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, 2002

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 333-81601
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].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [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 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 by East Coast Power Holding Company,
L.L.C. Such membership interests are not publicly traded and therefore have no
separate, quantifiable market value.

DOCUMENTS INCORPORATED BY REFERENCE: None

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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. Mesquite
Investors is indirectly owned by Limestone Electron Trust and a subsidiary of El
Paso Corporation.

OPERATIONS

Our sole business is the ownership and operation of four power generation
facilities which are located in Linden, Camden and Bayonne, New Jersey. The
facilities are commonly referred to as the Linden Venture, Camden Venture,
Bayonne Venture and Linden 6. 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, except for Linden 6.

(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.

(4) Bayonne Venture's facility was base load from 1/1/02 through 12/20/02.

(5) Bayonne Venture's facility sold 75.8% of output to Jersey Central Power and
24.2% to El Paso Merchant from 1/1/02 through 12/20/02. Bayonne Venture's
facility sold 100% of output to El Paso Merchant from 12/21/02 through
12/31/02.

(6) Linden 6 began operations on January 25, 2002.

(7) When dispatched.

(8) A merchant based contract.

In 2001, the Camden Venture and Bayonne Venture power purchase agreements
with Public Service Electric and Gas Company were restructured. Following the
restructuring, Camden Venture operates solely on a merchant basis, selling power
only when it is economical to do so. In 2002, the Bayonne Venture long-term
power purchase agreement with Jersey Central Power and Light was restructured.
Following this restructuring, Bayonne Venture operates on a merchant basis, but
also operates to generate steam under its steam sales agreement. On January 6,
2003, we distributed our ownership interests in Bayonne Venture and Camden
Venture to Mesquite Investors, as permitted by the terms of our indenture. For a
further discussion, see Item 8, Financial Statements and Supplementary Data,
Note 14, which is incorporated herein by reference.

COMPETITION

Our Linden and Linden 6 facilities sell power under long-term agreements.
The prices of the power sold under these agreements are specified under the
terms of the contracts 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 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 in 2017,
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 Bayonne Venture power contract restructuring in 2002 and
the Bayonne Venture and Camden Venture power contract restructurings in 2001,
the Bayonne Venture and Camden Venture facilities sell their power at market
based prices in direct competition with other power generators. This results in
the facilities operating in a highly competitive market in which operating
efficiency, supply and demand and other economic factors determine success.
Bayonne Venture and Camden Venture both face intense competition from power
generation companies throughout the region as well as from the wholesale power
markets.

EMPLOYEES

We have no employees. Our daily 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
International, Inc. operates and maintains the Linden facility, Camden facility,
Bayonne facility and Linden 6 facility 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);

- terrorism insurance; and

- business interruption insurance.

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

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 of 1978 (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 facility and the Linden 6 facility both operate as qualifying
facilities (QFs) under PURPA. Our status as a QF depends on meeting specified
minimum steam and operating efficiency requirements under PURPA. Failure to
maintain our QF status could affect our rights under various agreements,
including the power purchase agreement for Linden Venture with Consolidated
Edison, our steam sales agreement with Bayway Refining Company and the Linden 6
energy services agreement with Tosco Refining, L.P. In the case of Linden
Venture, our revenues under the power purchase agreement would be reduced by at
least ten percent. In the case of Linden 6, we may incur additional charges that
we would not be able to pass on to Tosco Refining under the energy services
agreement. We have no reason to believe that we will not continue to meet the
operational and efficiency requirements specified under PURPA. 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." After
the power contract restructurings in 2002 and 2001, Bayonne Venture and Camden
Venture commenced operations as Exempt Wholesale Generators (EWG) under the
Energy Policy Act of 1992 and sell electric power under market based power
agreements.

We are 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.

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MANAGEMENT

Our daily operations are managed by officers and employees of El Paso
Merchant, 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:

Robert W. Baker has served as our President since January 2003. He has also
served as Executive Vice President of El Paso and President of El Paso Global
Power since February 2003. He was Senior Vice President and Deputy General
Counsel of El Paso from January 2002 to February 2003. Prior to that period, he
held various positions with El Paso since 1996.

John L. Harrison has served as our Senior Vice President and Chief
Financial Officer since March 2001 and he has served as our Treasurer since
February 2002. He has served as our Class A Manager since February 2001. He has
served as Senior Vice President and Chief Financial Officer of El Paso Merchant
since January 2001 and he has served as Treasurer of El Paso Merchant since
February 2002. Prior to that period, he served as Vice President and Senior
Managing Director of El Paso Merchant since 1999. Prior to that, he held various
positions with El Paso since 1996.

Bryan E. Seas has served as our Vice President and Controller since
September 2002. Prior to that period, he served as Director of Corporate
Accounting for El Paso since January 2000. He was Director of Accounting for
Southern Natural Gas Company since October 1999. Prior to that, he held various
positions with Sonat Inc. since 1993.

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 since 1992.

Dean A. 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.

Henry C. Mustin, a Class B Manager, is a retired Vice Admiral in the U.S.
Navy and is the Chairman of the Board of his own consulting company. He 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.

Our Class A Managers and our Class B Managers have served since February
2001. Our Class A Managers serve until removal or resignation 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.

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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 daily 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 -- Operations, 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.

ITEM 3. LEGAL PROCEEDINGS

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

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

None.

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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) Results include Linden 6 which began operations in January 2002.

(2) In 2001, we acquired the remaining third party partnership interests in
Bayonne Venture and 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.

(3) 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. Mesquite
Investors is indirectly owned by Limestone Electron Trust and a subsidiary of El
Paso Corporation.

Our sole business is the ownership and operation of the four power
generation facilities which are located in Linden, Camden and Bayonne, New
Jersey. We constructed a facility in Linden, commonly referred to as Linden 6,
that began commercial operations on January 25, 2002. We had no assets or
liabilities and conducted no operations prior to February 1999.

RECENT DEVELOPMENTS

Downgrade of Our Senior Secured Notes

On February 10, 2003, Standard and Poor's Ratings Services lowered its
ratings on our senior secured notes to "BB+" from "BBB-". On February 12, 2003,
Moody's Investors Service downgraded our senior secured debt to "Ba2" from
"Baa3". The rating actions were attributed to the downgrade of El Paso's debt
ratings. These rating actions had a negative impact on the fair value of our
long-term debt. Further downgrades of El Paso's credit ratings could also have
an indirect negative impact on the fair value of our long-term debt. We do not
currently believe that these downgrades will impact our ability to perform under
our obligation of the indemnification to Linden Venture. See Item 8, Financial
Statements and Supplementary Data, Note 10, which is incorporated herein by
reference, for a further discussion.

El Paso Downgrades

On February 7, 2003, Standard and Poor's downgraded El Paso's senior
unsecured debt to a rating of "B". On February 11, 2003, Moody's downgraded El
Paso's senior unsecured debt rating to "Caa1". Both rating agencies maintain a
negative outlook on El Paso's credit ratings, indicating the possibility of
further ratings downgrades. We believe that these downgrades may impact El
Paso's ability to perform under the obligations of its guaranty. See Item 8,
Financial Statements and Supplementary Data, Notes 9 and 10 for further
discussion, which are incorporated herein by reference.

El Paso Announces Exit of Energy Trading Activities

El Paso's credit downgrades in the third and fourth quarters and the
deterioration of the energy trading environment led to its decision in November
2002 to exit the energy trading business and pursue an orderly liquidation of
its trading portfolio. El Paso anticipates this liquidation may occur through
2004. As discussed in Item 8, Financial Statements and Supplementary Data, Notes
9 and 10, which are incorporated herein by reference, we have entered into
several agreements with El Paso Merchant and we are in the process of evaluating
what impact, if any, this announcement will have on these agreements.

Potential Change in Mesquite Investors' Ownership

On November 8, 2002, El Paso announced its intent to acquire an additional
interest in Chaparral Investors, L.L.C. Chaparral owns Mesquite Investors, one
of our members. At December 31, 2002, Chaparral was owned approximately 20
percent by El Paso and 80 percent by Limestone, an unaffiliated third party. In
March 2003, El Paso contributed $1.0 billion to Limestone in exchange for a
non-controlling interest which
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increased El Paso's effective ownership in Chaparral to approximately 90
percent. Also in March 2003, El Paso notified Limestone that it would exercise
its rights to purchase all of the outstanding third party equity in Limestone on
May 31, 2003. If El Paso acquires the remaining Limestone equity interest in
Chaparral, we would become a consolidated subsidiary of El Paso.

Distribution of Bayonne Venture and Camden Venture

One of our members, Mesquite Investors, was established to own and manage
investments in domestic power assets and its operations include the
restructuring of power purchase, fuel supply and credit agreements of the Public
Utility Regulatory Policies Act of 1978 (PURPA) facilities and monetization of
the power purchase agreements (see Restructuring of Power Purchase Agreements
below). Following the 2002 restructuring of our Bayonne Venture power purchase
agreement with Jersey Central Power and Light and the 2001 restructurings of our
Bayonne Venture and Camden Venture power purchase agreements with Public Service
Electric and Gas Company, our Bayonne Venture and Camden Venture facilities
began operating on a merchant basis. Accordingly, on January 6, 2003, we
distributed our ownership interests in Bayonne Venture and Camden Venture to
Mesquite Investors as permitted by the terms of our indenture. For a further
discussion of the distribution of Bayonne Venture and Camden Venture, see Item
8, Financial Statements and Supplementary Data, Note 14, which is incorporated
herein by reference.

El Paso Proxy Contest

On February 18, 2003, Selim Zilkha, a stockholder of El Paso, announced his
intention to initiate a proxy solicitation to replace El Paso's entire board of
directors with his own nominees and on March 11, 2003, Mr. Zilkha filed his
preliminary proxy statement to that effect with the SEC. This proxy contest may
be highly disruptive and may negatively impact El Paso's ability to achieve the
stated objectives of its 2003 Operational and Financial Plan. In addition, El
Paso may have difficulty attracting and retaining key personnel until such proxy
contest is resolved. Therefore, this proxy contest, whether or not successful,
could have a material adverse effect on El Paso's liquidity and financial
condition, which, in turn, could adversely affect our liquidity and financial
condition.

Restructuring of Power Purchase Agreements

Many domestic power plants have long-term power purchase agreements with
regulated utilities that were entered into under PURPA. The power sold to the
utility under PURPA contracts is required to be delivered from a specified power
generation plant at power prices that are usually significantly higher than the
cost of power in the wholesale power market. The cost of generating power at
these PURPA power plants is typically higher than the cost that would be
incurred by obtaining the power in the wholesale power generation market,
principally because PURPA power plants are less efficient than newer power
generation facilities.

In a power contract restructuring, the PURPA power purchase agreement is
amended so that the power sold to the utility does not have to be provided from
the specific power plant. Because we are able to buy lower cost power in the
wholesale power market, we have the ability to reduce the cost paid by the
utility, thereby inducing the utility to enter into the power contract
restructuring. Following the power contract restructuring, the power plant
operates on a merchant basis, which means that it is typically no longer
dedicated to one buyer and will typically operate only when power prices are
high enough to make operations economical. Prior to a power contract
restructuring, the power plant and its related PURPA power purchase agreements
are generally accounted for at their historical cost, which is either the cost
of construction or, if acquired, the acquisition cost. Revenues and expenses
prior to restructuring are, in most cases, accounted for on an accrual basis, as
power is generated and sold to the utility. As part of a restructuring, any
related fuel supply and steam contracts are generally amended or terminated, the
value of the remaining merchant plant is evaluated for possible impairment, and
the restructured power purchase agreement is adjusted to its estimated fair
value. The restructured power purchase agreement can then be sold, or the entity
that the power purchase agreement is contributed to can enter into an
offsetting, or mirror, power purchase agreement. In cases when our affiliate
enters into a mirror power purchase agreement, our affiliate uses the
restructured power purchase agreement, and the mirror power purchase agreement,
along with the fixed price spread between these contracts, as
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collateral to obtain financing. The offsetting power purchase agreement requires
the power supplier, which can be an affiliate or third party, to provide
long-term fixed price power in amounts sufficient to meet the obligations under
the restructured power purchase agreement.

Public Service Electric and Gas Company

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 facilities. On July 19, 2001, the New Jersey Board of Public
Utilities 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 power contract restructurings, 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 and Mesquite Investors. 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 and its
payments received under this agreement are partially subsidized as a result of
an agreement between El Paso Merchant and Mesquite Investors. 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 previously been purchased by Public Service
Electric. We also entered into a gas services agreement with Public Service
Electric relating to the Bayonne Venture facility effective upon the
consummation of the restructuring. This 2001 power contract restructuring
resulted in a significant change in business for these facilities since the
Camden facility and a portion of the Bayonne facility operated on a merchant
basis following the restructuring. This change in business constituted a trigger
for impairment analysis under 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. As a result of the re-evaluation of the carrying
amount of the plant assets, we reduced the carrying amount of the plant assets
to fair value and recorded impairment charges of $62.8 million on the Camden
facility and $4.5 million on the Bayonne facility in 2001. These charges were
reflected in our consolidated statement of operations for the year ended
December 31, 2001. The estimated fair value of our plant assets was based on
sales data on similar plants, adjusted for liquidity in the marketplace and
locational differences.

In conjunction with the 2001 power contract restructurings, we retired
$44.7 million of Camden Venture project level debt and $55.1 million of Bayonne
Venture project level debt through cash contributions from our members. As a
result of the early retirement of debt, we also incurred extraordinary costs of
$13.8 million at Bayonne Venture and $10.1 million at Camden Venture. These
costs were reported as extraordinary items in our consolidated statement of
operations for the year ended December 31, 2001. In addition, we incurred costs
of $2.2 million to terminate agreements affected by the power contract
restructurings.

These restructurings constituted a power contract buyout under the
indenture executed in connection with our senior secured notes. We received
confirmation from the rating agencies that the restructurings would not cause a
rating downgrade provided that we redeem a portion of our senior secured notes.
Consequently, we redeemed $176.4 million of our senior secured notes on December
12, 2001 through cash contributions from our members and wrote off approximately
$2.5 million of deferred financing costs associated with the redemption of our
senior secured notes.

Jersey Central Power and Light Company

On February 27, 2002, we reached an agreement, subject to lender, partner,
and other unaffiliated party approval, with Jersey Central Power to restructure
its long-term power purchase agreement relating to our Bayonne Venture facility.
On December 20, 2002, after all necessary approvals were obtained, we completed
the restructuring of our long-term power purchase agreement with Jersey Central
Power at our Bayonne Venture facility.

In this power contract restructuring, we distributed the Bayonne Venture
power purchase agreement with Jersey Central Power, which had a book value of
$114.9 million, to our common members, Bonneville Pacific
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and Mesquite Investors. Our Bayonne Venture facility was released from its
obligations under the power purchase agreement with Jersey Central Power. On
December 21, 2002, Bayonne Venture began operations under an agreement with El
Paso Merchant for the remaining 76 percent of electric energy produced by the
Bayonne Venture facility. This December 2002 restructuring of the Bayonne
Venture power purchase agreement resulted in a significant change in the
business for the Bayonne facility, and accordingly, the Bayonne Venture plant
assets were tested for impairment in accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. Additionally, as a result
of the planned distribution of our interests in Camden Venture and Bayonne
Venture to our member, Mesquite Investors, in January 2003, and in order to
comply with the terms of our indenture, we obtained fair market valuations of
Camden Venture's and Bayonne Venture's plant assets through appraisals conducted
by an independent third party in 2002. The results of the third party appraisals
indicated that their fair values were zero, as compared to the carrying amount
of $28.8 million for Camden Venture's plant assets and $56.1 million for Bayonne
Venture's plant assets. Based on the results of the appraisal for Camden
Venture, we also tested Camden Venture's plant assets for impairment in
accordance with SFAS No. 144. Our impairment tests indicated that the plant
assets for both facilities were impaired and we recorded an impairment charge of
$84.9 million in 2002 to adjust the carrying amounts to their appraised fair
values of zero. The primary reason for the reduction of the fair value of Camden
Venture's and Bayonne Venture's plant assets was the continued decline during
2002 of the unregulated power industry. In addition, both plants have long-term
gas transportation contracts that have high costs relative to current market
prices. In addition, we incurred costs of $10.0 million to terminate agreements
affected by the power contract restructurings.

This restructuring constituted a power contract buyout under the indenture
executed in connection with our senior secured notes. We received confirmation
from the rating agencies that the restructuring would not cause a rating
downgrade provided that we redeem a portion of our senior secured notes. In
conjunction with the redemption of our senior secured notes, we received a
contribution from our members in December 2002 of $165.7 million which was
restricted for the subsequent redemption of $165.0 million of our senior secured
notes in January 2003. The cash received in this contribution from our members
is reflected as a component of restricted cash on our consolidated balance sheet
at December 31, 2002. We redeemed $165.0 million of our senior secured notes on
January 21, 2003, and wrote off approximately $1.7 million in 2003 of deferred
financing costs associated with the redemption of our senior secured notes.

Linden 6

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

RESULTS OF OPERATIONS

Our results of operations were as follows for each of the years ended
December 31:

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The following are our operating results for the year ended December 31,
2002, compared to the year ended December 31, 2001, and for the year ended
December 31, 2001, compared to the year ended December 31, 2000.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Operating revenues for the year ended December 31, 2002 were $87.2 million
higher than the same period in 2001. The increase was primarily due to the
commencement of commercial operations at Linden 6 in January 2002, resulting in
additional operating revenues of approximately $45.8 million relating to
electricity sales and approximately $15.5 million relating to steam sales to
Linden Venture. Operating revenues also increased by $23.5 million due to the
consolidation of Bayonne Venture beginning in March 2001 and $9.0 million due to
the consolidation of Camden Venture beginning in December 2001, as a result of
our purchase of their outstanding partnership interests. The $9.0 million
increase from the consolidation of Camden Venture is net of $6.6 million paid by
Mesquite Investors to El Paso Merchant under an agreement that has the effect of
subsidizing the payments that El Paso Merchant makes to Camden Venture under its
power purchase agreement with El Paso Merchant. The increases were offset by a
decrease of $6.6 million as a result of the 2001 Bayonne power contract
restructuring.

Operating expenses for the year ended December 31, 2002 were $116.3 million
higher than the same period in 2001. The increase was due to the consolidation
of Bayonne Venture beginning in March 2001 and Camden Venture beginning in
December 2001 and from the commencement of operations at Linden 6 in January
2002. Operating expenses increased by $12.4 million due to the consolidation of
Bayonne Venture and $24.3 million due to the consolidation of Camden Venture. An
increase of $50.9 million in operating expenses is attributable to the
commencement of commercial operations at Linden 6. In conjunction with the
anticipated distribution of Camden Venture and Bayonne Venture to our member and
the power contract restructuring, we engaged a third party to conduct an
appraisal of Camden Venture's and Bayonne Venture's plant assets in December
2002. As a result of these appraisals, we re-evaluated the carrying amounts of
Bayonne Venture's and Camden Venture's plant assets and recorded an impairment
charge of $84.9 million in 2002 to adjust the carrying amounts to their fair
values of zero. In 2001, an impairment charge of $67.3 million was recorded
related to the re-evaluation of the plant assets of Bayonne Venture and Camden
Venture related to the 2001 power contract restructurings. In addition, we
recorded $11.1 million of additional operating expenses primarily related to the
2002 Bayonne power contract restructuring.

Earnings from unconsolidated affiliates for the year ended December 31,
2002 were $14.5 million lower than the same period in 2001. A decrease of $9.2
million was primarily related to a decrease in Linden Venture's fuel savings in
2002 as compared to 2001. The remaining decrease of $5.3 million is attributable
to the consolidation of Camden Venture's and Bayonne Venture's operating results
for the year ended December 31, 2002, as they were presented as earnings from
unconsolidated affiliates until wholly acquired during 2001. The consolidation
of Camden Venture beginning in December 2001, resulted in a decrease of $8.9
million which was partially offset by an increase of $3.6 million due to the
consolidation of Bayonne Venture beginning in March 2001, as Bayonne Venture
incurred a loss during the portion of 2001 when it was unconsolidated.

Interest and debt expense, net decreased by $20.4 million for the year
ended December 31, 2002 compared to the same period in 2001 due primarily to a
lower outstanding debt balance as a result of the redemption of our senior
secured notes in connection with the 2001 power contract restructurings.

Other decreased by $2.1 million for the year ended December 31, 2002
compared to the same period in 2001 due to a gain on the sale of spare parts and
higher interest rates on cash balances in 2001.

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 as part of the 2001 power contract restructurings.

11

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
beginning 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 the 2001
power contract 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
primarily the result of higher revenues due to higher realized sales prices on
Linden Venture, partially offset by the consolidation of Bayonne Venture
beginning in March 2001 and Camden Venture beginning in December 2001.

Interest and debt expense, net decreased by $0.5 million for the year ended
December 31, 2001, compared to the same period in 2000 due to an increase in
capitalized interest costs and a lower outstanding debt balance.

Other increased by $1.0 million in 2001 as a result of higher average cash
balances and a gain on the sale of spare parts.

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 as part of the 2001 power contract restructurings.

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.
We also have a debt agreement with Mesquite Investors and ECT Merchant
Investments Corp., an affiliate of Enron Corporation. In addition, Mesquite
Investors has entered into a power marketing agreement with El Paso Merchant on
our behalf which has the effect of subsidizing El Paso Merchant's payments to
Camden Venture under its power purchase agreement. Our subsidiary, Linden 6,
sells steam to our affiliate, Linden Venture, under a steam sales agreement and
Linden 6 subleases the land on which its facility operates from Linden Venture.
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 guaranty that the rates we originally agreed to in these
contracts will be indicative of market rates in the future. See Item 8,
Financial Statements and Supplementary Data, Note 9, which is incorporated
herein by reference, for further discussion of related party transactions.

LIQUIDITY AND CAPITAL RESOURCES

Cash from Operating Activities

Net cash provided by our operating activities was $99.1 million for the
year ended December 31, 2002, compared to $68.7 million for 2001. The increase
was primarily due to Linden 6 operations which began in January 2002.

12

Cash from Investing Activities

Net cash used in our investing activities was $6.3 million for the year
ended December 31, 2002. Our 2002 investing activities primarily consisted of
additions to property, plant and equipment in connection with the Linden 6
expansion. The cost of the Linden 6 facility was financed with cash flows from
operations and capital contributions from our members. We do not anticipate any
material capital expenditures in 2003.

Cash from Financing Activities

Net cash used in our financing activities was $103.3 million for the year
ended December 31, 2002. The 2002 activity includes contributions received from
members, principal payments on long-term debt and distributions paid to our
members. In addition, in 2002, cash was restricted for the redemption of a
portion of the senior notes in January 2003, in conjunction with the Bayonne
Venture power contract restructuring in December 2002.

Future Liquidity

Our primary source of liquidity is cash generated in the form of operating
revenues or distributions from our consolidated and unconsolidated affiliates
arising from power sales under existing power purchase agreements and cash
contributed by our members, less the cost of power sales and cash distributed to
our members. We restructured the power purchase agreements of Bayonne Venture in
2002 and 2001 and Camden Venture in 2001 and subsequently distributed our
interests in Bayonne Venture and Camden Venture to one of our members in January
2003. While we expect our future revenues to decline as a result of these
distributions, we reduced our debt service obligations contemporaneously such
that our cash flows from operations will continue to adequately cover our
required debt service obligations. However, if we are unable to find
replacements for our remaining letter of credit, which expires on May 31, 2003,
we will be restricted by our indenture from making either distributions to our
members or payments on our subordinated debt and may have to pay amounts to fund
our debt service reserve account, which may negatively affect our future
liquidity. Changes in the economic environment, social environment and interest
rates may also have a negative impact on our future liquidity.

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, 2002.

For our significant borrowing and repayment activities during 2002, see
Item 8, Financial Statements and Supplementary Data, Notes 5 and 7, incorporated
herein by reference.

13

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

- ---------------
(1) Represents the operating leases' base amount which is 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

Guaranties

In connection with obtaining the consent of Linden Venture's 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 and operations. El Paso, our
affiliate, guarantied our obligations under this indemnity in an aggregate
amount of $15.0 million.

Letters of Credit

El Paso, an affiliate, has provided support for the following letters of
credit in 2002 and 2001 for our benefit:

Bank of America issued a $22.25 million letter of credit on our behalf
under the Cogen Technologies Linden, Ltd. term loan to the Linden, Ltd. lenders,
State Street Bank and Trust Company of Connecticut, National Association, which
collateralizes the obligations under the Linden, Ltd. term loan. On February 4,
2003, the Bank of America letter of credit of $22.25 million was drawn on, prior
to its expiration, by State Street Bank, as we were unable to obtain a
replacement letter of credit, due to the El Paso downgrades discussed above. In
accordance with the term loan agreement, $22.25 million was deposited in State
Street Bank's required payments accounts.

We have a $30.0 million letter of credit with Bayerische Hypo-und
Vereinsbank which supports the debt service reserve requirement for our senior
secured notes and expires on May 31, 2003. We have received notice from
Bayerische Hypo-und Vereinsbank that it will not renew its letter of credit. If
we are unable to replace this letter of credit, we will be unable to make
distributions to our members or make payments on our subordinated debt until the
debt service reserve requirement has been met.

We also had a $4.3 million letter of credit with BNP Paribas which also
supported the debt service requirement for our senior secured notes. This $4.3
million letter of credit was terminated in January 2003 as a result of the
$165.0 million redemption of our senior secured notes.

Bank of America also issued a $4.3 million letter of credit on our behalf
to Public Service Electric which collateralized certain obligations pursuant to
Bayonne Venture's power purchase agreement with Public Service Electric. In
connection with the power contract restructuring at Bayonne Venture in 2001, the
$4.3 million letter of credit was terminated.

14

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

Accounting for Derivative Instruments

Effective January 1, 2001, we record all derivative instruments on our
consolidated balance sheets at their fair value under the provisions of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended.
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, as amended.

In accordance with the provisions of SFAS No. 133, as amended, changes in
the fair value of cash flow hedges are recorded in other comprehensive income
for the portion of the change in value of the hedge that is effective. The
ineffective portion of the cash flow hedges is recorded in earnings in the
current period. Classification in the consolidated statement of operations, of
the ineffective portion, is based on the income classification of the item being
hedged.

The adoption of SFAS No. 133, as amended, had an immaterial impact on our
consolidated financial statements.

During the normal course of business, we may enter into contracts that
qualify as derivatives under the provisions of SFAS No. 133, as amended. 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" or "normal sales," as those terms are defined in SFAS No.
133, as amended, may be excluded from fair value accounting treatment. Contracts
that qualify as derivatives and do not meet the exceptions for normal purchases
or normal sales are reflected at fair value on our consolidated balance sheets
with changes in fair value reflected in our consolidated statements of
operations.

As of December 31, 2002, all of our power purchase agreements that qualify
as derivative instruments meet the normal purchases and normal sales exception
and, accordingly, are not subject to fair value accounting treatment. If these
contracts did not qualify under this election, our consolidated financial
statements would be significantly different with the fair value of the contracts
reflected on our consolidated balance sheets and changes in the fair values from
period to period reflected in our consolidated statements of operations.

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 is not evident. Rather, a series of individually insignificant
events occur over a

15

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, or series of events occur, indicating that an asset may be
impaired, 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.

Effective January 1, 2002, we began evaluating the impairment of our
long-lived assets in accordance with SFAS No. 144. Prior to January 1, 2002, we
evaluated the impairment of our long-lived assets in accordance with SFAS No.
121. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and the measurement of long-lived assets to be disposed of by sale.
SFAS No. 144 requires that long-lived assets be tested for recoverability
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. When such events or changes in circumstances occur, an
impairment loss is recognized if the carrying amount of a long-lived asset is
not recoverable and exceeds its fair value.

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 significantly 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.

Recent Accounting Pronouncements

Early Extinguishment of Debt

During the third quarter of 2002, we adopted the provisions of SFAS No.
145, Rescission of Financial Accounting Standards Board (FASB) Statements No. 4,
44, and 64, Amendments of FASB Statement No. 13, and Technical Corrections. SFAS
No. 145 requires that we evaluate any gains or losses incurred when we retire
debt early to determine whether they are extraordinary in nature or whether they
should be included in income from continuing operations in the consolidated
statement of operations. The adoption of SFAS No. 145 had no impact on our
consolidated financial statements, but may impact any applicable transactions in
the future. In January 2003, we retired $165.0 million of our debt early, which
resulted in no gain or loss. See Item 8, Financial Statements and Supplementary
Data, Notes 5 and 7, incorporated herein by reference for further discussion.

Accounting for Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement requires companies to record a liability for the
estimated retirement and removal costs of assets used in their business. The
liability is recorded at its fair value, with a corresponding asset which is
depreciated over the remaining useful life of the long-lived asset to which the
liability relates. An ongoing expense will also be recognized for changes in the
value of the liability as a result of the passage of time. The provisions of
this statement are effective for fiscal years beginning after June 15, 2002. The
adoption of this standard on January 1, 2003 did not have a material impact on
our consolidated financial statements.

16

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement will require us to recognize
costs associated with exit or disposal activities when they are incurred rather
than when we commit to an exit or disposal plan. Examples of costs covered by
this guidance include lease termination costs, employee severance costs
associated with a restructuring, discontinued operations, plant closings, or
other exit or disposal activities. The provisions of this statement are
effective for fiscal years beginning after December 31, 2002 and will impact any
exit or disposal activities we initiate after January 1, 2003.

Accounting for Guarantees

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that companies
record a liability, at fair value, for all guarantees issued after January 31,
2003, including financial performance and fair value guarantees. Certain
guarantees are not subject to the recognition and measurement provisions of the
interpretation but are subject to its disclosure requirements. These include
guarantees issued between parents and their subsidiaries and a subsidiary's
guarantee of the debt owed to a third party by either its parent or another
subsidiary of that parent. The disclosure requirements are effective for
financial statements of both interim and annual periods that end after December
15, 2002. We have included these required disclosures in Item 8, Financial
Statements and Supplementary Data, Note 10, which is incorporated herein by
reference.

Accounting for Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. This interpretation defines a
variable interest entity as a legal entity whose equity owners do not have
sufficient equity at risk and/or have a controlling financial interest in the
entity. This standard requires that companies consolidate a variable interest
entity if it is allocated a majority of the entity's losses and/or returns,
including fees paid by the entity. The provisions of FIN 46 are effective for
all variable interest entities created after January 31, 2003, and are effective
on July 1, 2003 for all variable interest entities created before January 31,
2003. We are currently evaluating the impact this interpretation will have on
our consolidated financial statements.

17

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.

18

ITEM 7A. QUANTITATIVE AND QUALITATIVE 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 our wholly owned subsidiary,
Linden, Ltd. We do not actively manage interest rate risk.

The table below shows the maturity of the carrying values and related
weighted average interest rates of our interest bearing debt, by expected
maturity dates. As of December 31, 2002, the fair value of our 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, 2002, the LIBOR
plus 1.65% was 3.06% and the commercial paper rate plus 0.55% was 1.85%.

(2) Our senior secured notes consist of three tranches of fixed rate debt, as
follows (amounts at the issuance date): $296.0 million of 6.737% notes due
in 2008, $236.0 million of 7.066% notes due in 2012 and $318.0 million of
7.536% notes due in 2017.

19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

FINANCIAL STATEMENTS OF EAST COAST POWER L.L.C.
Report of Independent Accountants......................... 21
Report of Independent Public Accountants.................. 22
Consolidated Statements of Operations..................... 23
Consolidated Balance Sheets............................... 24
Consolidated Statements of Cash Flows..................... 25
Consolidated Statements of Members' Capital............... 26
Notes to Consolidated Financial Statements................ 27
FINANCIAL STATEMENTS OF COGEN TECHNOLOGIES LINDEN VENTURE,
L.P.
Report of Independent Accountants......................... 51
Report of Independent Public Accountants.................. 52
Statements of Operations.................................. 53
Balance Sheets............................................ 54
Statements of Cash Flows.................................. 55
Statements of Partners' Capital........................... 56
Notes to the Financial Statements......................... 57

20

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, 2002
and 2001, and the results of their operations and their cash flows for the years
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 audits. We conducted our audits 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
audits provide a reasonable basis for our opinion. The financial statements of
the Company as of December 31, 2000, and for the year then ended, were audited
by other independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial statements in
their report dated March 15, 2001.

As discussed in Notes 2, 5 and 14, the Company adopted Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, on January 1, 2002. 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 27, 2003

21

THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE REFERENCED 1999
FINANCIAL STATEMENTS ARE NOT INCLUDED IN THIS 2002 ANNUAL REPORT ON FORM 10-K.

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

22

EAST COAST POWER L.L.C.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS)

See accompanying notes.

23

EAST COAST POWER L.L.C.

CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

See accompanying notes.

24

EAST COAST POWER L.L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

See accompanying notes.

25

EAST COAST POWER L.L.C.

CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
(IN MILLIONS)

See accompanying notes.

26

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.

Our sole business is the ownership and operation of four power generation
facilities located in Linden, Camden and Bayonne, New Jersey. The facilities are
commonly referred to as Linden Venture, Camden Venture, Bayonne Venture and
Linden 6, which became operational on January 25, 2002.

Potential Change in Mesquite Investors' Ownership

On November 8, 2002, El Paso announced its intent to acquire an additional
interest in Chaparral Investors, L.L.C. Chaparral owns Mesquite Investors, one
of our members. At December 31, 2002, Chaparral was owned approximately 20
percent by El Paso and 80 percent by Limestone Electron Trust, an unaffiliated
third party. In March 2003, El Paso contributed $1.0 billion to Limestone in
exchange for a non-controlling interest which increased El Paso's effective
ownership in Chaparral to approximately 90 percent. Also in March 2003, El Paso
notified Limestone that it would exercise its rights to purchase all of the
outstanding third party equity in Limestone on May 31, 2003. If El Paso acquires
the remaining Limestone equity interests in Chaparral, we would become a
consolidated subsidiary of El Paso.

(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 of America. All intercompany accounts and transactions between the
consolidated entities have been eliminated. Our consolidated financial
statements for prior periods include reclassifications that were made to conform
to the current year presentation. Those reclassifications had no impact on
reported consolidated 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 Camden Venture and Bayonne Venture
were accounted for under the equity method for the period ended December 31,
2000. 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.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

Cash and Cash Equivalents

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

27

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Restricted Cash

Cash restricted for the mandatory redemption of our senior secured notes
and payment of the associated interest, as a result of our Jersey Central Power
and Light Company power contract restructuring at Bayonne Venture, totaled
$165.7 million at December 31, 2002 (see Notes 5 and 7). Cash was also
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 and totaled $12.4
million and $12.3 million at December 31, 2002 and 2001.

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 value. 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 cost includes 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. When
these assets are retired due to abandonment or replacement, the cost less
accumulated depreciation, plus retirement costs, less salvage value will be
recorded as a gain or loss in the consolidated statement of operations.
Beginning in 2003, retirement and removal liabilities that meet the criteria
specified in Statement of Financial Accounting Standards (SFAS) No. 143,
Accounting for Asset Retirement Obligations, will be accounted for in accordance
with that standard. See Recent Accounting Pronouncements below.

Total expenditures for Linden 6 were approximately $116.9 million and have
been reclassified from construction in progress to property, plant and equipment
on our consolidated balance sheet beginning January 2002. As part of the
construction costs, we capitalized interest costs of $0.4 million in 2002, $5.9
million in 2001 and $3.5 million in 2000.

Effective January 1, 2002, we began evaluating the impairment of our
long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. Prior to January 1, 2002, we evaluated the
impairment of our long-lived assets in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and the measurement of long-lived assets to be disposed of by sale.
This statement also provides that assets that are to be disposed of by
distribution to owners shall be classified as held and used until the actual
disposal date. SFAS No. 144 requires that long-lived assets be tested for
recoverability whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. When such events or changes in
circumstances occur, an impairment loss is recognized if the carrying amount of
a long-lived asset is not recoverable and exceeds its fair value.

28

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangible Assets

Our intangible assets represented the value, which totaled $177.8 million,
assigned to our power purchase agreement at Bayonne Venture with Jersey Central
Power as a result of our acquisition of the outstanding partnership interests of
Bayonne Venture. The intangible assets were amortized using the straight-line
method over the life of the power purchase agreement. During 2001, amortization
expense was $18.4 million. In December 2001, we distributed $38.9 million of our
intangible asset as part of the 2001 power contract restructurings (see Note 5).
As a result, the net carrying value of our intangible assets was $120.5 million
at December 31, 2001. During 2002, we increased our intangible asset by
approximately $12.2 million to reflect a change associated with basis
differences resulting from our acquisition of the remaining portion of Bayonne
Venture in March 2001. When our consolidated subsidiaries, which owned interests
in Bayonne Venture, were converted from corporations into limited liability
companies, a taxable gain resulted on the adjusted fair value of our investment.
A portion of this tax was paid and the remainder will be paid by one of our
affiliates and is recorded as a component of accounts payable-affiliate on our
consolidated balance sheet as of December 31, 2002. During 2002, amortization
expense was $17.8 million. In December 2002, we distributed $114.9 million of
our intangible assets as part of the 2002 power contract restructuring (see Note
5). As a result, the carrying value of our intangible assets was zero at
December 31, 2002. We evaluate the impairment of the intangible assets in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets.

Deferred Credit

We recorded a deferred credit relating to spare parts inventory and the
fixed portion of electricity sales to Tosco Refining, L.P. Tosco Refining
reimburses us for all purchases of spare parts inventory. These reimbursements
are recorded as deferred credits until the spare parts are placed into service.
Once the spare parts are placed into service, these deferred credits are
recognized in our consolidated statements of operations. Tosco Refining
reimbursed us approximately $10.3 million for the year ended December 31, 2002,
and we had no reimbursements for the year ended December 31, 2001, related to
spare parts purchases. We also recorded a deferred credit relating to the one
month prepayment of the fixed portion of electricity sales under the Tosco
Refining power purchase agreement. Such prepayments are recorded as revenue in
the month the electricity is sold. We recorded approximately $1.5 million at
December 31, 2002, and we had no prepayments at December 31, 2001, relating to
the fixed portion of electricity sales.

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 wholly owned subsidiary, Linden, Ltd., has long-term debt that is
recorded at a premium. The premium is the result of the adjustment of the debt
to fair value due to our acquisition of Linden, Ltd. in February 1999 and is
amortized using the effective interest method over the term of the debt.
Amortization of the debt premium was approximately $0.6 million during 2002,
$0.7 million during 2001, and $0.8 million during 2000.

Deferred Financing Costs

Our deferred financing costs represent the cost to issue our senior secured
notes and our subordinated notes with affiliates and are amortized using the
effective interest method over the term of the associated debt. Amortization of
deferred financing costs was approximately $1.0 million in 2002 and $3.7 million
in 2001 and

29

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is included in our consolidated statements of operations as interest and debt
expense. We wrote off deferred financing costs of approximately $1.7 million in
2003, associated with the senior secured notes redeemed in January 2003 and $2.5
million in 2001 associated with senior secured notes redeemed in 2001.
Accumulated amortization of deferred financing costs was approximately $12.4
million as of December 31, 2002 and $11.4 million as of December 31, 2001.

Revenue Recognition

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

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 on the
consolidated balance sheets at their undiscounted amounts. As of December 31,
2002 and 2001, no known material environmental liabilities exist.

Derivative Instruments

Effective January 1, 2001, we record all derivative instruments on our
consolidated balance sheets at their fair value under the provisions of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended.
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, as amended.

In accordance with the provisions of SFAS No. 133, as amended, changes in
the fair value of cash flow hedges are recorded in other comprehensive income
for the portion of the change in value of the hedge that is effective. The
ineffective portion of cash flow hedges is recorded in earnings in the current
period. Classification in the consolidated statements of operations, of the
ineffective portion, is based on the income classification of the item being
hedged.

The adoption of SFAS No. 133, as amended, had an immaterial impact on our
consolidated financial statements.

30

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the normal course of business, we may enter into contracts that
qualify as derivatives under the provisions of SFAS No. 133, as amended. 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" or "normal sales," as those terms are defined in SFAS No.
133, as amended, may be excluded from fair value accounting treatment. Contracts
that qualify as derivatives and do not meet the exceptions for normal purchases
or normal sales are reflected at fair value on our consolidated balance sheets
with changes in fair value reflected in our consolidated statements of
operations.

As of December 31, 2002, all of our power purchase agreements that qualify
as derivative instruments meet the normal purchase and normal sales exception
and, accordingly, are not subject to fair value accounting treatment.

Recent Accounting Pronouncements

Early Extinguishment of Debt

During the third quarter of 2002, we adopted the provisions of SFAS No.
145, Rescission of Financial Accounting Standards Board (FASB) Statements No. 4,
44, and 64, Amendments of FASB Statement No. 13, and Technical Corrections. SFAS
No. 145 requires that we evaluate any gains or losses incurred when we retire
debt early to determine whether they are extraordinary in nature or whether they
should be included in income from continuing operations in the consolidated
statement of operations. The adoption of SFAS No. 145 had no impact on our
consolidated financial statements, but may impact any applicable transactions in
the future. In January 2003, we retired $165.0 million of our debt early which
resulted in no gain or loss (see Notes 5 and 7).

Accounting for Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement requires companies to record a liability for the
estimated retirement and removal costs of assets used in their business. The
liability is recorded at its fair value, with a corresponding asset which is
depreciated over the remaining useful life of the long-lived asset to which the
liability relates. An ongoing expense will also be recognized for changes in the
value of the liability as a result of the passage of time. The provisions of
this statement are effective for fiscal years beginning after June 15, 2002. The
adoption of this standard on January 1, 2003 did not have a material impact on
our consolidated financial statements.

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement will require us to recognize
costs associated with exit or disposal activities when they are incurred rather
than when we commit to an exit or disposal plan. Examples of costs covered by
this guidance include lease termination costs, employee severance costs
associated with a restructuring, discontinued operations, plant closings, or
other exit or disposal activities. The provisions of this statement are
effective for fiscal years beginning after December 31, 2002. The provisions of
this statement will impact any exit or disposal activities we initiate after
January 1, 2003.

Accounting for Guarantees

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that companies
record a liability, at fair value, for all guarantees issued after January 31,
2003, including financial performance and fair value guarantees. Certain
guarantees are not subject to the recognition and measurements provisions of the
interpretation but are subject to its disclosure requirements.

31

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

These include guarantees issued between parents and their subsidiaries and a
subsidiary's guarantee of the debt owed to a third party by either its parent or
another subsidiary of that parent. The disclosure requirements are effective for
financial statements of both interim and annual periods that end after December
15, 2002. We have included these required disclosures in Note 10.

Accounting for Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. This interpretation defines a
variable interest entity as a legal entity whose equity owners do not have
sufficient equity at risk and/or have a controlling financial interest in the
entity. This standard requires that companies consolidate a variable interest
entity if it is allocated a majority of the entity's losses and/or returns,
including fees paid by the entity. The provisions of FIN 46 are effective for
all variable interest entities created after January 31, 2003, and are effective
on July 1, 2003 for all variable interest entities created before January 31,
2003. We are currently evaluating the impact this interpretation will have on
our consolidated financial statements.

(3) INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The following table reflects our investment in our unconsolidated
affiliate, Linden Venture, as of December 31, (in millions):

Our earnings (loss) from unconsolidated affiliates (net of excess cost
amortization) for 2002, 2001 and 2000 were as follows (in millions):

Included in our investment balance is unamortized excess cost over our
share of underlying venture capital totaling $630.5 million as of December 31,
2002, and $674.5 million as of December 31, 2001. These excess costs arose as a
result of our acquisition of these ventures in February 1999, and are associated
with the value of each venture's power purchase agreement. These excess costs
are amortized using the straight line method over the life of each venture's
power purchase agreement. Amortization of these amounts was $44.0 million for
the year ended December 31, 2002, $60.2 million for the year ended December 31,
2001 and $78.8 million for the year ended December 31, 2000.

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

32

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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, 2002, 2001 and 2000, distributions from our
unconsolidated affiliates were $113.9 million, $142.1 million and $150.3
million. During the years ended December 31, 2002 and 2001, income allocated
from our unconsolidated affiliates was $119.4 million and $150.1 million. The
income allocated in 2001 does not include extraordinary costs of $10.1 million
related to the early extinguishment of debt by Camden Venture in 2001.

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.

(4) INVENTORY

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

(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, our members.

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.

33

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Had all the transactions to acquire the remaining partnership interests in
the ventures been effective as of January 1, 2000, 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

Public Service Electric and Gas Company

On May 23, 2001, we reached an agreement to restructure the long-term power
purchase agreements with Public Service Electric and Gas Company at our Camden
Venture and Bayonne Venture facilities. On July 19, 2001, the New Jersey Board
of Public Utilities approved the restructuring, 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 and
Mesquite Investors. In addition, our Camden Venture and Bayonne Venture
facilities were released from their obligations under the power purchase
agreements with Public Service Electric. Camden Venture began operations under
an agreement with El Paso Merchant on December 13, 2001. Additionally, our
member, Mesquite Investors, entered into an agreement in December 2001 with El
Paso Merchant, our affiliate, that has the effect of subsidizing the payments
that El Paso Merchant makes to Camden Venture, our subsidiary, under a power
purchase agreement between El Paso Merchant and Camden Venture (see Note 10).
Bayonne Venture also began operations under an agreement with El Paso Merchant
on December 13, 2001 (see Note 10) for approximately 24 percent of the electric
energy produced by the Bayonne facility that had been purchased by Public
Service Electric. We also entered into a gas services agreement with Public
Service Electric relating to the Bayonne Venture facility effective upon the
consummation of the restructuring. This 2001 power purchase agreement
restructuring resulted in a significant change in business for these facilities
since the Camden facility and a portion of the Bayonne facility operated on a
merchant basis following the restructuring. This change in business constituted
a trigger for impairment analysis under SFAS No. 121. We recorded impairment
charges of $62.8 million on the Camden facility and $4.5 million on the Bayonne
facility in 2001 as a result of the re-evaluation of the carrying amount of the
plant assets. These charges are reflected in our consolidated statement of
operations as a

34

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

component of operating expenses. The estimated fair value of our plant assets
was based on sales data on similar plants adjusted for liquidity in the
marketplace and locational differences.

In conjunction with the 2001 power contract restructurings, we retired
$44.7 million of Camden Venture's debt and $55.1 million of Bayonne Venture's
debt through cash contributions from our members. We also incurred extraordinary
costs of $13.8 million at Bayonne Venture. Camden Venture, our unconsolidated
affiliate through November 30, 2001, incurred extraordinary costs of $10.1
million related to the early extinguishment of debt. These costs have been
reported as extraordinary items in our consolidated statement of operations for
2001. In addition, we incurred costs of $2.2 million to terminate agreements
affected by the power contract restructurings.

These restructurings constituted a power contract buyout under our
indenture executed in connection with our senior secured notes (see Note 7). We
received confirmation from the rating agencies that the restructuring would not
cause a rating downgrade provided that we redeem a portion of our senior secured
notes. On November 9, 2001, we provided a notice of redemption of $176.4 million
of our notes to the trustee. Consequently, we executed a mandatory redemption at
par of $176.4 million of our senior secured notes, which was completed on
December 12, 2001, through cash contributions from our members and wrote off
approximately $2.5 million of deferred financing costs associated with the
redemption of our senior secured notes.

Jersey Central Power and Light Company

On February 27, 2002, we reached an agreement, subject to lender, partner,
and other unaffiliated party approval, with Jersey Central Power and Light
Company to restructure the long-term power purchase agreement relating to our
Bayonne Venture facility. On December 20, 2002, after all necessary approvals
were obtained, we completed the restructuring of our long-term power purchase
agreement with Jersey Central Power at our Bayonne Venture facility.

In this power contract restructuring, we distributed the Bayonne Venture
power purchase agreement with Jersey Central Power, which had a book value of
$114.9 million, to our common members, Bonneville Pacific and Mesquite
Investors. Our Bayonne Venture facility was released from its obligations under
the power purchase agreement with Jersey Central Power. On December 21, 2002,
Bayonne Venture began operations under an agreement with El Paso Merchant for
the remaining 76 percent of electric energy produced by the Bayonne Venture
facility. This December 2002 restructuring of the Bayonne Venture power purchase
agreement resulted in a significant change in the business for the Bayonne
facility, and accordingly, the Bayonne Venture plant assets were tested for
impairment in accordance with SFAS No. 144. Additionally, as a result of the
planned distribution of our interests in Camden Venture and Bayonne Venture to
our member, Mesquite Investors, in January 2003, and in order to comply with the
terms of our indenture, we obtained valuations of Camden Venture's and Bayonne
Venture's plant assets through appraisals conducted by an independent third
party. The results of the third party appraisals indicated that their fair
values were zero, as compared to the carrying amount of $28.8 million for Camden
Venture's plant assets and $56.1 million for Bayonne Venture's plant assets.
Based on the results of the appraisal for Camden Venture, we also tested Camden
Venture's plant assets for impairment in accordance with SFAS No. 144. Our
impairment tests indicated that the plant assets for both facilities were
impaired and we recorded an impairment charge of $84.9 million to adjust the
carrying amounts to their appraised fair values of zero. The primary reason for
the reduction of the fair value of Camden Venture's and Bayonne Venture's plant
assets was the continued decline during 2002 of the unregulated power industry.
In addition, both plants have long-term gas transportation contracts that have
high costs relative to current market prices. In addition, we incurred costs of
$10.0 million to terminate agreements affected by the power contract
restructurings.

This restructuring constituted a power contract buyout under the indenture
executed in connection with our senior secured notes (see Note 7). We received
confirmation from the rating agencies that the
35

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

restructuring would not cause a rating downgrade provided that we redeem a
portion of our senior secured notes. On December 20, 2002, we provided notice of
redemption to the trustee. In conjunction with this redemption, we received a
contribution from our members in December 2002 of $165.7 million which was
restricted for the subsequent redemption of our senior secured notes. We
executed a mandatory redemption at par of $165.0 million of our senior secured
notes which was completed on January 21, 2003. This cash contribution received
from our members is reflected as a component of restricted cash on our
consolidated balance sheet at December 31, 2002. We also wrote off approximately
$1.7 million in 2003 of deferred financing costs associated with the redemption
of our senior secured notes.

(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 these 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.

36

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) DEBT AND FINANCING TRANSACTIONS

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

The following are aggregate maturities of our long-term debt for each of
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 were 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. We redeemed
$165.0 million and $176.4 million of our senior secured notes in January 2003
and December 2001 through cash contributions from our members in conjunction
with our power contract restructurings (see Note 5).

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 (subject to restrictions
under our indenture); 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. However, there are exceptions to the make-
whole premium including certain loss events or power contract buyouts. 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.

37

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Subordinated Note with Affiliates

We have a subordinated note payable to affiliates with an original
principal amount of $250.0 million. On April 20, 1999, we repaid $62.1 million
of the principal amount with a portion of the proceeds from the sale of the
senior secured notes. The prepayment reduced the required principal payments on
a pro rata basis. We had $187.9 million payable to Mesquite Investors
outstanding under the subordinated note at December 31, 2002 and 2001 which
bears 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. ECT Merchant Investments Corp., an
affiliate of Enron, holds a participation interest in the affiliate note payable
requiring us to pay ECT Merchant Investments the first maturing $30.0 million of
principal installments and the related interest.

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 wholly owned subsidiary, Linden, Ltd., has a $250.0 million term loan
with State Street Bank and Trust Company of Connecticut, National Association,
not in its individual capacity but as trustee, which matures in September 2007.
At December 31, 2002, $139.2 million was outstanding under the Linden, Ltd. term
loan comprised of a fixed rate portion of $61.9 million, a floating rate portion
of $67.3 million and a working capital portion of $10.0 million. At December 31,
2001, $158.7 million was outstanding under the Linden, Ltd. term loan comprised
of a fixed rate portion of $71.3 million, a floating rate portion of $77.4
million and a working capital portion of $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 $1.5
million at December 31, 2002 and $2.1 million at December 31, 2001 is amortized
using the effective interest method resulting in an effective interest rate of
5.33% for the year ended December 31, 2002 and 6.61% for the year ended December
31, 2001. 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

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 a component of
interest expense in our 2001 consolidated statement of operations.

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EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) RELATED PARTY TRANSACTIONS

El Paso Merchant

We purchased fuel from El Paso Merchant totaling $54.2 million during 2002
and $2.1 million during 2001. We recognized revenues of $24.9 million during
2002 and $1.8 million during 2001 related to electricity sales to El Paso
Merchant. The 2002 revenues are net of $6.6 million paid by Mesquite Investors
to El Paso Merchant under an agreement that has the effect of subsidizing the
payments that El Paso Merchant makes to Camden Venture under its power purchase
agreement with El Paso Merchant. The offsetting credit is accounted for as a non
cash capital contribution to us from Mesquite Investors.

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. We incurred expenses of $3.6 million during 2002 and $2.7
million during 2001 under this agreement.

Inventory Purchases and Sales

During the year ended December 31, 2002, Linden Venture sold inventory to
related parties. These amounts were immaterial. 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.

During the year ended December 31, 2002, Camden Venture sold to and
purchased inventory from related parties. These amounts were immaterial. Camden
Venture did not recognize any gains or losses on these transactions. 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. Additionally, during the year ended December 31,
2000, Camden Venture sold inventory to related parties for approximately $0.4
million, and recognized a gain of $0.1 million, on those sales.

During the year ended December 31, 2002, Linden 6 purchased inventory from
related parties. These amounts were immaterial. Linden 6 did not purchase
inventory from related parties during 2001.

Shared Facilities Agreement

Linden 6 entered into a shared facilities agreement with Linden Venture in
June 2000, which provided for the sale of steam to Linden Venture through 2017.
The price of the steam is based on Linden Venture's avoided cost of fuel.
Included in steam revenue during 2002 was $15.5 million for sales from Linden 6
to Linden Venture. Linden 6 did not have any steam sales to Linden Venture prior
to 2002 as they were not yet operational.

Letters of Credit

El Paso, an affiliate, has provided support for the following letters of
credit in 2002 and 2001 for our benefit:

39

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Bank of America issued a $22.25 million letter of credit on our behalf
under the Linden, Ltd. term loan to the Linden, Ltd. lenders, State Street Bank,
which collateralizes the obligations under the Linden, Ltd. term loan. On
February 4, 2003, the Bank of America letter of credit of $22.25 million was
drawn on, prior to its expiration, by State Street Bank, as we were unable to
obtain a replacement letter of credit, due to the El Paso downgrades discussed
below. In accordance with the term loan agreement, $22.25 million was deposited
in State Street Bank's required payments accounts.

We have a $30.0 million letter of credit with Bayerische Hypo-und
Vereinsbank which supports the debt service reserve requirement for our senior
secured notes and expires on May 31, 2003. We have received notice from
Bayerische Hypo-und Vereinsbank that it will not renew its letter of credit. If
we are unable to replace this letter of credit, we will be unable to make
distributions to our members or make payments on our subordinated debt until the
debt service reserve requirement has been met.

We also had a $4.3 million letter of credit with BNP Paribas which also
supported the debt service requirement for our senior secured notes. This $4.3
million letter of credit was terminated in January 2003 as a result of the
$165.0 million redemption of our senior secured notes (see Note 7).

Bank of America also issued a $4.3 million letter of credit on our behalf
to Public Service Electric which collateralized certain obligations pursuant to
Bayonne Venture's power purchase agreement with Public Service Electric. In
connection with the power contract restructuring at Bayonne Venture in 2001, the
$4.3 million letter of credit was terminated.

For the year ended December 31, 2002, we recorded $0.4 million in general
and administrative expense for guaranty fees due to our affiliate, El Paso, for
these letters of credit in our consolidated statements of operations. We
recorded no guaranty fees during 2001 related to these letters of credit.

El Paso Downgrades

On February 7, 2003, Standard and Poor's downgraded El Paso's senior
unsecured debt to a rating of "B". On February 11, 2003, Moody's downgraded El
Paso's senior unsecured debt rating to "Caa1". Both rating agencies maintain a
negative outlook on El Paso's credit ratings, indicating the possibility of
further ratings downgrades.

El Paso Announces Exit of Energy Trading Activities

El Paso's credit downgrades in the third and fourth quarters and the
deterioration of the energy trading environment led to its decision in November
2002 to exit the energy trading business and pursue an orderly liquidation of
its trading portfolio. El Paso anticipates this liquidation may occur through
2004. As further discussed in Note 10, we have entered into several agreements
with El Paso Merchant and we are in the process of evaluating what impact, if
any, this announcement will have on these agreements.

See Note 7 and 10 for further discussion of our related party transactions.

(10) COMMITMENTS AND CONTINGENCIES

Linden 6

During February 2000, we entered into an energy services agreement with
Tosco Refining, a subsidiary of ConocoPhillips 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 Venture site under a
sublease entered into with Linden Venture.

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

40

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expansion did not occur by late October 2001. Completion of the facility was
delayed. The Linden 6 facility 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 were precluded from collecting liquidated
damages from National Energy Production until the earlier of their bankruptcy or
April 30, 2002. We have a $6.6 million receivable primarily for liquidated
damages and incremental costs we incurred in excess of the original engineering,
procurement and construction agreement pricing from National Energy Production
which is fully reserved. National Energy Production filed for bankruptcy on May
20, 2002. We have filed a claim against National Energy Production for
liquidated damages of $6.6 million due to us in connection with the bankruptcy
proceeding. National Energy Production's subcontractors filed liens totaling
approximately $20.6 million against the Linden 6 facility to secure claims for
amounts due to them and unpaid by National Energy Production. We participated in
proceedings in the New Jersey state court to have the liens released from the
Linden 6 facility. In August 2002, we paid $10.4 million in order to have all of
the liens released on the facility. These liabilities were previously accrued.
All of the liens were released pursuant to an order of the court dated October
21, 2002. All adverse issues pertaining to the construction liens have been
resolved.

In connection with obtaining the consent of the Linden Venture's partners
and lenders for the transactions contemplated by the energy services agreement,
we have indemnified Linden Venture from 2000 through 2017 from any and all
losses that may be incurred as a result of Linden 6's expansion and operations.
There is no limit on our exposure under this guaranty. El Paso, our affiliate,
guarantied our obligations under this indemnity from 2000 through 2017 in an
aggregate amount of $15.0 million. In addition, Linden Venture indemnified us
against any third party claims resulting from or in connection with a release of
hazardous materials by Linden Venture. Neither party shall be liable to the
other for treble, exemplary or punitive damages of any type under any
circumstances. We did not accrue any losses relating to the indemnifications or
the guaranty at December 31, 2002. Guaranty fees due to our affiliates as of
December 31, 2002 and 2001 are $0.1 million and $0.2 million and are recorded as
a component of general and administrative expense on our consolidated statements
of operations relating to this guaranty.

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 contract restructuring in December 2001.

Bank of America 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. In connection with the power
contract restructuring at Bayonne Venture in 2001, the letter of credit was
terminated in December 2001 (see Note 5).

Under our loan agreements and other commercial commitments, we maintained
letters of credit in the amount of $56.6 million as of December 31, 2002 and
$64.5 million as of December 31, 2001 (see Note 9).

Operation and Maintenance Agreement -- Camden Venture

In 1997, Camden Venture entered into an operation and maintenance agreement
with General Electric International, Inc. to operate and maintain the facility.
This agreement has a twelve year term expiring in 2008. The agreement provides
for all of the operation and maintenance for the facility at direct cost. In
addition, we pay a minimum fee of approximately $16,000 per month and we pay
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 $2.6 million in 2002 and $2.5
million in 2001 and 2000. Included in such amounts are bonuses paid under the
terms of the agreement of

41

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$0.2 million for the year ended December 31, 2002, $0.2 million for the year
ended December 31, 2001 and $0.1 million for the year ended December 31, 2000.

Power Purchase Agreement -- Camden Venture

Camden Venture's electrical capacity was sold to Public Service Electric
pursuant to a twenty 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, we distributed the power purchase agreement with Public Service Electric
to our members. 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 (PURPA).

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 El Paso Merchant'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, 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 which escalates by 4.0
percent annually.

Our member, Mesquite Investors, entered into an agreement in December 2001
with El Paso Merchant, our affiliate, that has the effect of subsidizing the
payments that El Paso Merchant makes to Camden Venture, under this new power
purchase agreement (see Note 9). As a result of this agreement between Mesquite
Investors and El Paso Merchant, our revenues under the Camden Venture power
purchase agreement with El Paso Merchant are decreased by the payments made by
Mesquite Investors to El Paso Merchant. The offsetting credit is accounted for
as a non cash capital contribution to us from Mesquite Investors.

Total electricity revenues under these agreements for the years ended
December 31, 2002, 2001, and 2000 are $13.0 million, $102.6 million and $94.7
million.

Gas Services Agreement -- Camden Venture

Camden Venture had contracted with Public Service Electric for delivery of
its natural gas supply from the Gulf Coast to its facility through March 2013.
This agreement was terminated 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 MMBtus of
natural gas per day to Camden Venture at contractually negotiated rates that
escalate based on increases in Public Service Electric's published tariff rates.
We also contracted with El Paso Merchant on December 13, 2001 to manage our fuel
supply. Both of these agreements terminate March 5, 2013. Included in fuel
expenses during 2002, 2001 and 2000 are $12.5 million, $57.8 million and $52.3
million, recognized under these agreements.

42

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 recognized no revenues from steam sales during
2000.

Electricity Sale Agreements -- Bayonne Venture

During 2002, 2001 and 2000, Bayonne Venture sold approximately 76 percent
of its electric capacity to Jersey Central Power under a twenty year power
purchase agreement that would have expired in 2008. The agreement established
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. On December 20, 2002, we distributed the power purchase agreement
with Jersey Central Power to our members. During 2001 and 2000, approximately 24
percent 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 additional discussion).

Bayonne Venture entered into an 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 MWh. Upon
restructuring of the Jersey Central Power power purchase agreement, Bayonne
Venture entered into an additional electricity agreement with El Paso Merchant
effective December 21, 2002 and terminating in December 2003. This agreement
provides for El Paso Merchant to purchase all power not sold under the existing
electricity sale agreement and resell the excess power in wholesale transactions
at prevailing market prices. In addition, Bayonne Venture pays El Paso Merchant
approximately $0.1 million per year escalated by the Consumer Price Index as
consideration for services performed under this agreement.

Total electricity revenues under these agreements for the years ended
December 31, 2002, 2001, and 2000 are $114.3 million, $119.8 million and $107.9
million.

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 the
years ended December 31, 2002, 2001, and 2000 is approximately $2.0 million,
$1.4 million and $1.5 million, 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

43

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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's
avoided cost of steam.

Bayonne Venture and ExxonMobil 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,
ExxonMobil 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. ExxonMobil used the steam at its adjacent terminal
facility for industrial purposes. ExxonMobil sold its terminal facility in
Bayonne to IMTT-BX on April 1, 1993. As a result, IMTT-BX assumed ExxonMobil's
rights and obligations under the Exxon Steam Sale Agreement and is currently
performing under the agreement. Total steam revenues under these agreements for
the years ended December 31, 2002, 2001, and 2000 are $6.3 million, $7.1 million
and $6.5 million.

Management Fee Agreement -- Bayonne Venture

Bayonne Venture has a management fee agreement with a former affiliate. The
fee is based on 1.5 percent of Bayonne Venture's gross revenues. Accordingly,
fees of approximately $1.9 million during 2002 and $1.9 million during 2001 are
presented as general and administrative expense.

Gas Services Agreement -- Bayonne Venture

Prior to the Public Service Electric restructuring on December 12, 2001,
Bayonne Venture bought fuel under a tariff rate structure from Public Service
Electric. Post restructuring, Bayonne Venture entered into a gas services
agreement with Public Service Electric under which Public Service Electric
provides firm transportation for 35,000 MMBtus 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 2002, 2001, and 2000 are $56.4
million, $43.3 million and $59.6 million, recognized pursuant to these
arrangements.

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 Venture site and
nonexclusive easements over other portions of Bayonne Industries' property for
various interconnections to the facility.

The initial term of the Bayonne Venture site lease is 20 years and expires
in May 2006. The Bayonne Venture site lease will automatically renew after
expiration of the initial term, for two succeeding terms, the first for two
years and the second for 10 years, unless Bayonne Venture elects to terminate
the lease. Base rent for the facility was 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 2002, 2001 and 2000, 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.
44

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Operation and Maintenance Agreement -- Bayonne Venture

Bayonne Venture has entered into an operation and maintenance agreement
with General Electric International to operate and maintain the facility for an
initial term of 12 years. The agreement provides for all of the operation and
maintenance of the facility at direct cost. In addition, we pay a minimum fee of
$16,000 per month and we pay bonuses if certain operating targets are met, both
of which are escalated by the Consumer Price Index. Bayonne Venture has recorded
$2.8 million for the year ended December 31, 2002, $3.0 million for the year
ended December 31, 2001 and $2.9 million for the year ended December 31, 2000 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, $0.2 million and $0.1 million for the years ended
December 31, 2002, 2001 and 2000.

Electricity Sale Agreements -- Linden 6

Linden 6 entered into an energy services agreement with Tosco Refining, a
subsidiary of ConocoPhillips Corporation, effective February 14, 2000 and
terminating on April 30, 2017. This agreement was amended in January 2002 to
clarify how charges incurred by Tosco Refining pursuant to a contract between
Tosco Refining and Public Service Electric would be treated under this
agreement. This agreement provides for the sale of a nominated quantity of
electricity of no less than 90 MWs. The sales price for electric energy
delivered is primarily based on a fixed base component plus variable factors
including an operation and maintenance component and a fuel component. Total
electricity revenues under this agreement were $35.3 million for the year ended
December 31, 2002.

Linden 6 also entered into an electricity supply agreement with Infineum
USA L.P. effective December 21, 2001 and terminating on January 25, 2007. This
agreement provides for Infineum's requirements of electricity up to, but not
exceeding, a maximum quantity of 10 MWs. Total electricity revenues under this
agreement were $2.4 million for the year ended December 31, 2002.

In March 2002, Public Service Electric agreed to buy electricity generated
by Linden 6, but not purchased by Tosco Refining and Infineum. The term of the
agreement is indefinite if we meet the requirements stated in Public Service
Electric's Purchased Electric Power tariff. The agreement provides for actual
energy payments per KWh based upon avoided energy costs in the month energy is
received by Public Service Electric. Total electricity revenues from Public
Service Electric were $8.0 million for the year ended December 31, 2002.

Gas Purchase Agreements -- Linden 6

Under the terms of our energy services agreement with Tosco Refining,
Linden 6 may purchase fuel for the operation of our facility with approval from
Tosco Refining for any contract with a term greater than six months. Tosco
Refining also has the option, with 30 days notice, to arrange for delivery of
fuel to us from Public Service Electric. Linden 6 provides Tosco Refining with a
credit for all Public Service Electric charges they may incur. Included in fuel
expense was $19.8 million recognized under this agreement for the year ended
December 31, 2002.

In February 2002, Linden 6 contracted with Conectiv Energy Supply, Inc. to
purchase natural gas up to 50,000 MMBtus per day through November 2005 at an
index price plus $0.04 per MMBtu. Included in fuel expense was $15.7 million
recognized under this agreement for the year ended December 31, 2002.

During 2002, Linden 6 purchased natural gas from El Paso Merchant, our
affiliate, at an index price plus $0.04 per MMBtu. Included in fuel expense was
$2.3 million relating to these purchases for the year ended December 31, 2002.

45

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Gas Transportation Agreement -- Linden 6

Linden 6 operates under a gas services agreement between Tosco Refining and
Public Service Electric. This agreement requires Public Service Electric to
provide non-firm transportation within their system for up to 70 million cubic
feet of natural gas per day to the Linden 6 facility at the published tariff
rate and shall continue until April 30, 2017. Included in fuel expense was $1.8
million recognized under this agreement for the year ended December 31, 2002.

Standby Service Agreement -- Linden 6

In January 2002, Linden 6 contracted with Public Service Electric to
purchase 100 MWs of standby electric service should the facility fail to
operate. In June 2002, Linden 6 increased the standby electric service to 120
MWs. This agreement expires in June 2003. Energy and demand charges paid under
this agreement were approximately $4.4 million for the year ended December 31,
2002.

Site Lease Agreements -- Linden 6

Effective June 2000, Linden 6 began subleasing land from Linden Venture for
its facility. The term of the lease extends through 2017. Annual minimum lease
payments are approximately $41,000 per year and are adjusted for changes in the
Consumer Price Index. Lease expense was approximately $54,200 in 2002 and
$46,500 in 2001. We also entered into a ground lease with Bayway to provide a
site for the interconnection of Linden 6.

Operation and Maintenance Agreement -- Linden 6

We entered into an operation and maintenance agreement with General
Electric International on January 10, 2001 to operate and maintain the Linden 6
facility. This agreement has a term expiring in 2008 and provides for a fee of
$12,500 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 operation and maintenance expense, including bonuses paid under the
terms of the agreement, were $0.3 million for the year ended December 31, 2002.

Litigation

On June 20, 2000, Infineum filed an action against Linden Venture in the
United States District Court of New Jersey seeking actual and punitive damages.
The suit claimed that Linden Venture tortuously interfered with Infineum's
ability to sell steam purchased from the Linden Venture 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. Linden Venture filed an answer and counterclaim on September 26, 2000.
On December 21, 2001, the court denied Linden Venture's motion to dismiss for
lack of antitrust standing. The court ordered the parties to mediate the
dispute. Mediation was held in early October 2002 and a settlement was reached
in December 2002. Under the settlement, the suit was dismissed with prejudice
and Linden Venture will continue to sell steam to Infineum under the steam sale
agreement. In addition, Linden Venture shall pay Infineum beginning on April 30,
2003, and at the end of each subsequent annual period in the steam sale
agreement, the lesser of (i) the settlement steam sales credit or (ii) $0.3
million.

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

46

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

results of operations. As of December 31, 2002, we have accrued liabilities
totaling $0.1 million for all outstanding legal expenses in relation to the
Infineum lawsuit.

(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 and
Mesquite Investors. On December 20, 2002, we distributed the Bayonne Venture
power purchase agreement with Jersey Central Power, which had a book value of
approximately $114.9 million, to our common members. These non cash
distributions were done in connection with power contract restructurings as
permitted by the terms of our indenture.

During the years ended December 31, 2002, 2001 and 2000, we received cash
contributions from our members of $165.7 million, $439.0 million and $42.8
million. These cash contributions were made to fund our operating and investing
activities and our redemption of our senior secured notes in connection with our
power contract restructurings (see Note 5).

During the year ended December 31, 2002, we made cash distributions of
$56.5 million to our members.

During the year ended December 31, 2002, our member made a non cash
contribution of $6.6 million to us in relation to an agreement between Mesquite
Investors and El Paso Merchant (see Note 9).

(12) MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Major Customers

Operating revenues in 2002 were primarily generated from three customers
pursuant to long-term contracts. Tosco Refining, El Paso Merchant and Jersey
Central Power purchased electricity from us and accounted for approximately 84
percent of revenues for 2002. There were no other major customers in 2002.

Operating revenues in 2001 were primarily generated from two 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. There were no other major customers 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 contract
restructuring at Camden Venture, Camden Venture's accounts receivable were
primarily with Public Service Electric, which purchased electricity under a
long-term power purchase agreement. After Camden Venture's power contract
restructuring, its accounts receivable are with El Paso Merchant. Accounts
receivable at Bayonne Venture are primarily with Jersey Central Power and El
Paso Merchant for 2002 and 2001. Accounts receivable at Linden 6 are primarily
with Tosco Refining, Public Service Electric and Infineum for 2002, and in 2001
Linden 6 was not yet operational. We do not require collateral or other security
to support accounts receivable.

At December 31, 2002, Public Service Electric had a senior unsecured credit
rating of "Baa1" by Moody's and "BBB-" by Standard and Poor's, Jersey Central
Power had an issuer credit rating of "A3" by Moody's and "BBB" by Standard and
Poor's, ConocoPhillips, the parent company of Tosco Refining, had a senior
unsecured credit rating of "A3" by Moody's and "A-" by Standard and Poor's.
Infineum is a privately-held joint venture between ExxonMobil, Shell Petroleum
Company Ltd. and Shell Oil Company and as a
47

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

result does not have its own credit rating. However, ExxonMobil has a senior
secured credit rating of "AAA" by Moody's and Shell (Royal Dutch) has a
long-term local issuer credit rating of "AAA" by Standard & Poor's at December
31, 2002. See Note 9 for a discussion of El Paso's credit rating.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2002 and 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 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. The following table reflects
the carrying amount and estimated fair value of financial instruments at
December 31, (in millions):

Downgrade of Our Senior Secured Notes

On February 10, 2003, Standard and Poor's lowered its rating on our senior
secured notes to "BB+" from "BBB-". On February 12, 2003, Moody's downgraded our
senior secured debt to "Ba2" from "Baa3". The rating actions were attributed to
the downgrade of El Paso's debt ratings. These rating actions had a negative
impact on the fair value of our long-term debt. Further downgrades of El Paso's
credit ratings could also have an indirect negative impact on the fair value of
our long-term debt.

(14) DISTRIBUTION OF BAYONNE VENTURE AND CAMDEN VENTURE

One of our members, Mesquite Investors, was established to own and manage
investments in domestic power assets and its operations include the
restructuring of power sales, fuel supply and credit agreements of PURPA
facilities and monetization of the power purchase agreements (see Note 5).
Following the 2002 restructuring of our Bayonne Venture power purchase agreement
with Jersey Central Power and the 2001 restructurings of our Bayonne Venture and
Camden Venture power purchase agreements with Public Service Electric, our
Bayonne Venture and Camden Venture facilities began operating on a merchant
basis. Accordingly, on January 6, 2003, we distributed our ownership interests
in Bayonne Venture and Camden Venture to Mesquite Investors as permitted by the
terms of our indenture. The book value of Bayonne Venture's and Camden Venture's
plant assets at the time of the distribution was zero; therefore, our other
common member, Bonneville Pacific, did not receive a pro-rata share of the
distribution. In 2003, Bayonne Venture and Camden Venture will be accounted for
as discontinued operations in accordance with SFAS No. 144.

48

EAST COAST POWER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following assets and liabilities as of December 31 will be reported as
discontinued operations in 2003:

(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 Notes 2 and 5.

(2) During the fourth quarter of 2002, we recorded asset impairment charges of
$56.1 million resulting from the restructuring of our Bayonne power purchase
agreement and $28.8 million resulting from a decrease in the market price of
Camden Venture's plant assets. See Notes 2 and 5.

49

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

50

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the accompanying balance sheets and the related statements
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, 2002 and 2001, and the results of its operations and its
cash flows for the years 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 audits. We
conducted our audits 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 audits provide a reasonable basis for our opinion. The
financial statements of the Company as of December 31, 2000, and for the year
then ended, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated March 15, 2001.

As discussed in Note 3, the Company adopted Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, on January 1, 2002.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
March 27, 2003

51

THE FOLLOWING IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE REFERENCED 1999
FINANCIAL STATEMENTS ARE NOT INCLUDED IN THIS 2002 ANNUAL REPORT ON FORM 10-K.

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

52

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

STATEMENTS OF OPERATIONS
(IN MILLIONS)

See accompanying notes.

53

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

BALANCE SHEETS
(IN MILLIONS)

See accompanying notes.

54

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

STATEMENTS OF CASH FLOWS
(IN MILLIONS)

See accompanying notes.

55

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(IN MILLIONS)

See accompanying notes.

56

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 of Connecticut, National Association, 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 MW 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 MWs, 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 MWs 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 operation and maintenance
agreement with General Electric International, Inc., expiring in 2008, 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 monthly to our members in four tranches according to the
terms of our partnership agreement.

- First tranche: 1 percent to the general partner, 98 percent to the
preferred limited partner and 1 percent to the common limited partner, up
to a specified rate of return for each limited partner;

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

- Third tranche: 90 percent to the general partner, 1 percent to the
preferred limited partner and 9 percent to the common limited partner.

- Fourth tranche: 90 percent to the general partner, 9 percent to the
preferred limited partner, and 1 percent to the common limited partner.

The distribution of cash according to the terms summarized above will be in
effect until the date which is the earlier of March 2015, or the date upon which
the preferred limited partner and the common limited partner have achieved a
specified before tax return on their initial equity investment, at which time
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 68 percent of our cash distributions
in 2002 and 73 percent of our cash distributions in 2001 and 2000.

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.
57

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

The general partner was allocated 75 percent of our income during 2002, 81
percent during 2001 and 80 percent during 2000. 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.

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 of
America.

Use of Estimates

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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. 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 restricted cash is restricted under the terms and conditions of our
partnership agreement and represents our distributions to partners that will be
made in the subsequent month. At December 31, 2002 and 2001, we had restricted
cash of $15.9 million and $18.3 million.

Revenue Recognition

We recognize electric revenue when we deliver energy and provide capacity.
Revenue is based on the quantity of energy delivered and capacity provided at
rates specified under contractual terms or realized upon sale at market prices.

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. The cost of butane 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 cost includes 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 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. When
58

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

these assets are retired due to abandonment or replacement, the cost less
accumulated depreciation, plus retirement costs, less salvage value will be
recorded as a gain or loss in the statement of operations. Beginning in 2003,
retirement and removal liabilities that meet the criteria specified in Statement
of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations, will be accounted for in accordance with that standard.
See Recent Accounting Pronouncements below.

Effective January 1, 2002, we began evaluating the impairment of our
long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. Prior to January 1, 2002, we evaluated the
impairment of our long-lived assets in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and the measurement of long-lived assets to be disposed of by sale.
This statement also provides that assets that are to be disposed of by
distribution to owners shall be classified as held and used until the actual
disposal date. SFAS No. 144 requires that long-lived assets be tested for
recoverability whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. When such events or changes in
circumstances occur, an impairment loss is recognized if the carrying amount of
a long-lived asset is not recoverable and exceeds its fair value.

Deferred Credit

We record a deferred credit 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 $1.7 million at
December 31, 2002 and $2.6 million at December 31, 2001. This prepayment will be
recognized in our statements of operations when the butane is utilized. We have
also recorded a deferred credit 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 $0.6 million at December 31, 2002 and
$1.1 million at December 31, 2001 relating to deferred steam sales.

Major Maintenance

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 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.

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

59

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

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 on the balance sheet at their undiscounted amounts. As of December 31,
2002 and 2001, no known material environmental liabilities exist.

Derivative Instruments

Effective January 1, 2001, we record all derivative instruments on the
balance sheets at their fair value under the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended. 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, as amended.

In accordance with the provisions of SFAS No. 133, as amended, changes in
the fair value of cash flow hedges are recorded in other comprehensive income
for the portion of the change in value of the derivative that is effective as a
hedge. The ineffective portion of cash flow hedges are recorded in earnings in
the current period. Classification in the statements of operations, of the
ineffective portion, is based on the income classification of the item being
hedged.

During the normal course of business, we may enter into contracts that
qualify as derivatives under the provisions of SFAS No. 133, as amended. 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" or "normal sales," as those terms are defined in SFAS No.
133, as amended, may be excluded from fair value accounting treatment. Contracts
that qualify as derivatives and do not meet the exceptions for normal purchases
or normal sales are reflected at fair value on our balance sheets with changes
in fair value reflected in our statements of operations.

Recent Accounting Pronouncements

Accounting for Asset Retirement Obligations

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations. This statement requires
companies to record a liability for the estimated retirement and removal costs
of assets used in their business. The liability is recorded at its fair value,
with a corresponding asset which is depreciated over the remaining useful life
of the long-lived asset to which the liability relates. An ongoing expense will
also be recognized for changes in the value of the liability as a result of the
passage of time. The provisions of this statement are effective for fiscal years
beginning after June 15, 2002. The adoption of this standard on January 1, 2003
did not have a material impact on our financial statements.

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement will require us to recognize
costs associated with exit or disposal activities when they are incurred rather
than when we commit to an exit or disposal plan. Examples of costs covered by
this guidance include lease termination costs, employee severance costs
associated with a restructuring, discontinued operations, plant closings, or
other exit or disposal activities. The provisions of this statement are

60

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

effective for fiscal years beginning after December 31, 2002. The provisions of
this statement will impact any exit or disposal activities we initiate after
January 1, 2003.

4. INVENTORY

Inventory consists of the following at December 31,

5. PROPERTY, PLANT AND EQUIPMENT

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

6. RELATED PARTY TRANSACTIONS

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 $3.6 million
during 2002, $1.3 million during 2001 and $1.8 million during 2000, and are
reflected as general and administrative expenses in our statements of
operations.

During the year ended December 31, 2002, we sold inventory to related
parties. These amounts were immaterial. During the year ended December 31, 2001,
we sold inventory to related parties for approximately $0.6 million and
purchased inventory from related parties for approximately $0.6 million. We did
not recognize any gains or losses on these transactions.

Linden 6 entered into a shared facilities agreement with us in June 2000,
which provided for the sale of steam to us through 2017. The price of the steam
is based on our avoided cost of fuel. Included in fuel expense during 2002 was
$15.5 million for steam purchases from Linden 6. We did not have any steam
purchases from Linden 6, prior to 2002, as it was not yet operational.

See Note 7 for further discussion of our related party transactions.

7. COMMITMENTS AND CONTINGENCIES

Linden 6

During February 2000, East Coast Power entered into an energy services
agreement with Tosco Refining L.P., a subsidiary of ConocoPhillips Corporation,
under which East Coast Power is required to construct, own and operate the
Linden 6 facility, a 172 megawatt cogeneration facility, 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's
expansion and operations from 2000 through 2017. There is no limit on East Coast
Power's

61

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

exposure under this indemnification. In addition, we indemnified East Coast
Power against any third party claims resulting from or in connection with a
release of hazardous materials by us. Neither party shall be liable to the other
for treble, exemplary or punitive damages of any type under any circumstances.
We did not accrue any losses relating to the indemnification at December 31,
2002. El Paso, our affiliate, guarantied East Coast Power's obligations under
this indemnity in an aggregate amount of $15.0 million from 2000 through 2017.

El Paso Corporation Downgrades

On February 7, 2003, Standard and Poor's downgraded El Paso's senior
unsecured debt to a rating of "B". On February 11, 2003, Moody's downgraded El
Paso's senior unsecured debt rating to "Caa1". Both rating agencies maintain a
negative outlook on El Paso's credit ratings, indicating the possibility of
further ratings downgrades.

Downgrade of East Coast Power's Senior Secured Notes

On February 10, 2003, Standard and Poor's lowered its ratings on East Coast
Power's senior secured notes to "BB+" from "BBB-". On February 12, 2003, Moody's
downgraded East Coast Power's senior secured rating to "Ba2" from "Baa3". The
rating actions were attributed to the downgrade of El Paso's debt ratings. These
rating actions had a negative impact on the fair value of East Coast Power's
long-term debt. Further downgrades of El Paso's credit ratings could also have a
negative impact on the fair value of East Coast Power's long-term debt.

Power Purchase Agreement

We sell the 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 KWh based primarily on
capacity, fuel costs and operation 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 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 revenue 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 revenue on a monthly basis.
All amounts to be received or paid are paid ratably over the next annual cap
period. In August 1999, we amended our power purchase agreement with
Consolidated Edison to allow us to sell excess energy and excess capacity over
645 MW to third parties. We recognized $353.9 million in 2002, $382.2 million in
2001 and $361.5 million in 2000 for electricity sales under these agreements.

Gas Services Agreement

We have a 25 year gas services agreement with Public Service Electric and
Elizabethtown under which they provide firm transportation for all of our
natural gas requirements as well as supply us with our gas requirements over
85,000 MMBtus of natural gas per day. Our gas supply requirements less than
85,000 MMBtus 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 $35.8 million during 2002, approximately
$43.0 million during 2001 and approximately $57.0 million during 2000. Under the

62

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Elizabethtown gas services agreement, we incurred expenses of approximately $9.1
million during 2002, approximately $10.0 million during 2001 and approximately
$13.0 million during 2000.

Steam Sale Agreements

Under the terms of the steam sale agreement with Bayway, 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 $17.9 million in steam sales in
2002, $22.4 million in 2001 and $21.0 million in 2000 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.
Accordingly, 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, 2002 and 2001, we
recognized approximately $0.8 million and $4.0 million in revenue related to
monthly steam charges. During the year ended December 31, 2000, we recognized no
revenue related to monthly steam charges. We have recorded a deferred credit
under this agreement of approximately $0.6 million as of December 31, 2002 and
$1.1 million as of December 31, 2001.

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
$2.6 million in 2002, $3.2 million in 2001 and $3.6 million in 2000. We 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. As a result of
our settlement entered into with Infineum in 2002, we determined that the
receivable was uncollectible and reversed the receivable and corresponding
reserve of $1.1 million.

Leases

Effective June 2000, an affiliate of East Coast Power began subleasing from
us the land for the Linden 6 facility. Lease revenues were approximately $54,200
in 2002, $46,500 in 2001 and $22,000 in 2000. East Coast Power also entered into
a ground lease with Bayway to provide a site for the interconnection of Linden
6. The Linden 6 facility began operations in January 2002.

We lease the site for our facility from Bayway. 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 2002, 2001 and 2000.

Letters of Credit

During 2002, 2001 and 2000, General Electric Capital provided a standby
letter of credit in an amount not to exceed $10.0 million to collateralize
various obligations with Bayway. As of December 31, 2002 and 2001, no amounts
were outstanding under this letter of credit. We pay General Electric Capital a
monthly fee equal to 0.75 percent of any outstanding letter of credit amounts.
Such fees were approximately $0.1 million during 2002, 2001 and 2000.

63

COGEN TECHNOLOGIES LINDEN VENTURE, L.P.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

Operation and Maintenance Agreement

We have entered into an operation and maintenance agreement with General
Electric International, Inc. to operate and maintain our facility. This
agreement has a 12 year term expiring in 2008 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
operation and maintenance expense, including bonuses paid under the terms of the
agreement, were $5.1 million for the year ended December 31, 2002, $5.4 million
for the year ended December 31, 2001 and $5.2 million for the year ended
December 31, 2000.

Litigation

On June 20, 2000, Infineum filed an action against us in the United States
District Court of New Jersey seeking actual and punitive damages. The suit
claims that we tortiously interfered with Infineum's ability to sell steam
purchased from our facility to Bayway, and that such interference is in
violation of the federal and New Jersey antitrust laws and in breach of our
agreement with Infineum. We filed an answer and counterclaim on September 26,
2000. On December 21, 2001, the court denied our motion to dismiss for lack of
antitrust standing. The court ordered the parties to mediate the dispute.
Mediation was held in early October 2002 and a settlement was reached in
December 2002. Under the settlement, the suit was dismissed with prejudice and
we will continue to sell steam to Infineum under the steam sale agreement. In
addition, we shall pay Infineum beginning on April 30, 2003, and at the end of
each subsequent annual period in the steam sale agreement, the lesser of (i) the
settlement steam sales credit or (ii) $0.3 million.

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, 2002, we have accrued liabilities totaling $0.1 million for all outstanding
legal expenses in relation to the Infineum lawsuit.

8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Our operating revenues in 2002 were primarily generated from two customers
pursuant to long-term contracts. Consolidated Edison purchased electricity from
us and accounted for approximately 92 percent of our revenues in 2002, 89
percent in 2001 and 94 percent in 2000. The remaining 8 percent, 11 percent and
6 percent were from steam sales to Bayway 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 $4.6 million at December 31, 2002,
$4.0 million at December 31, 2001, and $6.8 million at December 31, 2000.

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. At December 31, 2002, Consolidated Edison had a senior
unsecured credit rating of "A1" by Moody's and "A+" by Standard and Poor's.
ConocoPhillips, an affiliate of Bayway, had a senior unsecured credit rating of
"A3" by Moody's and "A-" by Standard and Poor's.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2002, and 2001, 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.

64

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

None.

65

PART III

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 CERTAIN BENEFICIAL OWNERS AND 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 administrative services such as
accounting, tax, legal and financial services 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, 2002, we, together with our subsidiaries,
incurred approximately $3.6 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.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures. Under the supervision and with the
participation of management, including our principal executive officer and
principal financial officer, we have evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (Disclosure Controls)
and internal controls (Internal Controls) within 90 days of the filing date of
this annual report pursuant to Rules 13a-15 and 15d-15 under the Securities
Exchange Act of 1934 (Exchange Act).

Definition of Disclosure of Controls and Internal Controls. Disclosure
Controls are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified under the Exchange Act. Disclosure Controls include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure. Internal Controls are procedures
which are designed with the objective of providing reasonable assurance that (1)
our transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded and
reported, all to permit the preparation of our financial statements in
conformity with generally accepted accounting principles.

66

Limitations on the Effectiveness of Controls. Our management, including
the principal executive officer and principal financial officer, does not expect
that our Disclosure Controls and Internal Controls will prevent all errors and
all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
errors or mistakes. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

No Significant Changes in Internal Controls. We have sought to determine
whether there were any "significant deficiencies" or "material weaknesses" in
our Internal Controls, or whether the company had identified any acts of fraud
involving personnel who have a significant role in our Internal Controls. This
information was important both for the controls evaluation generally and because
the principal executive officer and principal financial officer are required to
disclose that information to our Board and our independent auditors and to
report on related matters in this section of the Annual Report. The principal
executive officer and principal financial officer note that, from the date of
the controls evaluation to the date of this Annual Report, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Effectiveness of Disclosure Controls. Based on the controls evaluation,
our principal executive officer and principal financial officer have concluded
that, subject to the limitations discussed above, the Disclosure Controls are
effective to ensure that material information relating to us and our
consolidated subsidiaries is made known to management, including the principal
executive officer and principal financial officer, particularly during the
period when our periodic reports are being prepared.

Officer Certifications. The certifications from the principal executive
officer and principal financial officer required under Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002 have been included herein, or as Exhibits to this
Annual Report, as appropriate.

67

PART IV

ITEM 15. 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 January 31, 2003, in
connection with a power agreement restructuring, announcing the
distribution of the Bayonne Venture power purchase agreement with
Jersey Central Power and Light to our members, Mesquite Investors,
L.L.C. and Bonneville Pacific Corporation on December 20, 2002. We also
provided unaudited condensed consolidated pro forma financial
statements reflecting the distribution and other transactions occurring
as part of the restructuring process.

68

EAST COAST POWER, L.L.C.

EXHIBIT LIST
DECEMBER 31, 2002

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.

74

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 28th day of March 2003.

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:

75

CERTIFICATION

I, Robert W. Baker, certify that:

1. I have reviewed this annual report on Form 10-K of East Coast Power
L.L.C.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

/s/ ROBERT W. BAKER
--------------------------------------
Robert W. Baker
President
(Principal Executive Officer)
East Coast Power L.L.C.

76

CERTIFICATION

I, John L. Harrison, certify that:

1. I have reviewed this annual report on Form 10-K of East Coast Power
L.L.C.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

/s/ JOHN L. HARRISON
--------------------------------------
John L. Harrison
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
East Coast Power L.L.C.

77

INDEX TO EXHIBITS