPITAL

As a result of Mesquite Investors obtaining control of us through a series
of transactions on February 22, 2001 and February 23, 2001, all Class A
interests were converted to common and non-voting preferred interests.

On December 12, 2001, we distributed the Bayonne Venture and Camden Venture
power purchase agreements with Public Service Electric, which had a book value
of approximately $233.7 million, to our common members, Bonneville Pacific
Corporation and Mesquite Inventors, L.L.C. This distribution was done in
connection with a power agreement restructuring in accordance with the terms of
our indenture.

34

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the years ended December 31, 2001, 2000 and 1999, we received
contributions from our members of $439.0 million, $42.8 million and $105.0
million. These contributions were made to fund our operating and investing
activities.

(12) MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Major Customers

Operating revenues in 2001 were primarily generated from four customers
pursuant to long-term contracts. Public Service Electric and Jersey Central
Power purchased electricity from us and accounted for approximately 96 percent
of revenues for 2001. MAFCO and International-Matex Tank Terminals steam sales
and the El Paso Merchant sales in December account for the other 4 percent in
2001.

Concentration of Credit Risk

Financial instruments, which potentially subject us to credit risk consist
of cash and cash equivalents and accounts receivable. Cash accounts are held by
major financial institutions. Until the execution of the power purchase
agreement restructuring operations at Camden Venture, accounts receivable were
primarily with Public Service Electric, which purchased our electricity under a
long term agreement. After Camden Venture's restructuring, our accounts
receivable are with El Paso Merchant. Accounts receivable at Bayonne Venture are
primarily with Jersey Central Power. We do not require collateral or other
security to support accounts receivable.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2001, the carrying amounts of our financial instruments
including cash, cash equivalents, and trade receivables and payables are
representative of fair value because of their short-term nature. The following
table reflects the fair value of debt at December 31 (in millions of dollars):

The fair value of Linden Ltd.'s fixed-rate long-term debt has been
determined based on the differential between the fixed interest rate and market
interest rates for comparable issues at the date of the borrowing and the
balance sheet date. The fair value of the subordinated note with affiliates
reflects certain provisions of the agreement related to the assignment of the
note. The carrying amount of floating rate debt approximates fair value due to
the market-sensitive interest rate on such debt.

(14) SUBSEQUENT EVENTS (UNAUDITED)

Jersey Central Power

On February 27, 2002, we reached an agreement, subject to lender, partner,
and other unaffiliated party approval, with Jersey Central Power to restructure
the long-term power purchase agreement relating to our Bayonne Venture facility.
Completion of the restructuring is subject to customary conditions to closing
for similar transactions, including prior approval by the New Jersey Board of
Public Utilities. However, since many of the conditions to closing, such as
securing financing, are outside of our control, we cannot assure that we will be
able to complete the restructuring. We also agreed with Public Service Electric
to modifications of
35

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the gas services agreements relating to the Bayonne facility effective upon the
consummation of the restructuring.

The restructuring could be deemed a power contract buyout under the
indenture executed in connection with our notes, in which case we are required
to seek confirmation from the rating agencies that the restructuring will not
cause a rating downgrade.

(15) SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Our financial information by quarter is summarized below.

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

(1) During the fourth quarter of 2001, we recorded asset impairment charges of
$67.3 million and an extraordinary item on the early repayment of debt both
resulting from the restructuring of our Camden and Bayonne power purchase
agreements. See Note 5 for a discussion of the restructurings.

36

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

37

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of Cogen Technologies Linden Venture, L.P.:

In our opinion, the accompanying balance sheet as of December 31, 2001 and
the related statement of operations, of partners' capital and of cash flows
present fairly, in all material respects, the financial position of Cogen
Technologies Linden Venture, L.P. at December 31, 2001, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. The financial statements of the Company as of
December 31, 2000 and 1999 and for the years then ended were audited by other
independent accountants whose report dated March 15, 2001 expressed an
unqualified opinion on those statements.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
March 28, 2002

38

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Cogen Technologies Linden Venture, L.P.:

We have audited the accompanying balance sheets of Cogen Technologies
Linden Venture, L.P. (a Delaware limited partnership), as of December 31, 2000,
and the related statements of operations, changes in partners' capital and cash
flows for the years ended December 31, 2000 and 1999. These financial statements
are the responsibility of the Partnership'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 includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Cogen Technologies Linden
Venture, L.P., as of December 31, 2000, and the results of its operations and
its cash flows for the years ended December 31, 2000 and 1999 in conformity with
accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Houston, Texas
March 15, 2001

39

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)

See accompanying notes.

40

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(IN THOUSANDS)

See accompanying notes.

41

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)

See accompanying notes.

42

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)

See accompanying notes.

43

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS

We are a limited partnership organized on December 4, 1989 under the laws
of the state of Delaware by Cogen Technologies Linden Ltd., an indirect wholly
owned subsidiary of East Coast Power L.L.C., and an owner trust, which is both
our preferred and common limited partner, managed by State Street Bank and Trust
Company, and created for the benefit of General Electric Capital Corporation and
Dana Capital Corporation as its preferred limited partners. We were formed to
construct, finance, own and operate a 715 megawatt cogeneration facility in
Linden, New Jersey which became fully operational in May 1992. Our managing
general partner, Linden Ltd., provides our administrative functions. We sell
electricity, up to 645 megawatts, to Consolidated Edison Company of New York
Inc. and steam produced at the facility to Infineum USA L.P. and Bayway Refining
Company under long term contracts. Any electricity generated over 645 megawatts
is made available for sale on a merchant basis. The initial term of the
agreement with Consolidated Edison expires in May 2017, and the agreements with
Infineum and Bayway expire in April 2017. We have entered into a gas services
agreement with Public Service Electric and Gas Company and Elizabethtown Gas
Company for transportation of all our gas supply to the plant. The initial term
of the gas services agreement expires in May 2017. Additionally, we have entered
into a long-term operations and maintenance agreement with General Electric
Company, expiring in 2009, to operate, maintain and provide scheduled
maintenance and inspections for the facility.

2. DISTRIBUTIONS TO AND ALLOCATION OF INCOME TO PARTNERS

Cash Distributions

We distribute cash to our members in three tranches according to the terms
of our partnership agreement.

- First tranche: 1 percent to the general partner and 99 percent to the
preferred limited partner up to a specified rate of return;

- Second tranche: 99 percent to the general partner and 1 percent to the
preferred limited partner up to a capped amount, which is twice the
amount of the first tranche;

- Third tranche: 90 percent to the general partner and 10 percent to the
preferred limited partner.

After the preferred limited partner has achieved a specified before-tax
return on their initial equity investment, our remaining available cash will be
distributed to Linden Ltd and the common limited partner at percentages defined
in our Amended and Restated Agreement of Limited Partnership. Linden Ltd.
received 73 percent of our cash distributions in 2001 and 2000 and 70 percent of
our cash distributions in 1999.

Income Allocation

Our income before depreciation is allocated to our partners on the basis of
cash distributed with any income which is greater than cash distributed
primarily allocated 99 percent to the general partner and 1 percent to our
preferred limited partner. Losses are allocated 100 percent to the general
partner until its capital account equals zero and then to the limited partners
until their capital accounts equal zero with any remainder allocated 100 percent
to the general partner. Depreciation up to $525 million is allocated
approximately 5 percent to the general partner and approximately 95 percent to
our preferred limited partners. All remaining depreciation is allocated 99
percent to the general partner and 1 percent to our limited partners. The
general partner was allocated 81 percent of our income during 2001, 80 percent
during 2000 and 78 percent during 1999. In accordance with our partnership
agreement, partners with a negative balance in their capital account are not
liable to us or any other partner upon our dissolution or liquidation.

On February 3, 1999, Linden Venture terminated its management services
agreement with Linden Ltd. To terminate such agreement, Linden Ltd. made a
capital contribution to Linden Venture of $46.4 million and
44

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Linden Venture made a one-time payment to Linden Ltd. of $46.4 million. On
February 4, 1999, Linden Venture terminated a gas management agreement with an
affiliate. To terminate such agreement, Linden Ltd. made a capital contribution
of $6.0 million to Linden Venture and Linden Venture made a one-time payment to
an affiliate of $6.0 million. These one-time payments were allocated 100 percent
to Linden Ltd.'s share of net income.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our financial statements are prepared on the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States.
The financial statements for previous periods include certain reclassifications
that were made to conform to the current year presentation. These
reclassifications had no impact on our reported net income or partners' capital.

Use of Estimates

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities that
exist at the date of the financial statements. Our actual results may differ
from those estimates.

Cash and Cash Equivalents

We consider short-term investments purchased with an original maturity of
three months or less to be cash equivalents.

Restricted Cash

Our cash is restricted under the terms and conditions of our partnership
agreement. At December 31, 2001 and 2000, we had restricted cash of $18.3
million and $15.7 million.

Revenue Recognition

We recognize electricity revenue, at rates specified in our long term power
purchase agreement, in the period the electricity is delivered and electric
capacity is provided.

Steam revenue is calculated based on the lower of our actual cost of fuel
or 105 percent of Consolidated Edison's and Public Service Electric's average
cost of gas and is escalated by a Consumer Price Index multiple and recognized
when the steam is delivered in accordance with the underlying sales agreement.

Inventory

Our inventory consists of butane and spare parts and is valued at the lower
of cost or market. Butane's cost is determined using the first-in, first-out
method. The cost of operational spares is determined using the average cost
method.

Property, Plant and Equipment

Our property, plant and equipment is stated at the historical cost of the
assets. Historical costs include all direct costs of the facility, as well as
indirect charges, including capitalized interest costs on debt. Betterments of
major units of property are capitalized, while replacements or additional minor
units of property are expensed.

45

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation on our plant, plant improvements and capital spares is
computed using the straight-line method based on an estimated useful life of 30
years and an estimated 10 percent salvage value. Furniture and equipment is
depreciated over five years with no assumed salvage value. We believe that the
use of the straight-line method is adequate to allocate the costs of the
properties over their estimated useful lives.

We evaluate the impairment of property, plant and equipment in accordance
with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

Deferred Revenue

We recognize deferred revenue for prepayments received related to butane
inventory and Infineum steam sales. Under our power purchase agreement,
Consolidated Edison reimburses us for all fuel and fuel-related expenses as
incurred. Consolidated Edison has prepaid us approximately $2.6 million at
December 31, 2001 and $2.5 million at December 31, 2000. This prepayment will be
recognized in our statement of operations when the butane is utilized. We have
also recorded deferred revenue for payments received from steam sales to
Infineum which we may be required to refund upon the expiration of the annual
contract period (see Note 7). We recorded $1.1 million at December 31, 2001 and
$1.8 million at December 31, 2000 relating to deferred steam sales.

Major Maintenance Costs

Our major maintenance costs are expensed as incurred. We schedule
systematic outages for major plant maintenance in advance over the remaining
estimated life of the facility. These outages vary in complexity and duration.
As a result, the expenses incurred may vary significantly from year to year.

Income Taxes

As a limited partnership, we are not subject to state or federal income
taxes. Such taxes accrue to our partners and, accordingly, have not been
recognized in the financial statements.

Allowance for Doubtful Accounts

We review the collectibility of our accounts receivable on a regular basis
primarily under the specific identification method. We recorded an allowance of
approximately $1.1 million as of December 31, 2001 and December 31, 2000.

Derivative Instruments

On January 1, 2001, we began recording all derivative instruments on the
balance sheet at their fair value under the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities as amended by SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. For those instruments entered into to hedge risk and which qualify
as hedges, we apply the provisions of SFAS No. 133 and its related amendments
and interpretations, and the accounting treatment depends on each instrument's
intended use and how it is designated. Derivative instruments that qualify as
hedges may be designated as fair value hedges, cash flow hedges or net
investment hedges as defined in SFAS No. 133.

During the normal course of business, we may enter into contracts that
qualify as derivatives under the provisions of SFAS No. 133. As a result, we
evaluate our contracts to determine whether derivative accounting is
appropriate. Contracts that meet the criteria of a derivative and qualify as
"normal purchases" and "normal sales", as those terms are defined in SFAS No.
133, may be excluded from SFAS No. 133 treatment.

46

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Prior to January 1, 2001, we accounted for our derivatives using hedge
accounting only if the derivative reduced the risk of the underlying hedged
item, was designated as a hedge at its inception, and was expected to result in
financial impacts which were inversely correlated to those of the items being
hedged. When the correlation ceased to exist, we terminated hedge accounting and
mark to market accounting was applied. As the hedged item liquidated, the
settlement of the derivative was recognized as an increase or decrease to
interest expense.

Recent Accounting Pronouncements Not Yet Adopted

Accounting for Asset Retirement Obligations

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations. This statement requires
companies to record a liability relating to the retirement and removal of assets
used in their business. The liability is discounted to its present value, and
the related asset value is increased by the amount of the resulting liability.
Over the life of the asset, the liability will be accreted to its future value
and eventually extinguished when the asset is taken out of service. The
provisions of this statement are effective for fiscal years beginning after June
15, 2002. We are currently evaluating the effects of this pronouncement.

Accounting for the Impairment or Disposal of Long Lived Assets

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell. The standard also expanded the scope
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001. We are currently evaluating the effects of
this pronouncement.

Derivatives Implementation Group Issue C-16

In September 2001, the Derivatives Implementation Group of the FASB cleared
guidance on Issue C-16, Scope Exceptions: Applying the Normal Purchases and
Normal Sales Exception to Contracts that Combine a Forward Contract and a
Purchased Option Contract. This guidance impacts the accounting for fuel supply
contracts that require delivery of a contractual minimum quantity of fuel at a
fixed price and have an option that permits the holder to take specified
additional amounts of fuel at the same fixed price at various times. We use fuel
supply contracts such as these in our power producing operations and currently
do not reflect them in our balance sheet since they are considered normal
purchases that are not classified as derivative instruments under SFAS No. 133.
This guidance becomes effective in the second quarter of 2002, and we may be
required to account for these contracts as derivative instruments under SFAS No.
133, which will require us to record them on the balance sheet at fair value. We
are currently evaluating the impact of this guidance.

4. INVENTORY

Inventory consists of the following at December 31:

47

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at December 31:

6. RELATED PARTY TRANSACTION

East Coast Power allocates third-party expenses such as legal, consulting
and accounting services, insurance, rent and miscellaneous office services to
us. The amounts charged to us for these services were approximately $1.3 million
during 2001, $1.8 million during 2000 and $1.8 million during 1999, and are
reflected as general and administrative expenses in our statement of operations.

During the year ended December 31, 2001, Linden Venture sold inventory to
related parties for approximately $0.6 million and purchased inventory from
related parties for approximately $0.6 million. Linden Venture did not recognize
any gains or losses on these transactions. Additionally, during the year ended
December 31, 1999, Linden Venture sold inventory to related parties for
approximately $0.8 million and recognized a gain of $0.3 million on those sales.

7. COMMITMENTS AND CONTINGENCIES

Linden 6 Expansion Project

During February 2000, East Coast Power entered into an energy services
agreement with Tosco Refining L.P., a subsidiary of Tosco Corporation, under
which East Coast Power is required to construct, own and operate the Linden
expansion facility, a 172 megawatt cogeneration facility, known as Linden 6, on
part of our existing facility site.

In connection with obtaining the consent of our partners for the
transactions contemplated by the energy services agreement, East Coast Power has
indemnified us from losses that may be incurred as a result of Linden 6. El Paso
Corporation, our affiliate, guaranteed East Coast Power's obligations under this
indemnity in an aggregate amount of $15.0 million.

The energy services agreement requires an amendment to the steam sale
agreement between Bayway Refining Company, a subsidiary of Tosco, and us to
increase the minimum amounts of steam Bayway Refining Company is required to
take from us.

Power Purchase Agreement

We sell electricity we generate to Consolidated Edison under a 25 year
power purchase agreement, which expires in May 2017. Our agreement has two five
year renewal periods subject to the approval of both parties. The agreement
establishes a sales price of the electricity per kilowatt hour (kWh) based
primarily on capacity, fuel costs and operating and maintenance costs.
Consolidated Edison pays for electricity based on three components: (a) a
constant capacity rate component multiplied by 85 percent of the demonstrated
maximum net capability and the number of total hours in the month; (b) an
inflation component to cover operations and maintenance costs multiplied by 90
percent of the demonstrated maximum net capability and

48

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

the number of total hours in the month, escalated monthly based on the Consumer
Price Index; and (c) a fuel cost component which includes all costs incurred
including fuel commodity, transportation, storage costs and any other related
costs capped by Consolidated Edison's Weighted Average Cost of Gas (WACOG) for
the 12-month contract period ending April 30 of each year. After the end of any
given annual period, one of the following can occur based on whether fuel costs
exceed or fall below Consolidated Edison's WACOG: i) If we are below the WACOG,
we get reimbursed 50 percent of the difference in our fuel costs and the capped
calculation and recognize this amount as electricity revenues at the end of the
annual period, or ii) if we are above the WACOG, we pay 100 percent of the
amount that exceeds the cap and recognize this amount as a reduction of
electricity revenues on a monthly basis. All amounts to be received or paid are
paid ratably over the next annual cap period. We recognized $360.0 million in
2001, $361.5 million in 2000 and $267.0 million in 1999 for electricity sales.
The power purchase agreement qualifies for the normal sales exception under SFAS
No. 133 and, accordingly, is not accounted for as a derivative instrument.

Gas Services Agreement

We have a 25-year gas services agreement with Public Service Electric and
Elizabethtown Gas Company under which they provide firm transportation for all
of our natural gas requirements as well as supply us with the gas requirements
over 85,000 million British thermal units (MMBtu) of natural gas per day. Our
gas supply requirements less than 85,000 MMBtu are provided by short term
agreements with other natural gas suppliers. Under the gas services agreement
with Public Service Electric, we incurred expenses of approximately $43.0
million during 2001, approximately $57.0 million during 2000 and approximately
$37.0 million during 1999. Under the Elizabethtown gas services agreement, we
incurred expenses of $10.0 million during 2001, approximately $13.0 million
during 2000 and approximately $8.0 million during 1999. The gas services
agreement qualifies for the normal purchase exception under SFAS No. 133 and,
accordingly, is not accounted for as a derivative instrument.

Steam Sale Agreements

Under the terms of the steam sale agreement with Bayway Refining Company,
we are obligated to deliver to Bayway the excess steam over amounts Infineum
takes up to our maximum steam capacity of 1.2 million pounds per hour. The price
of steam is based on the lower of our actual cost of fuel or 105 percent of
Consolidated Edison's and Public Service Electric's average cost of gas which is
escalated by a consumer price index multiple. We recognized $10.2 million in
steam sales in 2001, $21.0 million in 2000 and $22.4 million in 1999 under this
agreement.

In accordance with the steam sale agreement with Infineum, Infineum pays us
a monthly steam charge and receives a monthly steam commitment credit. Per the
agreement, Infineum is entitled to a credit if net monthly charges for an annual
period are greater than annualized monthly steam and credit adjustments.
Beginning in June 2000, we determined that there is a possibility that we may
have to refund all or a portion of the steam revenues to Infineum when the
monthly charges were annualized. During the year ended December 31, 2001, we
recognized approximately $3.3 million in revenue related to monthly steam
charges. We have recorded deferred revenues of approximately $1.1 million.

Under the terms of the steam sale agreement with Infineum, we are obligated
to deliver a certain amount of steam to Infineum. The contract provides for an
annual credit of approximately $4.5 million. The use of the credit is limited by
maximum hourly steam production as defined in the agreement. To the extent
Infineum takes in excess of the maximum allowable hourly quantities, we believe
Infineum is liable for these purchases. Infineum used credits of approximately
$3.2 million in 2001, $3.6 million in 2000 and $3.3 million in 1999. We have
recorded a reserve of approximately $1.1 million against revenues related to
steam sales in excess of the maximum allowed under the terms of the contract. We
collected $0.6 million of the outstanding amounts plus interest from Bayway in
January 2002.

49

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Leases

Effective June 2000, an affiliate of East Coast Power began subleasing from
us the land for the Linden 6 project. Lease revenues were approximately $46,500
in 2001 and approximately $22,000 in 2000. East Coast Power also entered into a
ground lease with Bayway Refining Company to provide a site for the
interconnection of Linden 6. The Linden 6 facility was declared commercial in
January 2002.

We lease the site for our facility from Bayway Refining. The term of the
site lease extends through May 2017. The agreement includes an option to extend
the lease up to the year 2048. Annual minimum lease payments are $0.4 million
and are adjusted annually for changes in the Consumer Price Index. Lease expense
was approximately $0.4 million in 2001, 2000 and 1999.

Letters of Credit

During 2001, 2000 and 1999, General Electric Capital Corporation provided a
standby letter of credit in an amount not to exceed $10 million to collateralize
various obligations with Bayway Refining. As of December 31, 2001 and 2000, no
amounts were outstanding under this letter of credit. We pay General Electric
Capital Corporation a monthly fee equal to 0.75 percent of any outstanding
letter-of-credit amounts. Such fees were approximately $0.1 million during 2001,
2000 and 1999.

Operations and Maintenance Agreement

We have entered into an operations and maintenance agreement with General
Electric to operate and maintain our facility. This agreement has a 12 year term
expiring in 2009 and provides for a fee of $31,000 per month and an annual bonus
upon the occurrence of certain operating targets, both of which are escalated by
the Consumer Price Index. The amounts included in operations and maintenance
expenses including bonuses paid under the terms of the agreement were $5.4
million for the year ended December 31, 2001, $5.2 million for the year ended
December 31, 2000 and $5.0 million for the year ended December 31, 1999.

Litigation

In 1997, Linden Venture initiated an arbitration proceeding against Ebasco
Constructors, Inc., and Ensearch Corporation for alleged design deficiencies and
warranty claims with respect to the construction of the Linden Facility. In
April 1999, the proceeding was settled and Linden Venture was relieved of its
obligation to pay certain liabilities and received a cash payment of $1.2
million.

On June 20, 2000, Infineum USA L.P. filed an action against Linden Venture
in the United States District Court of New Jersey seeking actual and punitive
damages. The suit claims that Linden Venture tortiously interfered with Infineum
USA's ability to sell steam purchased from the Linden facility to Bayway
Refining Company, and that such interference is in violation of the federal and
New Jersey antitrust laws and in breach of Linden Venture's agreement with
Infineum USA. Linden Venture filed an answer and counterclaim on September 26,
2000. On December 21, 2001, the court denied Linden Venture's motion to dismiss
on lack of antitrust grounds. Discovery is now proceeding. No trial date has
been set.

For each of our legal matters, we evaluate the merits of each case, our
exposure to the matter and possible legal or settlement strategies and the
likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we make the necessary accruals. If new
information becomes available, our estimates may change. The impact of these
changes may have a material effect on our results of operations. As of December
31, 2001, we recorded $1.6 million for all outstanding legal matters. While the
outcome of such proceedings cannot be predicted with certainty, we do not expect
these matters to have a material adverse effect on our financial statements.

50

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Our operating revenues in 2001 were primarily generated from two customers
pursuant to long-term contracts. Consolidated Edison purchased electricity from
us and accounted for approximately 89 percent of our revenues for 2001, 94
percent in 2000 and 96 percent in 1999. The remaining 11 percent, 6 percent and
4 percent were from steam sales to Bayway Refining and excess capacity and
energy sales. Under the provisions of the long-term power purchase agreement
with Consolidated Edison, accrued liabilities include amounts due to
Consolidated Edison relating to the fuel cap provisions of approximately $4
million at December 31, 2001, $6.8 million at December 31, 2000, and $11.3
million at December 31, 1999.

Financial instruments, which potentially subject us to credit risk, consist
of cash and cash equivalents and accounts receivable. Cash accounts are held by
major financial institutions. Accounts receivable are primarily with
Consolidated Edison, who purchases our electricity under a long-term power
purchase agreement. We do not require collateral or other security to support
accounts receivable.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2001, and 2000, the carrying amounts of financial
instruments held by us, including cash, cash equivalents, and trade receivables
and payables are representative of fair value because of the short-term nature
of these instruments.

51

PART III

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

Effective September 28, 2001, we changed our certifying accountants from
Arthur Andersen LLP to PricewaterhouseCoopers LLP.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding our executive officers and managers is presented in
Item 1, Business, of this Form 10-K under the caption, "Executive Officers and
Managers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

None.

ITEM 12. SECURITY OWNERSHIP OF MANAGEMENT

None.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We may from time to time enter into contracts or other business
relationships with one or more of our members or their affiliates. For example,
we expect that our members will assist us in purchasing natural gas for our
power plants and in arranging for gas transportation service. Our members may
provide backup fuel management, power marketing or other services to us and our
subsidiaries. Our limited liability company agreement provides that the terms of
such transactions be comparable or at least as favorable to us as the terms of
arm's length transactions among unaffiliated parties and that the terms of the
transaction be approved by all Class A Members. In addition, the indenture
provides that any material transaction or arrangement with any affiliate must be
on terms and conditions at least as favorable to us as the terms of a comparable
agreement obtained in a comparable arm's length transaction with an unaffiliated
party as determined in good faith by our managing member.

El Paso Merchant provides us with services such as legal, finance and human
resources. In addition we are allocated certain expenses such as building rent
and miscellaneous office services. We believe such charges for services and
allocations of expenses represent amounts equivalent to those that could be
obtained in the market. During the period ended December 31, 2001, we, together
with our subsidiaries, incurred approximately $2.7 million with respect to such
costs and services.

We believe that all of the foregoing arrangements and transactions are on
terms and conditions that are comparable to those that could be obtained in
transactions with unaffiliated parties.

52

PART IV

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

(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

1. Financial Statements

See Item 8, "Financial Statements and Supplementary Data" for a list of all
financial statements included herein.

2. Financial Statement Schedules and supplementary information required to be
submitted.

Schedules and supplementary data are not required because they are not
applicable or the required information is included elsewhere in the
financial statements.

(b) REPORTS ON FORM 8-K:

-- We filed a current report on Form 8-K dated December 27, 2001, in
connection with a power agreement restructuring, announcing the
distribution of the Bayonne Venture and Camden Venture power purchase
agreements to our members, Mesquite Investors, L.L.C. and Bonneville
Pacific Corporation. We also provided pro forma financial statements
reflecting the distribution and other transactions occurring as part of
the restructuring process.

53

EAST COAST POWER, L.L.C.

EXHIBIT LIST
DECEMBER 31, 2001

Each exhibit identified below is filed as part of this report. Exhibits not
incorporated by reference to a prior filing are designated by an asterisk; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.

59

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, East Coast Power L.L.C. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 15th day of April 2002.

EAST COAST POWER L.L.C.

By /s/ JOHN L. HARRISON
-----------------------------------
John L. Harrison
Senior Vice President, Chief
Financial Officer, Treasurer, and
Class A Manager

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
East Coast Power L.L.C. and in the capacities and on the dates indicated:

60

INDEX TO EXHIBITS