NRG SOUTH CENTRAL GENERATING LLC 10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly report pursuant to section 13 or 15(d) of the securities exchange act of 1934
[ ] Transition report pursuant to section 13 or 15(d) of the securities exchange act of 1934


For the Quarter Ended: June 30, 2003		Commission File No. 333-48900

NRG South Central Generating LLC
(Exact name of Registrant as specified in its charter)


Delaware		41-1963217
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

901 Marquette Avenue, Suite 2300
Minneapolis, Minnesota		55402
(Address of principal executive offices)		(Zip Code)

(612) 373-5300
(Registrant’s telephone number, including area code)

None
Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the Registrant (1) has filed all reports 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 checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [X] No [ ]

TABLE OF CONTENTS


		Consolidated Statements of Operations
		Consolidated Balance Sheets
		Consolidated Statements Of Members’ Equity
		Consolidated Statements Of Cash Flows
		Notes To Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 3. Defaults on Senior Securities
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-31 Section 302 Certifications
EX-32 Section 906 Certifications

Index


		Page No.

*Part I*
Item 1	Consolidated Financial Statements and Notes
	Consolidated Statements of Operations	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Members' Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Financial Statements	6-22

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operation	23-29
Item 3	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4	Controls and Procedures	29-30
*Part II*
Item 1	Legal Proceedings	31
Item 3	Defaults on Senior Securities	31
Item 6	Exhibits and Reports on Form 8-K	31
	Cautionary Statement Regarding Forward Looking Information	31-32
SIGNATURES		33

NRG South Central Generating LLC and Subsidiaries
Consolidated Statements of Operations
(UNAUDITED)


			Three Months			Three Months			Six Months			Six Months
			Ended			Ended			Ended			Ended
(In thousands)			June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Operating revenues
	Revenues from majority owned operations		$	92,618		$	101,360		$	196,508		$	193,178
	Equity in losses of unconsolidated affiliates			—			(2,293	)		—			(4,394	)

		Total operating revenues and equity earnings		92,618			99,067			196,508			188,784
Operating costs and expenses
	Cost of operations			61,014			65,580			124,727			123,032
	Depreciation and amortization			10,006			9,852			18,951			17,939
	General and administrative expenses			1,551			2,446			3,612			4,618
	Restructuring professional fees and expenses			885			—			885			—
	Restructuring charges			1,250			—			1,919			—

Operating income				17,912			21,189			46,414			43,195
Other income (expense)
	Other income, net			439			678			827			302
	Restructuring interest income			107			—			107			—
	Interest expense			(19,547	)		(17,369	)		(38,489	)		(35,221	)

Net (loss) income			$	(1,089	)	$	4,498		$	8,859		$	8,276

See accompanying notes to consolidated financial statements.

NRG South Central Generating LLC and Subsidiaries
Consolidated Balance Sheets
(UNAUDITED)


					June 30,		December 31,
(In thousands)					2003		2002

				ASSETS
CURRENT ASSETS:
	Cash and cash equivalents				$	8,041	$	310
	Restricted cash					111,253		109,336
	Accounts receivable					30,717		46,338
	Notes receivable — current					1,500		3,000
	Inventory					60,358		64,364
	Derivative instruments valuation					532		112
	Prepaid expenses					7,643		3,236

			Total current assets			220,044		226,696
NON-CURRENT ASSETS
	Property, plant & equipment, net of accumulated depreciation of $99,958 and $83,242					1,114,057		1,131,896
	Decommissioning fund investment					4,663		4,617
	Deferred financing costs, net of accumulated amortization of $2,690 and $1,853					29,191		30,028
	Other assets, net of accumulated amortization of $859 and $720					6,967		7,107

			Total assets		$	1,374,922	$	1,400,344


				LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
	Current portion of long-term debt				$	—	$	750,750
	Note payable — affiliate					105,491		105,491
	Accounts payable					12,330		9,814
	Accounts payable — affiliates					54,897		126,522
	Accrued fuel and purchased power expense					2,802		10,303
	Accrued interest					8,795		55,413
	Accrued interest — affiliate					3,323		514
	Derivative instruments valuation					132		135
	Checks in excess of cash					42		—
	Other current liabilities					2,510		11,514

			Total current liabilities			190,322		1,070,456
Other non-current liabilities						702		6,238

			Total liabilities not subject to compromise			191,024		1,076,694
LIABILITIES SUBJECT TO COMPROMISE:
	Long-term debt					750,750		—
	Accounts payable					10,118		—
	Accounts payable — affiliates					72,972		—
	Accrued interest					11,281		—
		Other liabilities				6,268		—

			Total liabilities subject to compromise			851,389		—
Commitments and contingencies
MEMBERS’ EQUITY						332,509		323,650

			Total liabilities and members’ equity		$	1,374,922	$	1,400,344

See accompanying notes to consolidated financial statements.

NRG South Central Generating LLC and Subsidiaries
Consolidated Statements of Members’ Equity
(UNAUDITED)


		Member					Total
		Contributions/		Accumulated			Members'
(In thousands)		Distributions		Net Income (Loss)			Equity

Balances at December 31, 2001		$	409,389	$	36,124		$	445,513
Net income			—		8,276			8,276

	Comprehensive income for the period ended June 30, 2002							8,276
Member contributions, net			50,011		—			50,011

Balances at June 30, 2002		$	459,400	$	44,400		$	503,800

Balances at December 31, 2002		$	459,400	$	(135,750	)	$	323,650
Net income			—		8,859			8,859

	Comprehensive income for the period ended June 30, 2003							8,859

Balances at June 30, 2003		$	459,400	$	(126,891	)	$	332,509

See accompanying notes to consolidated financial statements.

NRG South Central Generating LLC and Subsidiaries
Consolidated Statements of Cash Flows
(UNAUDITED)


		Six Months Ended			Six Months Ended
(In thousands)		June 30, 2003			June 30, 2002

Cash flows from operating activities:
Net income		$	8,859		$	8,276
Adjustments to reconcile net income to net cash provided (used) by operating activities:
	Loss in earnings of unconsolidated affiliates		—			4,394
	Depreciation and amortization		18,951			17,939
	Amortization of deferred finance costs		837			275
	Unrealized (gain)/loss on energy contracts		(423	)		237
Changes in assets and liabilities:
	Accounts receivable		15,621			(5,546	)
	Inventory		4,006			(7,738	)
	Prepaid expenses		(4,407	)		(2,034	)
	Accounts payable		12,634			11,159
	Accounts payable — affiliates		1,307			24,402
	Accrued interest		(32,528	)		(287	)
	Accrued fuel and purchased power expense		(7,501	)		(6,590	)
	Other current liabilities		(3,798	)		4,438
	Changes in other assets and liabilities		(63	)		705

Net cash provided by operating activities			13,495			49,630
Cash flows from investing activities:
	Capital expenditures		(5,389	)		(110,539	)
	Decrease/(increase) in notes receivable		1,500			(6,000	)
	Increase in restricted cash		(1,917	)		(9,375	)

Net cash used by investing activities			(5,806	)		(125,914	)
Cash flows from financing activities:
	Contributions by members		—			48,000
	Net payments on revolver		—			(40,000	)
	Repayments of long-term borrowings		—			(12,750	)
	Intercompany note payable		—			107,353
	Checks in excess of cash		42			(5,437	)
	Deferred financing costs		—			(20,882	)

Net cash provided by financing activities			42			76,284
Net increase in cash and cash equivalents			7,731			—
Cash and cash equivalents at beginning of period			310			—

Cash and cash equivalents at end of period		$	8,041		$	—

Supplemental Disclosures of Non-Cash Information
Capital expenditures paid by affiliate		$	65			—
Non-cash contribution to non-guarantor subsidiary		$	—			2,011

See accompanying notes to consolidated financial statements.

NRG South Central Generating LLC and Subsidiaries
Notes To Consolidated Financial Statements
(Unaudited)

NRG South Central Generating LLC (NRG South Central or the Company), a Delaware Corporation formed in 2000, is an indirect wholly-owned subsidiary of NRG Energy, Inc. (NRG Energy or NRG). NRG South Central owns 100% of Louisiana Generating LLC (Louisiana Generating or LaGen), NRG New Roads Holding LLC (New Roads), NRG Sterlington Power LLC (Sterlington), Big Cajun I Peaking Power LLC (Big Cajun Peaking), NRG Bayou Cove LLC and NRG Bayou Cove Peaking Power LLC (collectively Bayou Cove) and Big Cajun II Unit 4 LLC (Big Cajun). NRG South Central’s members are NRG Central U.S. LLC (NRG Central) and South Central Generation Holding LLC (South Central Generation). NRG Central and South Central Generation are wholly owned subsidiaries of NRG Energy, each of which owns a 50% interest in NRG South Central.

NRG South Central was formed for the purpose of financing, acquiring, owning, operating and maintaining through its subsidiaries and affiliates the facilities owned by Louisiana Generating and any other facilities that it or its subsidiaries may acquire in the future.

In connection with its restructuring efforts, on May 14, 2003 NRG Energy and 26 of its U.S. affiliates (the Debtors) (including NRG South Central, Louisiana Generating, Big Cajun and New Roads) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). It is possible that additional subsidiaries will file petitions for reorganization under Chapter 11. International operations and certain other subsidiaries were not included in the filing. NRG Energy expects operations to continue as normal during the restructuring process, while it operates its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. For more information about NRG Energy’s restructuring process, refer to the Form 10-K filed by NRG Energy on March 31, 2003 and Form 10-Q filed by NRG Energy on May 20, 2003.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission (SEC) regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accounting policies followed by the Company are set forth in Item 15 — Note 2 to the Company’s financial statements in its annual report on Form 10-K for the year ended December 31, 2002 (Form 10-K). The following notes should be read in conjunction with such policies and other disclosures in the Form 10-K. Interim results are not necessarily indicative of results for a full year.

The Financial Statements have been prepared on a “going concern” basis in accordance with GAAP. The “going concern” basis of presentation assumes that NRG South Central will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. Because of the Chapter 11 Cases and the circumstances leading to the filing thereof, NRG South Central's ability to continue as a “going concern” is subject to substantial doubt and is dependent upon, among other things, confirmation of a plan of reorganization, NRG South Central's ability to comply with the terms of, and if necessary renew at its expiry in May 2004, the Debtor in Possession Credit Facility, and NRG South Central's ability to generate sufficient cash flows from operations, asset sales and financing arrangements to meet its obligations. There can be no assurance that this can be accomplished and if it were not, NRG South Central's ability to realize the carrying value of its assets and discharge its liabilities would be subject to substantial uncertainty. Therefore, if the “going concern” basis were not used for the Financial Statements, then significant adjustments could be necessary to the carrying value of assets and liabilities, the revenues and expenses reported, and the balance sheet classifications used.

The Financial Statements also have been prepared in accordance with The American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”. Accordingly, all pre-petition liabilities believed to be subject to compromise have been segregated in the consolidated balance sheet and classified as liabilities subject to compromise, at the estimated amount of allowable claims. Liabilities not believed to be subject to compromise are separately classified as current and non-current. Interest expense is reported only to the extent that it will be paid or that it is probable that it will be an allowed claim.

During the Chapter 11 Cases, the Debtors may, subject to any necessary Bankruptcy Court and lender approvals, sell assets and settle liabilities for amounts other than those reflected in the financial statements. The administrative and reorganization expenses resulting from Chapter 11 Cases will unfavorably affect the Debtors' results of operations. Future results of operations may also be adversely affected by other factors related to Chapter 11 Cases.

The Company is in the process of reconciling recorded prepetition liabilities with claims filed by creditors with the Bankruptcy Court. Differences resulting from that reconciliation process will be recorded as adjustments to prepetition liabilities. The Company recently began this process and has not yet determined the reorganization adjustments.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all material adjustments necessary to present fairly the consolidated financial position of the Company as of June 30, 2003 and December 31, 2002, the results of its operations for the three and six months ended June 30, 2003 and 2002, and its cash flows and members’ equity for the six months ended June 30, 2003 and 2002.

Certain prior year amounts have been reclassified for comparative purposes. These reclassifications had no effect on net income or total members’ equity as previously reported.

1. Restructuring Activities

In December 2001, Moody’s Investor Service (Moody’s) placed NRG Energy’s long-term senior unsecured debt rating on review for possible downgrade. In response, Xcel Energy and NRG Energy put into effect a plan to preserve NRG Energy’s investment grade rating and improve its financial condition. This plan included financial support to NRG Energy from Xcel Energy; marketing certain NRG Energy assets for sale; canceling and deferring capital spending; and reducing corporate expenses.

In response to a possible downgrade during 2002, Xcel Energy contributed $500 million to NRG Energy, and NRG Energy and its subsidiaries sold assets and businesses that provided NRG Energy in excess of $286 million in cash and eliminated approximately $432 million in debt. NRG Energy also cancelled or deferred construction of approximately 3,900 MW of new generation projects. On July 26, 2002, Standard & Poors’ (S&P) downgraded NRG Energy’s senior unsecured bonds to below investment grade, and three days later Moody’s also downgraded NRG Energy’s senior unsecured debt rating to below investment grade. Since July 2002, NRG Energy senior unsecured debt, as well as the secured NRG Northeast Generating LLC bonds, the secured NRG South Central Generating LLC bonds and the secured LSP Energy (Batesville) bonds were downgraded multiple times. After NRG Energy failed to make payments due under certain unsecured bond obligations on September 16, 2002, both Moody’s and S&P once again lowered their ratings on NRG Energy’s unsecured bonds and its subsidiaries’ secured bonds. Currently, NRG Energy’s unsecured bonds carry a rating of D at S&P and Ca at Moody’s. NRG South Central Generating LLC secured bonds carry a rating of D at S&P and Caa1 at Moody’s.

As a result of the downgrade of NRG Energy’s credit rating, declining power prices, increasing fuel prices, the overall down-turn in the energy industry, and the overall down-turn in the economy, NRG Energy has experienced severe financial difficulties. These difficulties have caused NRG Energy to, among other things, miss scheduled principal and interest payments due to its corporate lenders and bondholders, prepay for fuel and other related delivery and transportation services and provide performance collateral in certain instances. NRG Energy has also recorded asset impairment charges of approximately $3.1 billion as of December 31, 2002, related to various operating projects as well as for projects that were under construction which NRG Energy has stopped funding.

NRG Energy and certain wholly owned subsidiaries have failed to timely make several interest and/or principal payments on indebtedness. These missed payments have resulted in cross-defaults of numerous other non-recourse and limited recourse debt instruments of NRG Energy and have caused the acceleration of multiple debt instruments of NRG Energy, rendering such debt

immediately due and payable.

NRG Energy failed to make a first-quarter payment of $19.1 million due on March 31, 2003 relating to interest and fees on the $1.0 billion unsecured 364-day revolving credit facility; a $13.6 million interest payment due on April 1, 2003 on the $350 million of 7.75% senior unsecured notes maturing 2011; a $21.6 million interest payment due on April 1, 2003 on the $500 million of 8.625% senior unsecured notes maturing 2031; and a $9.6 million interest payment due on May 1, 2003 on the $240 million of 8.0% senior unsecured notes maturing 2013. On May 13, 2003, XL Capital Assurance, as controlling party, accelerated the approximately $319 million of debt issued by NRG Peaker Finance Company LLC. Accordingly, these facilities are in default.

NRG Energy failed to make a second quarter payment of $18.0 million due on June 30, 2003 relating to interest and fees on the $1.0 billion unsecured 364-day revolving credit facility; a $11.3 million interest payment due on June 1, 2003 on the $300 million of 7.50% senior unsecured notes maturing 2009; and a $9.4 million interest payment due on June 15, 2003 on the $250 million of 7.50% senior unsecured notes due 2007.

Prior to the downgrades, many corporate guarantees and commitments of NRG Energy and its subsidiaries required that they be supported or replaced with letters of credit or cash collateral within 5 to 30 days of a ratings downgrade below Baa3 or BBB — by Moody’s or Standard & Poor’s, respectively. As a result of the downgrades on July 26, 2002 and July 29, 2002, NRG Energy received demands to post collateral aggregating approximately $1.2 billion. NRG Energy is presently working with various secured project lender groups with respect to working towards establishing a comprehensive plan of restructuring.

In August 2002, NRG Energy retained financial and legal restructuring advisors to assist its management in the preparation of a comprehensive financial and operational restructuring. In November 2002, NRG Energy and Xcel Energy presented a comprehensive plan of restructuring to an ad hoc committee of its bond holders and a steering committee of its bank lenders (the Ad Hoc Creditors Committees). The restructuring plan has served as a basis for continuing negotiations between the Ad Hoc Creditors Committees, NRG Energy and Xcel Energy related to a consensual plan of reorganization for NRG Energy.

On November 22, 2002, five former NRG Energy executives filed an involuntary Chapter 11 petition against NRG Energy in U.S. Bankruptcy Court for the District of Minnesota (the Minnesota Bankruptcy Court). On February 19, 2003, NRG Energy announced that it had reached a settlement with the petitioners. On May 12, 2003, the Minnesota Bankruptcy Court issued an Order abstaining from exercising jurisdiction over any aspect of the case and dismissed the case.

On March 26, 2003, Xcel Energy announced that its board of directors had approved a tentative settlement agreement with holders of most of NRG Energy’s long-term notes and the steering committee representing NRG Energy’s bank lenders. The settlement was subject to certain conditions, including the approval of at least a majority in dollar amount of the NRG Energy bank lenders and long-term noteholders and definitive documentation. There can be no assurance that such approvals will be obtained. The terms of the tentative settlement called for Xcel Energy to make payments to NRG Energy over the next 10 months totaling up to $752 million for the benefit of NRG Energy’s creditors in consideration for their waiver of any existing and potential claims against Xcel Energy. Under the settlement, Xcel Energy would make the following payments: (i) $350 million at or shortly following the consummation of a restructuring of NRG Energy’s debt. It is expected this payment would be made prior to year-end 2003; (ii) $50 million on January 1, 2004. At Xcel Energy’s option, it may fill this requirement with either cash or Xcel Energy common stock or any combination thereof; and (iii) $352 million in April 2004. Since the announcement on March 26, 2003, representatives of NRG Energy, Xcel Energy, the bank lenders and noteholders have continued to meet to draft the definitive documentation necessary to fully implement the terms and conditions of the tentative settlement agreement.

On May 14, 2003, NRG Energy and certain of its U.S. affiliates (including NRG South Central, Louisiana Generating, Big Cajun and New Roads) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court), In re: NRG ENERGY, INC., et al., Case No. 03-13024 (PCB). See Note 3 for complete list of NRG South Central debtors. NRG Energy expects operations to continue as normal during the restructuring process, while it operates its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In connection with its Chapter 11 filing, NRG Energy also announced that a $250 million debtor-in-possession (DIP) financing facility from GE Capital Corporation, subject to Bankruptcy Court approval, to be utilized by NRG Northeast Generating LLC (NEG) and some NEG subsidiaries. NRG Energy anticipates that the DIP, together with its cash reserves and its ongoing revenue stream, will be sufficient to fund its operations, including payment of employee wages and benefits, during the reorganization process.

On May 15, 2003, NRG Energy announced that it has been notified that the New York Stock Exchange (NYSE) has suspended trading in NRG Energy’s corporate units that trade under the ticker symbol NRZ and that an application to the Securities and Exchange Commission to delist the Units is pending the completion of applicable procedures, including appeal by NRG Energy of the NYSE staff’s decision. NRG Energy does not plan to make such an appeal. The NYSE took this action following NRG Energy’s

announcement that it and certain of its U.S. affiliates had filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

In addition, on May 15, 2003, NRG Energy, NRG Power Marketing, Inc., NRG Finance Company I LLC, NRGenerating Holding (No. 23) B.V. and NRG Capital LLC (collectively, the Plan Debtors) filed their Disclosure Statement for Reorganizing Debtors’ Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (as subsequently amended, the Disclosure Statement). The Bankruptcy Court held a hearing on the Disclosure Statement on June 30, 2003, and instructed the Plan Debtors to include certain additional disclosure. The Plan Debtors amended the Disclosure Statement and obtained Bankruptcy Court approval for the Third Amended Disclosure Statement for Debtors Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (respectively, the Amended Disclosure Statement, the Plan).

The Plan must be approved by the SEC prior to its becoming effective. As subsidiaries of a registered holding company (Xcel Energy) under the Public Utility Holding Company Act of 1935 (PUHCA), any reorganization plan for NRG Energy or NRG Energy’s subsidiaries must be approved by the SEC prior to such plan becoming effective. Furthermore, each solicitation of any consent in respect of any reorganization plan must be accompanied or preceded by a copy of a report on the plan made by the SEC, or an abstract thereof made or approved by the SEC. The Plan and Amended Disclosure Statement were submitted to the SEC for review on Monday, July 28, 2003. The Plan Debtors will not be able to solicit acceptances or rejections in connection with the Plan prior to obtaining the required SEC approval. As a result, no deadlines or dates have been set regarding voting or confirmation.

On June 5, 2003 NRG Nelson Turbines LLC and LSP-Nelson Energy LLC (both wholly owned subsidiaries of NRG Energy) filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.

2. Comprehensive Income

For all periods, net income is equal to comprehensive income as there were no additional items impacting comprehensive income for these periods.

3. Debtors’ Statements

As stated above, NRG Energy and certain of its subsidiaries (including NRG South Central, Louisiana Generating, Big Cajun and New Roads) filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on May 14, 2003. As of the bankruptcy filing date, the Debtors’ financial records were closed for the prepetition period. As required by SOP 90-7 “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” below are the condensed combined financial statements of the Debtors since the date of the bankruptcy filings (the Debtors’ Statements). The Debtors’ Statements have been prepared on the same basis as NRG South Central’s Consolidated Financial Statements and include the balances and operations of NRG South Central, Louisiana Generating and New Roads.

DEBTORS’ CONDENSED COMBINED STATEMENT OF OPERATIONS


		For the Period from
		May 15, 2003 to
(In thousands)		June 30, 2003

Operating revenue		$	57,802
Operating costs and expenses			43,384
Restructuring professional fees and expenses			885

	Operating income		13,533
Equity in earnings of non-Debtor subsidiaries			441
Restructuring interest income			107
Other expense, net			(8,848	)

	Net income	$	5,233

DEBTORS’ CONDENSED COMBINED BALANCE SHEET


(In thousands)		June 30, 2003

ASSETS
Cash and cash equivalents		$	8,012
Restricted cash			111,253
Accounts receivable			30,717
Accounts receivable — affiliates, non-Debtor			2,421
Inventory			59,125
Other current assets			9,152

	Total current assets		220,680
Property, plant and equipment, net			962,571
Investment in non-Debtors			401
Other assets			20,956

	Total assets	$	1,204,608


LIABILITIES AND MEMBERS’ EQUITY
Other current liabilities		$	19,737
Other long-term obligations			589
Liabilities subject to compromise			851,389
Total members’ equity			332,893

	Total Liabilities and Members’ Equity	$	1,204,608

DEBTORS’ CONDENSED COMBINED STATEMENT OF CASH FLOWS


	For the Period from
	May 15, 2003 to
(In thousands)	June 30, 2003

Net cash provided by operating activities	$	33,300
Net cash used by investing activities		(29,022	)
Net cash used by financing activities		—

Net increase in cash and cash equivalents		4,278
Cash and cash equivalents at beginning of period		3,734

Cash and cash equivalents at end of period	$	8,012

4. Property, Plant and Equipment

Property, plant and equipment consists of the following:


(In thousands)	June 30, 2003			December 31, 2002

Land	$	14,879		$	15,579
Facilities, machinery and equipment		1,193,738			1,194,138
Office furnishings and equipment		4,441			4,433
Construction in progress		957			988
Less: Accumulated depreciation		(99,958	)		(83,242	)

Property, plant and equipment (net)	$	1,114,057		$	1,131,896

5. Debt

NRG Energy has failed to make scheduled payments on interest and/or principal on approximately $4.0 billion of its recourse debt and is in default under the related debt instruments. These missed payments also have resulted in cross-defaults of numerous other non-recourse and limited recourse debt instruments of NRG Energy. In addition to the missed debt payments, a significant amount of NRG Energy’s debt and other obligations contain terms, which require that they be supported with letters of credit or cash collateral following a ratings downgrade. As a result of the downgrades that NRG Energy experienced in 2002, NRG Energy estimates that it is in default of its obligations to post collateral of approximately $1.2 billion, principally to fund equity guarantees associated with its construction revolver financing facility, to fund debt service reserves and other guarantees related to NRG Energy projects and to fund trading operations.

Absent an agreement on a comprehensive restructuring plan, NRG Energy will remain in default under its debt and other obligations, because it does not have sufficient funds to meet such requirements and obligations. There can be no assurance that NRG Energy’s creditors ultimately will accept any consensual restructuring plan under the bankruptcy process. For discussion of NRG Energy’s restructuring activities, refer to Note 1 in the Form 10-Q filed by NRG Energy for the six months ended June 30, 2003 and Form 8-K filed by NRG Energy on May 16, 2003.

In June 2002, NRG Energy’s Peaker Finance Company LLC (NRG Peaker), an indirect wholly owned subsidiary of NRG Energy, completed the issuance of $325 million of Series A Floating Rate Senior Secured Bonds due 2019. The bonds bear interest at a floating rate equal to three months USD-LIBOR — BBA plus 1.07%. NRG Peaker entered into an interest rate swap by which NRG Peaker pays a fixed rate 6.667% through the final maturity of the bonds. As of March 31, 2003, NRG South Central’s outstanding amount on this facility was $105.5 million, unchanged from December 31, 2002. On May 13, 2003, XL Capital Assurance, as controlling party, accelerated the debt issued by NRG Peaker, rendering the debt immediately due and payable.

Since September, 2002, NRG South Central has failed to make on time $25.6 million of principal payments and $34.4 million of interest payments on its Series A-1 and Series B-1 bonds. NRG South Central has also failed to fund the debt service reserve account. On November 21, 2002, a notice of acceleration was received, rendering the bonds immediately due and payable. However, NRG South Central made a total of $34.4 million interest payments on Series A-1 and Series B-1 bonds, and has made interest payments when due on

the NRG Peaker Finance Company LLC Series A bonds. NRG South Central is current on interest payments due on the above referenced bonds, but remain in default with respect to principal payments, debt service reserve funds, and cross-defaults.

As a result of NRG Energy’s bankruptcy filing, NRG South Central has classified its bonds as a prepetition obligation subject to compromise. Accrued Interest continues to be recorded as the debt is fully secured.

6. Inventory

Inventory, which is stated at the lower of weighted average cost or market, consists of:


(In thousands)	June 30, 2003		December 31, 2002

Coal	$	43,544	$	48,001
Spare parts		15,999		15,523
Fuel oil, diesel fuel and natural gas		815		840

Total	$	60,358	$	64,364

7. Derivative Instruments and Hedging Activity

On January 1, 2001, NRG South Central adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 requires the Company to record all derivatives on the balance sheet at fair value. Changes in the fair value of non-hedge derivatives are immediately recognized in earnings. Changes in fair values of derivatives accounted for as hedges are either recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or for forecasted transactions, deferred and recorded as a component of accumulated other comprehensive income (OCI) until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative instrument’s change in fair value is immediately recognized in earnings. NRG South Central also formally assesses, both at inception and at least quarterly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in either the fair value or cash flows of the hedged item. This assessment includes all components of each derivative’s gains or losses unless otherwise noted. When it is determined that a derivative ceases to be a highly effective hedge, hedge accounting is discontinued.

SFAS No. 133 applies NRG South Central’s long-term power sales contracts, long-term gas purchase contracts and other energy related commodities financial instruments used to mitigate variability in earnings due to fluctuations in spot market prices, hedge fuel requirements at generation facilities and protect investments in fuel inventories. At June 30, 2003, NRG South Central had various commodity contracts extending through 2003. None of these contracts are designated as hedging instruments.

Accumulated Other Comprehensive Income

During the six months ended June 30, 2003 and 2002, NRG South Central deferred no gains or losses to OCI.

Statement of Operations

The following tables summarize the effects of SFAS No. 133 on NRG South Central’s statement of operations for the three and six months ended June 30, 2003 and 2002:


		Three Months Ended				Six Months Ended
		June 30,				June 30,

Gains/(losses) (In thousands)		2003		2002		2003		2002

Revenues		$	203	$	311	$	420	$	(176	)
Operating costs			144		47		3		(61	)

	Total statement of operations impact	$	347	$	358	$	423	$	(237	)

During the three and six months ended June 30, 2003 and 2002, the Company recognized no gain or loss due to ineffectiveness of commodity cash flow hedges, and no components of the company’s derivative instruments’ gains or losses were excluded from the assessment of effectiveness.

The Company’s earnings for the three months ended June 30, 2003 and 2002 were increased by an unrealized gain of $0.3 million and $0.4 million, respectively. For the six months ended June 30, 2003 and 2002 the Company’s earnings were increased by an unrealized

gain of $0.4 million and decreased by an unrealized loss of $0.2 million, respectively, associated with changes in the fair value of energy related derivative instruments not accounted for as hedges in accordance with SFAS No. 133.

8. Commitments and Contingencies

Legal Issues

The New York Voluntary Bankruptcy Case

On May 14, 2003, NRG Energy and certain of its U.S. affiliates filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court), In re: NRG ENERGY, INC., et. al., Case No. 03-13024 (PCB). NRG Energy expects operations to continue as normal during the restructuring process, while it operates its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

Pointe Coupee Parish Police Jury and Louisiana Generating, LLC v. United States Environmental Protection Agency and Christine Todd Whitman, Administrator, Adversary Proceeding No. 02-61021 on the docket of the United States Court of Appeals for the Fifth Circuit

On December 2, 2002, a Petition for Review was filed to appeal the United States Environmental Protection Agency’s approval of the Louisiana Department of Environmental Quality’s (DEQ) revisions to the Baton Rouge State Implementation Plan (SIP). Pointe Coupee and NRG Energy’s subsidiary, Louisiana Generating, object to the approval of SIP Section 4.2.1. Permitting NOx Sources that purports to require DEQ to obtain offsets of major increases in emissions of nitrogen oxides (NOx) associated with major modifications of existing facilities or construction of new facilities both in the Baton Rouge Ozone Nonattainment Area and in four adjoining attainment parishes referred to as the Region of Influence, including Pointe Coupee Parish. The plaintiffs’ challenge is based on DEQ’s failure to comply with Administrative Procedures Act requirements related to rulemaking and EPA’s regulations, which prohibit EPA from approving a SIP not prepared in accordance with state law. The court granted a sixty (60) day stay of this proceeding on February 25, 2003 to allow the parties to conduct settlement discussions, which has now been further extended to August 26, 2003, while the parties continue their settlement efforts. At this time, NRG Energy is unable to predict the eventual outcome of this matter or the potential loss contingencies, if any, to which the Company may be subject.

In the Matter of Louisiana Generating, LLC, Adversary Proceeding No. 2002-1095 1-EQ on the docket of the Louisiana Division of Administrative Law.

During 2000, DEQ issued a Part 70 Air Permit modification to Louisiana Generating to construct and operate two 240 MW natural gas-fired turbines. The Part 70 Air Permit set emissions limits for the criteria air pollutants, including NOx, based on the application of Best Available Control Technology (BACT). The BACT limitation for NOx was based on the guarantees of the manufacturer, Siemens-Westinghouse. Louisiana Generating sought an interim emissions limit to allow Siemens-Westinghouse time to install additional control equipment. To establish the interim limit, DEQ issued a Compliance Order and Notice of Potential Penalty, No. AE-CN-02-0022, on September 8, 2002, which is, in part, subject to the referenced administrative hearing. DEQ alleged that Louisiana Generating did not meet its NOx emissions limit on certain days, did not conduct all opacity monitoring and did not complete all record keeping and certification requirements. Louisiana Generating intends to vigorously defend certain claims and any future penalty assessment, while also seeking an amendment of its limit for NOx. An initial status conference has been held with the Administrative Law Judge and quarterly reports will be submitted to describe progress, including settlement and amendment of the limit. The extension of an amended BACT analysis has been granted until December 31, 2003. In addition, NRG Energy may assert breach of warranty claims against the manufacturer. With respect to the administrative action described above, at this time NRG Energy is unable to predict the eventual outcome of this matter or the potential loss contingencies, if any, to which the Company may be subject.

NRG Sterlington Power, LLC

During 2002, NRG Sterlington conducted a review of the Sterlington Power Facility’s Part 70 Air Permit obtained by the facility’s former owner and operator, Koch Power, Inc. Koch had outlined a plan to install eight 25 megawatt (MW) turbines to reach a 200 MW limit in the permit. Due to the inability of several units to reach their nameplate capacity, Koch determined that it would need additional units to reach the electric output target. In August 2000, NRG Sterlington acquired the remaining interests in the facility not originally held on a passive basis and sought the transfer of the Part 70 Air Permit along with a modification to incorporate two 17.5 MW turbines installed by Koch and to increase the total number of turbines to ten. The permit modification was issued February 13, 2002. During further review, NRG Sterlington determined that a ninth unit had been installed prior to issuance of the permit modification. In keeping with its environmental policy, it disclosed this matter to DEQ during April, 2002. Additional information was provided during July 2002. As DEQ has not acted to date to institute an enforcement proceeding, NRG Energy suspects that it may

not. However, as it is not time barred from doing so, NRG Energy is unable at this time to predict the eventual outcome or potential loss contingencies, if any, to which the Company may be subject.

Kenneth W. Austin, James Gordon Chustz, Roger Morgan, Robert Perkins, Theodore Plauche’, Vaughn Reynolds, Charley Saizan, Thomas Palko, John Nichols, Doleen Lemoine, James Didier, Beverly Carnes, Anthony McMinn, Frank Neely, Joseph Lea, Emmitt Cavalier, William Geismer, Jess Hunger, Ronald Lewell McCabe, Allen Hetherwick, Laura Dabney, Ronald Saizon, Barbara Dickerson, Jeanette Johnson, Melinda Delhoste, Karen Herpich, Debra Jackson, Malcolm Stutes, Jesse Jarreau, Michael Armato, Sr., Dennis Johnson, Paul Dewey, and Clifford Nelson v. Ralph Mabey, as Bankruptcy Trustee of Cajun Electric Power Cooperative, Inc., Louisiana Generating, L.L.C., and NRG Energy, Inc., United States District Court for the Middle District of Louisiana, Civil Action No. 00-728-D-M1

Plaintiffs are former employees of Cajun Electric Power Cooperative, Inc. (Cajun). After lengthy bankruptcy proceedings, Louisiana Generating, L.L.C. (LaGen), a wholly owned subsidiary of NRG Energy, acquired Cajun’s assets. Following dismissal of their Equal Employment Opportunity Commission (EEOC) charges without any investigation or finding, the plaintiffs sued Cajun, NRG Energy, and LaGen contending that they were not offered employment, or were offered undesirable employment, because of their race, gender, and/or age in violation of Title VII and/or the Age Discrimination in Employment Act (ADEA). This litigation is not a class action and the parties and court have generally agreed that separate jury trials are appropriate. Discovery is complete, including sixty-one depositions. Dispositive motions have been filed on behalf of NRG Energy and LaGen. The scheduled hearings are subject to the automatic stay resulting from the voluntary petition (In re: NRG Energy, Inc., et. al., Case No. 03-13024 (PCB)). In the absence of relief from the Bankruptcy Court, the trial court will not rule on NRG Energy and LaGen’s pending motions. The presiding Judge has already granted dispositive motions in favor of NRG Energy and LaGen in two separate, but related, discrimination cases arising from the same transaction. NRG Energy and LaGen are committed to a vigorous defense against the plaintiffs’ allegations.

Travis Ballou, George Brumfield, Anthony James, and John Wise, v. Ralph Mabey, as Bankruptcy Trustee of Cajun Electric Power Cooperative, Inc., Louisiana Generating, L.L.C., and NRG Energy, Inc., Civil Action No. 01-0125-B-M1, United States District Court for the Middle District of Louisiana

This case arises from the same transaction described in connection with the Austin case above. Following dismissal of their EEOC charges with no investigation or finding, plaintiffs sued NRG Energy and LaGen for alleged race and/or age discrimination. After discovery, NRG Energy and LaGen filed dispositive motions, which the court granted. A final judgment was entered and the court awarded costs to NRG Energy and LaGen. The bill of costs has been filed. On February 14, 2003, Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Fifth Circuit. NRG Energy and LaGen are committed to a vigorous defense against the plaintiffs’ allegations.

Randy Beach, et. al. v. Pointe Coupee Electric Membership Cooperative, et. al. (Nos. 35,945, 35,946, and 36,141 in the 18th Judicial District Court of Pointe Coupee Parish).

Three Louisiana Generating employees sued Pointe Coupee for injuries allegedly sustained while they were repairing a Pointe Coupee transformer pursuant to a Maintenance Agreement between Louisiana Generating and Pointe Coupee. The plaintiffs claim to have been “spewed by” hot transformer oil while repairing the transformer on August 11, 2001. No damages amounts are specified in their consolidated complaints. Pointe Coupee added Louisiana Generating to the suite asserting claims for indemnity and breach of contract. A number of depositions have been completed, discovery is ongoing, and a status conference has been requested. The court and plaintiffs have been advised of the filing of the voluntary petition (In re: NRG Energy, et. al., Case No. 03-13024 (PCB)). The Company cannot at this time predict the likelihood of an adverse determination in this dispute.

Quincy L. Adams, Jr. et. al. v. Owens Corning Fiberglass Corp. et. al. (No. 50,703 in the 18th Judicial District Court of Pointe Coupee Parish).

The original petition in this asbestosis case was filed in 1995 and includes claims by numerous plaintiffs against various defendants (Miner/Manufacturer/Seller/Supplier/Distributor Defendants, Contractor Defendants and Premise Defendants). On December 18, 2002, NRG Energy Inc. was served with a supplemental petition adding it as a Premise Defendant based on the contract employment of seven plaintiffs at Big Cajun I or Big Cajun II at different times through November 2002. NRG has been granted an indefinite extension of time in which to reply to the petition, while plaintiffs’ counsel review materials sent to them by LaGen in support of LaGen’s request for voluntary dismissal. The court and plaintiffs have been advised of the filing of the voluntary petition (In re: NRG Energy, et. al., Case No. 03-13024 (PCB)). At the present time, the Company cannot predict the likelihood of an adverse determination in this suit.

Faye Locroix Killingsworth, et. al. v. A. P. Green Industries, Inc. et. al. (No. 455666 in the 19th Judicial District Court of East Baton Rouge Parish).

The original petition in this asbestosis case was filed in 1998 and includes numerous defendants. On April 8, 2003, Big Cajun II Unit 4 LLC and Big Cajun I Peaking Power LLC were served with a supplemental petition adding them as Premises Liability Defendants based on the decedent’s alleged asbestos exposure from 1973 to 1979. NRG Energy has been granted an indefinite extension of time in which to reply to the petition, while plaintiffs’ counsel review materials sent to them by LaGen in support of LaGen’s request for voluntary dismissal based on its assertions that (1) Big Cajun II Unit 4 LLC is not an entity that exists and, if plaintiffs meant to sue Big Cajun II Unit 4 LLC, the entity did not exist at the time of the alleged harm to the decedent; (2) Big Cajun I Peaking Power LLC did not exist at the time of the alleged harm to the decedent. The court and plaintiffs have been advised of the filing of the voluntary petition (In re: NRG Energy, et. al., Case No. 03-13024 (PCB)). At the present time, the Company cannot predict the likelihood of an adverse determination in this suit.

NRG Energy Credit Defaults

NRG Energy and various of its subsidiaries are in default under various of their credit facilities, financial instruments, construction agreements and other contracts, which have given rise to liens, claims and contingencies against them and may in the future give rise to additional liens, claims and contingencies against them. In addition, NRG Energy and various of its subsidiaries have entered into various guarantees, equity contribution agreements, and other financial support agreements with respect to the obligations of their affiliates, which have given rise to liens, claims and contingencies against them and may in the future give rise to additional liens, claims and contingencies against the party or parties providing the financial support. NRG Energy cannot at this time predict the outcome or financial impact of these matters.

9. Guarantees

NRG South Central guarantees the purchase and sale of fuel, emission credits and power generation to and from third parties in connection with the operation of some of NRG South Central’s generation facilities. As of June 30, 2003, NRG South Central’s obligations pursuant to its guarantees of the performance of its subsidiaries totaled approximately $15.3 million.

In June 2002, NRG Peaker Finance Company LLC issued $325 million of secured bonds to make loans to affiliates which own natural gas fired “peaker” electric generating projects. As of June 30, 2003, $319.4 million remains outstanding. NRG Peaker Finance Company LLC has advanced unsecured loans outstanding in the amount of $105.5 million to Bayou Cove through project loan agreements. The remaining amount outstanding of $213.8 million was advanced to NRG Rockford LLC and Rockford II LLC, indirect wholly owned subsidiaries of NRG Energy. The principal and interest payments, in addition to the obligation to pay fees and other finance expenses, in connection with the bonds are jointly and severally guaranteed by each of the three projects. As a result, NRG South Central’s obligation pursuant to its guarantee of the secured bonds is $319.4 million as of June 30, 2003. As of June 30, 2003, Bayou Cove had an intercompany loan outstanding in the amount of $105.5 million. On May 13, 2003, XL Capital Assurance, as controlling party, accelerated the approximately $319.4 million of debt issued by NRG Peaker Finance Company LLC.

Louisiana Generating is a guarantor of the bonds issued on March 30, 2000 to acquire the Cajun facilities.

10. Restructuring Charges

NRG South Central incurred $2.8 million and $2.1 million of restructuring costs for the three and six months ended June 30, 2003, which includes $0.9 million of restructuring costs for the period May 14, 2003 (the date of the bankruptcy petition) to June 30, 2003. These costs were recognized as restructuring charges in the statement of operations. These costs consist of employee separation costs and advisor fees.

11. Asset Retirement Obligation

Effective January 1, 2003, NRG South Central adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). SFAS No. 143 requires an entity to recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred. Upon initial recognition of a liability for an asset retirement obligation, an entity shall capitalize an asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Retirement obligations associated with long-lived assets included within the scope of SFAS No. 143 are those for which a legal obligation exists under enacted laws, statutes and written or oral contracts, including obligations arising under the doctrine of promissory estoppel.

NRG South Central has identified certain retirement obligations related to its operations at the Louisiana Generating and Sterlington projects. These asset retirement obligations are related primarily to future land remediation of leased property and environment obligations related to ash disposal site closures. NRG South Central has also identified other asset retirement obligations that could not be calculated because the assets associated with the retirement obligations were determined to have an indeterminate life. The adoption of SFAS No. 143 resulted in recording a $0.3 million increase to property, plant and equipment and a $0.4 million

increase to other non-current liabilities. The cumulative effect of adopting SFAS No. 143 resulted in an increase in depreciation expense and an increase in cost of operations, which combined was approximately $0.1 million.

The following represents the balances of the asset retirement obligation as of January 1, 2003 and the additions and accretion of the asset retirement obligation for the six months ended June 30, 2003:


(In thousands)	Beginning Balance		Accretion YTD		Ending Balance
Description	Jan. 1, 2003		June 30, 2003		June 30, 2003

Louisiana Generating	$	291	$	22	$	313
Sterlington		105		8		113

Total	$	396	$	30	$	426

The following represents the pro-forma effect on NRG South Central’s net income for the three and six months ended June 30, 2002, as if NRG Central had adopted SFAS No. 143 as of January 1, 2002:


	Three Months Ended			Six Months Ended
(In thousands)	June 30, 2002			June 30, 2002

Net income as reported	$	4,498		$	8,276
Pro-forma adjustment to reflect retroactive adoption of SFAS No. 143		(16	)		(122	)

Pro-forma net income	$	4,482		$	8,154

NRG South Central has established a guarantor trust fund to accumulate the estimated funds necessary for asset retirement obligations. The fair value of the guarantor trust fund was $4.7 million at June 30, 2003 and at December 31, 2002.

12. Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” (SFAS No. 145) that supercedes previous guidance for the reporting of gains and losses from extinguishment of debt and accounting for leases, among other things. SFAS No. 145 requires that only gains and losses from the extinguishment of debt that meet the requirements for classification as “Extraordinary Items,” as prescribed in Accounting Principles Board Opinion No. 30, should be disclosed as such in the financial statements. Previous guidance required all gains and losses from the extinguishment of debt to be classified as “Extraordinary Items.” This portion of SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with restatement of prior periods required. NRG South Central adopted this standard as of January 1, 2003 and has no extraordinary gains or losses resulting from extinguishment of debt that will require restatement.

In addition, SFAS No. 145 amends SFAS No. 13, “Accounting for Leases,” (SFAS No. 13) as it relates to accounting by a lessee for certain lease modifications. Under SFAS No. 13, if a capital lease is modified in such a way that the change gives rise to a new agreement classified as an operating lease, the assets and obligation are removed, a gain or loss is recognized and the new lease is accounted for as an operating lease. Under SFAS No. 145, capital leases that are modified so the resulting lease agreement is classified as an operating lease are to be accounted for under the sale-leaseback provisions of SFAS No. 98, “Accounting for Leases.” These provisions of SFAS No. 145 were effective for transactions occurring after May 15, 2002. SFAS No. 145 will be applied as required.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (SFAS No. 146). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 will be applied as required.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN No. 46). FIN No. 46 requires an enterprise’s consolidated financial statements to include subsidiaries in which the enterprise has a controlling interest. Historically, that requirement has been applied to subsidiaries in which an enterprise has a majority voting interest, but in many circumstances the enterprise’s consolidated financial statements do not include the consolidation of variable interest entities with which it has similar relationships but no majority voting interest. Under FIN No. 46 the voting interest approach is not effective in identifying controlling financial interest. Assets of entities consolidated upon adoption of the new standard will be initially recorded at their carrying amounts at the date the requirements of the new rule first apply. If determining carrying amounts as required is impractical, then the assets are to be measured at fair value the first date the new rule applies. Any difference between the net amount of any previously recognized interest in the newly consolidated entity should be recognized as the cumulative effect of an accounting change. FIN No. 46 becomes effective in the third quarter of 2003. Fin No. 46 is not expected to have a significant impact on NRG South Central.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, (SFAS No. 149). SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The provisions of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2002. In addition, provisions of SFAS No. 149 that relate to SFAS Statement No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. SFAS No. 149 will be applied as required and is not expected to have a material impact on NRG South Central.

In May 2003, the FASB issues SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, (SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 is not expected to have an impact on NRG South Central.

13. Condensed Consolidating Financial Information

The following tables set forth the consolidating financial statements of NRG South Central Generating LLC (Bond Issuer); Louisiana Generating LLC (Bond Guarantor); NRG New Roads Holding LLC, NRG Sterlington Power LLC, Big Cajun I Peaking Power LLC, NRG Sabine River Works GP LLC, NRG Sabine River Works LP LLC, Big Cajun II Unit 4 LLC and NRG Bayou Cove Peaking Power LLC (Unrestricted, Non-guarantor subsidiaries). The condensed consolidating financial statements present the unrestricted non-guarantor subsidiaries on a combined basis. The consolidating financial statements as of and for the three and six months ended June 30, 2003 and 2002 have been derived from the unaudited historical consolidated financial statements of NRG South Central. The consolidating balance sheet as of December 31, 2002 has been derived from the audited historical consolidated balance sheet of NRG South Central.

NRG South Central Generating LLC and Subsidiaries
Consolidating Balance Sheet
June 30, 2003
(UNAUDITED)


				Unrestricted		Louisiana			South Central
				Non-Guarantor		Generating LLC			Generating LLC		Eliminations			Consolidated
				Subsidiaries		(Bond Guarantor)			(Bond Issuer)		(1)			Balance

									(In thousands)
						ASSETS
CURRENT ASSETS:
Cash and cash equivalents				$	29	$	8,012		$	—	$	—		$	8,041
Restricted cash					—		111,253			—		—			111,253
Accounts receivable					—		30,717			—		—			30,717
Notes receivable — current					—		1,500			—		—			1,500
Intercompany note receivable bonds — current					—		—			750,750		(750,750	)		—
Interest receivable					—		—			20,076		(20,076	)		—
Inventory					1,233		59,125			—		—			60,358
Derivative instruments valuation					—		—			532		—			532
Prepaid expenses					523		7,060			60		—			7,643

			Total current assets		1,785		217,667			771,418		(770,826	)		220,044
Equity investments in affiliates					—		—			332,382		(332,382	)		—
Property, plant & equipment, net					165,443		948,997			—		(383	)		1,114,057
Decommissioning fund investment					—		4,663			—		—			4,663
Deferred financing costs, net					19,865		9,326			—		—			29,191
Other assets, net					—		2,243			4,724		—			6,967

			Total assets	$	187,093	$	1,182,896		$	1,108,524	$	(1,103,591	)	$	1,374,922

LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Note payable — affiliate				$	105,491	$	—		$	—	$	—		$	105,491
Accounts payable					6,605		5,620			105		—			12,330
Accounts payable — affiliates					57,328		(11,648	)		767		8,450			54,897
Accrued fuel and purchased power expense					153		2,649			—		—			2,802
Accrued interest					—		—			8,795		—			8,795
Accrued interest — affiliate					3,323		8,795			—		(8,795	)		3,323
Derivative instruments valuation					—		—			132		—			132
Checks in excess of cash					42		—			—		—			42
Other current liabilities					76		2,434			—		—			2,510

			Total current liabilities		173,018		7,850			9,799		(345	)		190,322
Other non-current liabilities					113		589			—		—			702

			Total liabilities not subject to compromise		173,131		8,439			9,799		(345	)		191,024
LIABILITIES SUBJECT TO COMPROMISE:
	Long-term debt				—		—			750,750		—			750,750
	Intercompany note payable				—		750,750			—		(750,750	)		—
	Accounts payable				—		10,117			1		—			10,118
	Accounts payable — affiliates				743		76,878			3,801		(8,450	)		72,972
	Accrued interest				—		—			11,281		—			11,281
	Accrued interest — affiliate				—		11,281			—		(11,281	)		—
		Other liabilities			5		6,263			—		—			6,268

			Total liabilities subject to compromise		748		855,289			765,833		(770,481	)		851,389
Commitments and contingencies MEMBERS’ EQUITY					13,214		319,168			332,892		(332,765	)		332,509

			Total liabilities and members’ equity	$	187,093	$	1,182,896		$	1,108,524	$	(1,103,591	)	$	1,374,922

(1)

All significant intercompany transactions have been eliminated in consolidation.

NRG South Central Generating LLC and Subsidiaries
Consolidating Statement of Operations
For the Six Months Ended June 30, 2003
(UNAUDITED)


		Unrestricted,			Louisiana			South Central
		Non-Guarantor			Generating LLC			Generating LLC			Eliminations			Consolidated
		Subsidiaries			(Bond Guarantor)			(Bond Issuer)			(1)			Balance

								(In thousands)
Operating Revenues
	Revenues from wholly-owned operations	$	10,496		$	195,969		$	—		$	(9,957	)	$	196,508
Operating costs and expenses
	Cost of operations		2,907			132,199			(422	)		(9,957	)		124,727
	Depreciation and amortization		2,737			16,221			—			(7	)		18,951
	General and administrative expenses		559			2,702			351			—			3,612
	Restructuring professional fees and expenses		—			—			885			—			885
	Restructuring charges		—			—			1,919			—			1,919

Operating income (loss)			4,293			44,847			(2,733	)		7			46,414
Other income/(expense)
	Other income, net		293			534			34,614			(34,614	)		827
	Restructuring interest income		—			107			—			—			107
	Equity in earnings of subsidiaries		—			—			11,585			(11,585	)		—
	Interest expense		(3,646	)		(34,843	)		(34,614	)		34,614			(38,489	)

Net Income (loss)		$	940		$	10,645		$	8,852		$	(11,578	)	$	8,859

NRG South Central Generating LLC and Subsidiaries
Consolidating Statement of Operations
For the Three Months Ended June 30, 2003
(UNAUDITED)


		Unrestricted,			Louisiana			South Central
		Non-Guarantor			Generating LLC			Generating LLC			Eliminations			Consolidated
		Subsidiaries			(Bond Guarantor)			(Bond Issuer)			(1)			Balance

								(In thousands)
Operating Revenues
	Revenues from wholly-owned operations	$	5,029		$	92,098		$	—		$	(4,509	)	$	92,618
Operating costs and expenses
	Cost of operations		1,772			64,098			(347	)		(4,509	)		61,014
	Depreciation and amortization		1,363			8,647			—			(4	)		10,006
	General and administrative expenses		150			1,255			146			—			1,551
	Restructuring professional fees and expenses		—			—			885			—			885
	Restructuring charges		—			—			1,250			—			1,250

Operating income (loss)			1,744			18,098			(1,934	)		4			17,912
Other income/(expense)
	Other income, net		232			207			17,263			(17,263	)		439
	Restructuring interest income		—			107			—			—			107
	Equity in earnings of subsidiaries		—			—			841			(841	)		—
	Interest expense		(2,177	)		(17,370	)		(17,263	)		17,263			(19,547	)

Net Income (loss)		$	(201	)	$	1,042		$	(1,093	)	$	(837	)	$	(1,089	)

(1)

All significant intercompany transactions have been eliminated in consolidation.

NRG South Central Generating LLC and Subsidiaries
Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2003
(UNAUDITED)


			Unrestricted			Louisiana			South Central
			Non-Guarantor			Generating LLC			Generating LLC			Eliminations			Consolidated
			Subsidiaries			(Bond Guarantor)			(Bond Issuer)			(1)			Balance

									(In thousands)
Cash Flows from operating activities:
Net income (loss)			$	940		$	10,645		$	8,852		$	(11,578	)	$	8,859
Adjustments to reconcile net income to net cash provided (used) by operating activities:
	Depreciation and amortization			2,737			16,221			—			(7	)		18,951
	Amortization of deferred finance costs			623			214			—			—			837
	Unrealized (gain)/loss on energy contracts			—			—			(423	)		—			(423	)
	Changes in assets and liabilities:
		Accounts receivable		249			15,372			—			—			15,621
		Inventory		(263	)		4,269			—			—			4,006
		Prepaid expenses		(214	)		(4,133	)		(60	)		—			(4,407	)
		Accounts payable		211			12,317			106			—			12,634
		Accounts payable — affiliates		(7,377	)		5,672			(8,573	)		11,585			1,307
		Accrued interest		2,809			(35,337	)		(35,337	)		35,337			(32,528	)
		Interest receivable		—			—			35,337			(35,337	)		—
		Accrued fuel and purchased power expense		(10	)		(7,491	)		—			—			(7,501	)
		Other current liabilities		(72	)		(3,715	)		(11	)		—			(3,798	)
		Changes in other assets and liabilities		44			(216	)		109			—			(63	)
Payments authorized by the Bankruptcy Court on amounts classified as liabilities subject to compromise				—			—			—			—			—

Net cash (used) provided by operating activities				(323	)		13,818			—			—			13,495
Cash flows from investing activities:
	Increase in notes receivable			—			1,500			—			—			1,500
	Capital expenditures			—			(5,389	)		—			—			(5,389	)
	Increase in restricted cash			—			(1,917	)		—			—			(1,917	)

Net cash (used) provided by investing activities				—			(5,806	)		—			—			(5,806	)
Cash flows from financing activities:
Checks in excess of cash				42			—			—			—			42

Net cash provided by financing activities:				42			—			—			—			42
Net increase (decrease) in cash and cash equivalents				(281	)		8,012			—			—			7,731
Cash and cash equivalents, beginning of Period				310			—			—			—			310

Cash and cash equivalents, end of Period			$	29		$	8,012		$	—		$	—		$	8,041

(1)

All significant intercompany transactions have been eliminated in consolidation.

NRG South Central Generating LLC and Subsidiaries
Consolidating Balance Sheet
December 31, 2002
(UNAUDITED)


				Louisiana		South Central
		Unrestricted		Generating		Generating
		Non-Guarantor		LLC		LLC		Eliminations			Consolidated
(In thousands)		Subsidiaries		(Bond Guarantor)		(Bond Issuer)		(1)			Balance

ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	310	$	—	$	—	$	—		$	310
Restricted cash			—		109,336		—		—			109,336
Accounts receivable			249		46,089		—		—			46,338
Note receivable — current			—		3,000		—		—			3,000
Intercompany note receivable bonds — current			—		—		750,750		(750,750	)		—
Interest receivable			—		—		55,413		(55,413	)		—
Inventory			970		63,394		—		—			64,364
Derivative instruments valuation			—		—		112		—			112
Prepaid expenses			309		2,927		—		—			3,236

	Total current assets		1,838		224,746		806,275		(806,163	)		226,696
Equity investments in affiliates			—		—		320,797		(320,797	)		—
Property, plant & equipment, net			168,066		964,220		—		(390	)		1,131,896
Decommissioning fund investment			—		4,617		—		—			4,617
Deferred financing costs, net			20,488		9,540		—		—			30,028
Other assets, net			—		2,274		4,833		—			7,107

	Total assets	$	190,392	$	1,205,397	$	1,131,905	$	(1,127,350	)	$	1,400,344


LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt		$	—	$	—	$	750,750	$	—		$	750,750
Note payable — affiliate			105,491		—		—		—			105,491
Intercompany note payable			—		750,750		—		(750,750	)		—
Accounts payable			6,394		3,420		—		—			9,814
Accounts payable — affiliates, net			65,408		59,558		1,556		—			126,522
Accrued fuel, purchased power and transmission expense			163		10,140		—		—			10,303
Accrued interest			—		—		55,413		—			55,413
Accrued interest — affiliates			514		55,413		—		(55,413	)		514
Derivative instruments valuation			—		—		135		—			135
Accrued liabilities			148		11,355		11		—			11,514

	Total current liabilities		178,118		890,636		807,865		(806,163	)		1,070,456
Other long-term liabilities			—		6,238		—		—			6,238

	Total liabilities		178,118		896,874		807,865		(806,163	)		1,076,694
MEMBERS’ EQUITY			12,274		308,523		324,040		(321,187	)		323,650

	Total liabilities and members’ equity	$	190,392	$	1,205,397	$	1,131,905	$	(1,127,350	)	$	1,400,344

(1)

All significant intercompany transactions have been eliminated in consolidation.

NRG South Central Generating LLC and Subsidiaries
Consolidating Statement of Operations
For the Six Months Ended June 30, 2002
(UNAUDITED)


						Louisiana
			Unrestricted,			Generating			South Central
			Non-			LLC			Generating
			Guarantor			(Bond			LLC			Eliminations			Consolidated
(In thousands)			Subsidiaries			Guarantor)			(Bond Issuer)			(1)			Balance

Operating revenues
	Revenues from wholly-owned operations		$	9,730		$	193,331		$	—		$	(9,883	)	$	193,178
	Equity earnings of unconsolidated affiliates			(4,394	)		—			—			—			(4,394	)

		Total operating revenues and equity earnings		5,336			193,331			—			(9,883	)		188,784
Operating costs and expenses
	Cost of operations			2,475			130,191			249			(9,883	)		123,032
	Depreciation and amortization			2,390			15,549			—			—			17,939
	General and administrative expenses			907			3,209			502			—			4,618

Operating income (loss)				(436	)		44,382			(751	)		—			43,195
Other income/(expense)
	Other income (expense), net			24			278			35,244			(35,244	)		302
	Equity in earnings of subsidiaries			—			—			9,027			(9,027	)		—
	Interest expense			—			(35,221	)		(35,244	)		35,244			(35,221	)

Net income (loss)			$	(412	)	$	9,439		$	8,276		$	(9,027	)	$	8,276

NRG South Central Generating LLC and Subsidiaries
Consolidating Statement of Operations
For the Three Months Ended June 30, 2002
(UNAUDITED)


						Louisiana
			Unrestricted,			Generating			South Central
			Non-			LLC			Generating
			Guarantor			(Bond			LLC			Eliminations			Consolidated
(In thousands)			Subsidiaries			Guarantor)			(Bond Issuer)			(1)			Balance

Operating revenues
	Revenues from wholly-owned operations		$	4,360		$	101,541		$	—		$	(4,541	)	$	101,360
	Equity earnings of unconsolidated affiliates			(2,293	)		—			—			—			(2,293	)

		Total operating revenues and equity earnings		2,067			101,541			—			(4,541	)		99,067
Operating costs and expenses
	Cost of operations			1,426			69,043			(348	)		(4,541	)		65,580
	Depreciation and amortization			1,209			8,643			—			—			9,852
	General and administrative expenses			602			1,409			435			—			2,446

Operating income (loss)				(1,170	)		22,446			(87	)		—			21,189
Other income/(expense)
	Other income (expense), net			9			669			17,700			(17,700	)		678
	Equity in earnings of subsidiaries			—			—			4,585			(4,585	)		—
	Interest expense			—			(17,369	)		(17,700	)		17,700			(17,369	)

Net income (loss)			$	(1,161	)	$	5,746		$	4,498		$	(4,585	)	$	4,498

(1)		All significant intercompany transactions have been eliminated in consolidation.

NRG South Central Generating LLC and Subsidiaries
Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2002
(UNAUDITED)


			Unrestricted			Louisiana			South Central
			Non-Guarantor			Generating LLC			Generating LLC			Eliminations			Consolidated
(In thousands)			Subsidiaries			(Bond Guarantor)			(Bond Issuer)			(1)			Balance


Cash Flows from operating activities:
Net income (loss)			$	(412	)	$	9,439		$	8,276		$	(9,027	)	$	8,276
Adjustments to reconcile net income to net cash provided (used) by operating activities:
	Loss in earnings of unconsolidated affiliate			4,394			—			—			—			4,394
	Depreciation and amortization			2,390			15,549			—			—			17,939
	Amortization of deferred finance costs			61			214			—			—			275
	Unrealized (gain)/loss on energy contracts			—			—			237			—			237
	Changes in assets and liabilities:
		Accounts receivable		729			(6,275	)		—			—			(5,546	)
		Inventory		(132	)		(7,606	)		—			—			(7,738	)
		Prepaid expenses		250			(2,284	)		—			—			(2,034	)
		Accounts payable		8,833			2,326			—			—			11,159
		Accounts payable — affiliates		—			23,997			(8,622	)		9,027			24,402
		Accrued interest		303			(590	)		(287	)		287			(287	)
		Interest receivable		—			—			287			(287	)		—
		Intercompany note receivable — revolver		—			—			40,000			(40,000	)		—
		Accrued fuel and purchased power expense		25			(6,615	)		—			—			(6,590	)
		Other current liabilities		(58	)		4,496			—			—			4,438
		Changes in other assets and liabilities		—			596			109			—			705

Net cash provided (used) by operating activities				16,383			33,247			40,000			(40,000	)		49,630
Cash flows from investing activities:
	Increase in notes receivable			—			(6,000	)		—			—			(6,000	)
	Intercompany note receivable			—			—			(40,000	)		40,000			—
	Capital expenditures			(98,721	)		(11,818	)		—			—			(110,539	)
	Payment received on loan to affiliate			—			—			12,750			(12,750	)		—
	Increase in restricted cash			(3,726	)		(5,649	)		—			—			(9,375	)

Net cash (used) provided by investing activities				(102,447	)		(23,467	)		(27,250	)		27,250			(125,914	)
Cash flows from financing activities:
	Repayments of long-term borrowings			—			(12,750	)		(12,750	)		12,750			(12,750	)
	Net proceeds/payments on revolver			—			(40,000	)		(40,000	)		40,000			(40,000	)
	Note payable — affiliate			107,353			—			—			—			107,353
	Deferred financing costs			(20,882	)		—			—			—			(20,882	)
	Checks in excess of cash			(407	)		(5,030	)		—			—			(5,437	)
	Contributions by members			—			48,000			40,000			(40,000	)		48,000

Net cash provided (used) by financing activities:				86,064			(9,780	)		(12,750	)		12,750			76,284
Net increase in cash and cash equivalents				—			—			—			—			—
Cash and cash equivalents, beginning of Period				—			—			—			—			—

Cash and cash equivalents, end of Period			$	—		$	—		$	—		$	—		$	—

(1)

All significant intercompany transactions have been eliminated in consolidation.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Due to the factors discussed below, as well as other matters discussed herein, NRG Energy’s financial condition has deteriorated significantly in the recent past. See “Liquidity” below. As a result, NRG Energy does not contemplate that it will have sufficient funds to make required principal and interest payments on its corporate debt, which means that NRG Energy will remain in default of the various corporate level debt obligations.

Industry Dynamics

An unregulated merchant power company in the United States can be characterized in two ways, as a generator or as an energy merchant, with some companies having characteristics of both. In the United States, generators are either outgrowths of regulated utilities, developers or independent aggregators of plants divested by utilities. Generators have grown through acquisitions or the construction of new power plants. Energy merchants have emphasized risk management and trading skills over the ownership of physical assets. Energy deregulation paved the way for development of these companies, with utilities in some regions forced to sell off some of their generating capacity and buy electricity on the wholesale market or through power procurement agreements.

Both generators and energy merchants prospered in the late 1990’s. Starting in 1999, however, a number of factors began to arise which had a negative effect on the business model for merchant power companies. These factors included:

California — When California restructured its electricity industry in the mid-1990’s, it required utilities to sell generation assets and buy electricity on the wholesale spot market, without the stability of long-term contracts. At the time, California had adequate supplies of power, but the State of California was experiencing unusually high electricity demand growth while new capacity additions were not keeping pace. Supply began to lag behind demand, and previously moderate weather gave way to dryer conditions, reducing hydroelectric supply. Shortages and blackouts ensued in 1999 and 2000. Meanwhile, as wholesale electricity prices moved higher, utilities were not allowed to pass higher costs on to consumers under California’s regulatory regime. Unable to bear the financial burden, PG&E sought Chapter 11 protection and California took over the role of procuring electricity for the utilities. Politicians have criticized the electricity generators and the energy merchants, accusing them of improperly manipulating supply, demand and prices. Merchant power companies in California are now embroiled in protracted litigation with California and private parties, which is discouraging new investment.

Economy — The United States economy, already headed towards a recession by mid-2001, suffered a heavy blow on September 11, 2001. This, along with a decrease in economically driven electricity demand, exacerbated the drop in stock valuations of the energy merchants. Other regions of the world economy have suffered problems as well, which has exposed companies with international assets to losses based on severe currency fluctuations.

Weather — On the whole, both the summer and winter seasons have been mild in the United States. This together with an oversupply of new generation in many markets has driven down energy prices significantly.

Enron — The bankruptcy of Enron has devastated the merchant power industry. The public and political perception created by Enron put a stigma on the industry, drove investors away and increased scrutiny of the industry. Enron also played a key role in the energy trading markets, providing a widely used electronic trading platform that accounted for an enormous amount of trading volume. No other company has stepped in to fill this role, and as a result the electricity markets have become far less efficient and liquid.

Credit ratings — The credit rating agencies were sharply criticized for not foreseeing Enron’s problems. As a result, the agencies have been quick to scrutinize the rest of the industry, and have tightened their criteria for creditworthiness. The agencies have downgraded most, if not all, of the industry participants. Many of these downgrades were severe — ratings at times were dropped several notches at once, or dropped more than once in a span of weeks. This has resulted in most of the energy companies, generators and merchants having non-investment grade credit ratings at this time.

Oversupply — As wholesale electricity prices and market liquidity increased in the late 1990’s the industry went on a building boom. Through 2001 capital was readily available for the industry, encouraging companies to build new generation facilities. The years 2000 and 2001 saw record megawatt capacity additions in the United States, and record years were on the horizon for 2002 and 2003. Even with steady economic growth this would have created an oversupply of generation. Limited economic growth and recession have exacerbated the oversupply situation.

Results of Operations

For the three and six months ended June 30, 2003 compared to the three and six months ended June 30, 2002

Operating Revenues and Equity Earnings

Operating Revenues and Equity Earnings consisted primarily of sales under long-term agreements.

Total operating revenues were $92.6 million and $99.1 million for the three months ended June 30, 2003 and 2002, respectively, a decrease of $6.5 million or 6.6%. This decrease is primarily the result of reduced generation, due to a six week outage on one unit and due to lower market prices as compared to the same period in 2002. This decrease is offset by increases in Form A Contract fixed capacity sales. Form A Contract customers are charged a fixed rate during the winter months (October through May) based on actual charges incurred during the summer months (June through September). The summer months that established the rates for April and May of 2003 were higher cost months than the comparable periods in 2002. In addition, during 2002 there were equity losses related to SRW Cogeneration LP (SRW). NRG Energy sold its interest in SRW in September 2002.

Total operating revenues were $196.5 million and $188.8 million for the six months ended June 30, 2003 and 2002, respectively, an increase of $7.7 million or 4.1%. This increase is due to increased generation, higher contract revenue and reduced equity losses. Generation for the first quarter of 2003 increased 9% over the same period in 2002 due to colder than normal temperatures during the first quarter of 2003. Form A Contracts are charged a fixed rate during the winter months (October through May) based on actual charges incurred during the prior summer months (June through September). The summer months that established the rates from January through May of 2003 were higher cost months than the comparable periods in 2002. In addition, during 2002 there were equity losses related to SRQ Cogeneration LP (SRW). NRG Energy sold its interest in SRW in September 2002.

Cost of Operations

Cost of operations included fuel, purchased power and related costs, operation and maintenance costs and net gains/losses on non-hedge energy contracts.

Cost of operations was $61.0 million and $65.6 million for the three months ended June 30, 2003 and 2002, respectively, a decrease of $4.6 million or 7.0%. Fuel and purchased power expense decreased $14.2 million or 23.8% for the three months ended June 30, 2003 as compared to the same period in 2002. This decrease is primarily the result of an overall decrease in purchased power during the second quarter of 2003 compared to the same period in 2002 and the recognition of a favorable coal inventory adjustment of $4.6 million recorded during the three months ended June 30, 2003. In addition, during the second quarter of 2003 NRG South Central experienced reduced generation, due to a six week outage on one unit. This decrease is offset by an increase in operations and maintenance. Operations and maintenance increased $9.4 million or 145.9% for the three months ended June 30, 2003 as compared to the same period in 2002. This increase is due to a planned major turbine outage on Unit 1 during the second quarter of 2003. During 2002, outage costs consisted of minor forced outages. In addition, in April 2002, NRG South Central received a favorable settlement of a 2001 property tax dispute that resulted in a reduction of $4.3 million to property tax expense.

Cost of operations was $124.7 million and $123.0 million for the six months ended June 30, 2003 and 2002, respectively, an increase of $1.7 million or 1.4%. Fuel and purchased power expense decreased $7.9 million or 7.6% for the six months ended June 30, 2003 as compared to the same period in 2002. This decrease is primarily the result of an overall decrease in purchased power during the second quarter of 2003 compared to the same period in 2002 and the recognition of a favorable coal inventory adjustment of $4.6 million recorded during the six months ended June 30, 2003. In addition, during the six months ended June 30, 2003 NRG South Central experienced reduced generation, due to a six week outage on one unit. In March 2002, NRG South Central received a legal settlement of approximately $4.3 million, which was recognized as an offset to fuel expense during 2002 and offsets the decrease in fuel expense for the same period in 2003. Operations and maintenance increased $10.0 million or 52.7% for the six months ended June 30, 2003 as compared to the same period in 2002. This increase is due to a planned major turbine outage on Unit 1 during the second quarter of 2003. During 2002, the outage consisted of Big Cajun 2 Unit 3, which is a jointly owned unit. As a result, NRG South Central absorbed only 58% of the 2002 outage costs. In addition, in April 2002, NRG South Central received a favorable settlement of a 2001 property tax dispute that resulted in a reduction of $4.3 million to property tax expense.

Depreciation and Amortization

Depreciation and amortization expense was $10.0 million and $9.9 million for the three months ended June 30, 2003 and 2002, respectively, an increase of $0.1 million or 1.0%. Depreciation and amortization expense was $19.0 million and $17.9 million for the six months ended June 30, 2003 and 2002, respectively, an increase of $1.1 million or 6.1%. This increase is due the retirement of equipment related to the Big Cajun 2 Unit 1 during the first quarter of 2003 which resulted in $0.5 million of the increase, as the loss on disposal is recorded to depreciation expense. The remaining increase is due to Bayou Cove not being operational until after the first quarter of 2002.

Restructuring Charges and Restructuring Professional Fees and Expenses

Restructuring charges and restructuring professional fees and expenses were $2.1 million and $2.8 million for the three and six months ended June 30, 2003, respectively. No such charges were recorded for the same periods of 2002. The increase is due to costs associated with restructuring efforts consisting primarily of advisor fees.

Interest Expense

Interest expense was $19.5 million and $17.4 million for the three months ended June 30, 2003 and 2002, respectively, an increase of $2.1 million or 12.1%. Interest expense was $38.5 million and $35.2 million for the six months ended June 30, 2003 and 2002, respectively, an increase of $3.3 million or 9.4%. These increases are due to increased debt at the Bayou Cove facility. In June 2002, NRG Peaker Finance Company LLC advanced unsecured loans in the amount of $107.4 million to Bayou Cove through project loan agreements. The note bears a fixed interest rate of 6.673%.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon NRG South Central’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements and related disclosures in compliance with generally accepted accounting principles (GAAP) requires the application of appropriate technical accounting rules and guidance as well as the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. The application of these policies necessarily involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges. These judgments, in and of themselves, could materially impact the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment also may have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies have not changed.

On an ongoing basis, NRG South Central evaluates its estimates utilizing historic experience, consultation with experts and other methods NRG South Central considers reasonable in particular circumstances. In any case, actual results may differ significantly from NRG South Central’s estimates. Any effects on NRG South Central’s business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

Refer to Item 15 Note 2 of the consolidated financial statements of NRG South Central Generating LLC Form 10-K for the year ended December 31, 2002 for additional discussion regarding NRG South Central’s accounting policies and estimates.

Off Balance-Sheet Arrangements

As of June 30, 2003, NRG South Central does not have any significant relationships with structured finance or special purpose entities that provide liquidity, financing or incremental market risk or credit risk.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Issues of NRG Energy and it Subsidiaries — Current Status and Chain of Events

In response to a possible downgrade during 2002, Xcel Energy contributed $500 million to NRG Energy, and NRG Energy and its subsidiaries sold assets and businesses that provided NRG Energy in excess of $286 million in cash and eliminated approximately $432 million in debt. NRG Energy also cancelled or deferred construction of approximately 3,900 MW of new generation projects. On July 26, 2002, Standard & Poors’ (S&P) downgraded NRG Energy’s senior unsecured bonds to below investment grade, and three days later Moody’s also downgraded NRG Energy’s senior unsecured debt rating to below investment grade. Since July 2002, NRG Energy senior unsecured debt, as well as the secured NRG Northeast Generating LLC bonds and the secured NRG South Central Generating LLC bonds and secured LSP Energy (Batesville) bonds were downgraded multiple times. After NRG Energy failed to make payments due under certain unsecured bond obligations on September 16, 2002, both Moody’s and S&P once again lowered their ratings on NRG Energy’s unsecured bonds and its subsidiaries’ secured bonds. Currently, NRG Energy’s unsecured bonds carry a rating of D at S&P and between Ca and C at Moody’s, depending on the specific debt issue. NRG South Central Generating LLC secured bonds carry a rating of D at S&P and Caa1 at Moody’s.

As a result of the downgrade of NRG Energy’s credit rating, declining power prices, increasing fuel prices, the overall downturn in the energy industry, and the overall downturn in the economy, NRG Energy has experienced severe financial difficulties. These difficulties have caused NRG Energy to, among other things, miss scheduled principal and interest payments due to its corporate lenders and bondholders, prepay for fuel and other related delivery and transportation services and provide performance collateral in certain instances.

NRG Energy has also recorded asset impairment charges of approximately $3.1 billion as of December 31, 2002, related to various operating projects as well as for projects that were under construction which NRG Energy has stopped funding.

NRG Energy failed to make a first-quarter payment of $19.1 million due on March 31, 2003 relating to interest and fees on the $1.0 billion unsecured 364-day revolving credit facility; a $13.6 million interest payment due on April 1, 2003 on the $350 million of 7.75% senior unsecured notes maturing 2011; a $21.6 million interest payment due on April 1, 2003 on the $500 million of 8.625% senior unsecured notes maturing 2031; and a $9.6 million interest payment due on May 1, 2003 on the $240 million of 8.0% senior unsecured notes maturing 2013. On May 13, 2003, XL Capital Assurance, as controlling party, accelerated the approximately $319.4 million of debt issued by NRG Peaker Finance Company LLC. These facilities are in default.

NRG Energy failed to make a second quarter payment of $18 million due on June 30, 2003, relating to interest and fees on the $1.0 billion unsecured, 364-day revolving credit facility; a $11.3 million interest payment due June 1, 2003, on the $300 million of 7.5% senior unsecured notes maturing in 2009; and a $9.4 million interest payment due on June 15, 2003, on the $250 million of 7.5% senior unsecured notes due in 2007.

Prior to the downgrades, many corporate guarantees and commitments of NRG Energy and its subsidiaries required that they be supported or replaced with letters of credit or cash collateral within 5 to 30 days of a ratings downgrade below Baa3 or BBB — by Moody’s or Standard & Poor’s, respectively. As a result of the downgrades on July 26, 2002 and July 29, 2002 NRG Energy received demands to post collateral aggregating approximately $1.2 billion. NRG Energy is presently working with various secured project lender groups with respect to the issue of posting collateral and is working towards establishing a comprehensive plan of restructuring.

On November 22, 2002, five former NRG Energy executives filed an involuntary Chapter 11 petition against NRG Energy in U.S. Bankruptcy Court for the District of Minnesota (the Minnesota Bankruptcy Court). On February 19, 2003, NRG Energy announced that it had reached a settlement with the petitioners. On May 12, 2003 the Minnesota Bankruptcy Court issued an Order abstaining from exercising jurisdiction over any aspect of the case and dismissed the case.

On March 26, 2003, Xcel Energy announced that its board of directors had approved a tentative settlement agreement with holders of most of NRG Energy’s long-term notes and the steering committee representing NRG Energy’s bank lenders. The settlement is subject to certain conditions, including the approval of at least a majority in dollar amount of the NRG Energy bank lenders and long-term noteholders and definitive documentation. There can be no assurance that such approvals will be obtained. The terms of the tentative settlement call for Xcel Energy to make payments to NRG Energy over the next 10 months totaling up to $752 million for the benefit of NRG Energy’s creditors in consideration for their waiver of any existing and potential claims against Xcel Energy. Under the settlement, Xcel Energy will make the following payments: (i) $350 million at or shortly following the consummation of a restructuring of NRG Energy’s debt. It is expected this payment would be made prior to year-end 2003; (ii) $50 million on January 1, 2004. At Xcel Energy’s option, it may fill this requirement with either cash or Xcel Energy common stock or any combination thereof; and (iii) $352 million in April 2004. Since the announcement on March 26, 2003, representatives of NRG Energy, Xcel Energy, the bank lenders and noteholders have continued to meet to draft the definitive documentation necessary to fully implement the terms and conditions of the tentative settlement agreement.

On May 14, 2003 NRG Energy and certain of its U.S. affiliates (including NRG South Central, Louisiana Generating, Big Cajun and New Roads) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court), In re: NRG ENERGY, INC., et al., Case No. 03-13024 (PCB). NRG Energy expects operations to continue as normal during the restructuring process, while it operates its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In connection with its Chapter 11 filing, NRG Energy also announced a $250 million debtor-in-possession (DIP) financing facility from GE Capital Corporation, subject to Bankruptcy Court approval, to be utilized by NRG Northeast Generating LLC (NEG) and some NEG subsidiaries. NRG Energy anticipates that the DIP, together with its cash reserves and its ongoing revenue stream, will be sufficient to fund its operations, including payment of employee wages and benefits, during the reorganization process.

Commission to delist the Units is pending the completion of applicable procedures, including appeal by NRG Energy of the NYSE staff’s decision. NRG Energy does not plan to make such an appeal. The NYSE took this action following NRG Energy’s announcement that it and certain of its U.S. affiliates had filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

In addition, on May 15, 2003, NRG Energy, NRG Power Marketing, Inc., NRG Finance Company I LLC, NRGenerating Holding (No. 23) B.V. and NRG Capital LLC (collectively, the Plan Debtors) filed their Disclosure Statement for Reorganizing Debtors’ Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (as subsequently amended, the Disclosure Statement). The Bankruptcy Court held a hearing on the Disclosure Statement on June 30, 2003, and instructed the Plan Debtors to include certain additional disclosure. The Plan Debtors amended the Disclosure Statement and obtained Bankruptcy Court approval for the Third Amended Disclosure Statement for Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (respectively, the Amended Disclosure Statement, the Plan).

The Plan must be approved by the SEC prior to its becoming effective. As subsidiaries of a registered holding company (Xcel Energy) under PUHCA, any reorganization plan for NRG Energy or NRG Energy’s subsidiaries must be approved by the SEC prior to such plan becoming effective. Furthermore, each solicitation of any consent in respect of any reorganization plan must be accompanied or preceded by a copy of a report on the plan made by the SEC, or an abstract thereof made or approved by the SEC. The Plan and Amended Disclosure Statement were submitted to the SEC for review on Monday, July 28, 2003. The Plan Debtors will not be able to solicit acceptances or rejections in connection with the Plan prior to obtaining the required SEC approval. As a result, no deadlines or dates have been set regarding voting or confirmation.

Cash Flows


	For the six months ended
	June 30,
(In thousands)	2003		2002

Net cash provided by operating activities	$	13,495	$	49,630

Net cash provided by operations was adversely impacted during the six months ended June 30, 2003 as compared to the same period in 2002 due primarily to adverse working capital changes.

Net cash used by investing activities for the six months ended June 30, 2003 was favorably impacted as compared to the same period in 2002, due to the completion of construction projects in prior periods.


	For the six months ended
	June 30,
(In thousands)	2003		2002

Net cash provided by financing activities	$	42	$	76,284

Net cash provided by financing activities decreased as compared to the same period in 2002. The decrease is due to no finance activity in 2003.

Contractual obligations and commercial commitments

NRG South Central has a variety of contractual obligations and other commercial commitments that represent prospective cash requirements in addition to its capital expenditure program. The following is a summarized table of contractual obligations.


	Payments Due by Period Subsequent to June 30, 2003

			Short		1-3		4-5		After
(In thousands)	Total		Term		Years		Years		5 Years

Long term debt	$	750,750	$	750,750	$	—	$	—	$	—
Note payable — affiliate		105,491		105,491		—		—		—
Operating leases		672		297		172		43		160

Total contractual cash obligations	$	856,913	$	856,538	$	172	$	43	$	160


	Amount of Commitment Expiration Period as of June 30, 2003

	Total
	Amounts		Short		1-3		4-5		After
	Committed		Term		Years		Years		5 Years

Guarantees	$	334,700	$	334,700	$	—	$	—	$	—

Total commercial commitments	$	334,700	$	334,700	$	—	$	—	$	—

Derivative Instruments

The tables below disclose the derivative activities that include non-exchange traded contracts accounted for at fair value. Specifically, these tables disaggregate realized and unrealized changes in fair value; identifies changes in fair value attributable to changes in valuation techniques; disaggregates estimated fair values at June 30, 2003 based on whether fair values are determined by quoted market prices or more subjective means; and indicates the maturities of contracts at June 30, 2003.

Derivative Activity


	Three Months			Six Months Ended
	Ended June 30,			Ended June 30,
(In thousands)	2003			2003

Fair value of contracts outstanding at the beginning of the period	$	53		$	(23	)
Contracts realized or otherwise settled during the period		(109	)		(31	)
Fair value of new contract when entered into during the period		—			—
Changes in fair values attributable to changes in valuation techniques		—			—
Other changes in fair values		456			454

Fair value of contracts outstanding at the end of the period	$	400		$	400

Sources of Fair Value

Fair Value of Contracts at Period End


							Maturity		Total
Gains/(Losses)	Maturity		Maturity		Maturity		in excess of		Fair
(In thousands)	Less than 1 Year		1-3 Years		4-5 Years		5 Years		Value

Prices actively quoted	$	400	$	—	$	—	$	—	$	400
Prices provided by other external sources		—		—		—		—		—
Prices based on models & other valuation methods		—		—		—		—		—

	$	400	$	—	$	—	$	—	$	400

Recent Accounting Pronouncements

circumstances the enterprise’s consolidated financial statements do not include the consolidation of variable interest entities with which it has similar relationships but no majority voting interest. Under FIN No. 46 the voting interest approach is not effective in identifying controlling financial interest. Assets of entities consolidated upon adoption of the new standard will be initially recorded at their carrying amounts at the date the requirements of the new rule first apply. If determining carrying amounts as required is impractical, then the assets are to be measured at fair value the first date the new rule applies. Any difference between the net amount of any previously recognized interest in the newly consolidated entity should be recognized as the cumulative effect of an accounting change. FIN No. 46 becomes effective in the third quarter of 2003. Fin No. 46 is not expected to have a significant impact on NRG South Central.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, (SFAS No. 149). SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The provisions of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2002. In addition, provisions of SFAS 149 that relate to SFAS Statement No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. SFAS No. 149 will be applied as required and is not expected to have a material impact on NRG South Central.

In May 2003, the FASB issues SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, (SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 is not expected to have an impact on NRG South Central.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risks, including changes in commodity prices and interest rates, and credit risk as disclosed in Management’s Discussion and Analysis in its annual report on Form 10-K for the year ended December 31, 2002. Except as follows, there have been no material changes as of June 30, 2003 to the market risk disclosures presented as of December 31, 2002.

Commodity Price Risk

NRG South Central is exposed to commodity price variability in electricity, emission allowances and natural gas and coal used to meet fuel requirements. To manage earnings volatility associated with these commodity price risks, NRG South Central, through its affiliate NRG Power Marketing, may enter into commodity contracts, which may take the form of fixed price, floating price or indexed forward sales or purchases, and options, such as puts, calls and basis transactions.

Through NRG Power Marketing, NRG South Central utilizes an undiversified “Value-at-Risk” (VAR) model to determine the maximum potential three-day loss in the fair value of the commodity price related financial instruments for the forward 12 months. The VAR for NRG South Central assumes a 95% confidence interval and reflects NRG South Central’s merchant strategy, the generation assets, load obligations and bilateral physical and financial transactions of NRG South Central. The volatility estimate is based on the implied volatility for at the money daily call options for forward markets where NRG South Central has exposure. This model encompasses the Entergy region.

The estimated maximum potential three-day loss in fair value of the commodity price related financial instruments, calculated using the VAR model is approximately $9.9 million and $4.0 million for the six months ended June 30, 2003 and 2002, respectively. The average, high and low amounts for the six months ended June 30, 2003 were $9.7 million, $13.0 million and $7.3 million, respectively. The average, high and low amounts for the six months ended June 30, 2002 were $3.6 million, $4.9 million and $2.3 million, respectively.

Item 4. Controls and Procedures

The Vice President, Treasurer and Controller (the Certifying Officers) have evaluated NRG South Central’s disclosure controls and procedures as defined in the rules of the SEC as of the end of the period covered by this report and have determined that, except to the extent indicated otherwise in this paragraph, disclosure controls and procedures were effective in ensuring that material information required to be disclosed by NRG South Central in the reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. During the fourth quarter of 2002, the Certifying Officers determined that there were certain deficiencies in the internal controls relating to financial reporting at NRG South Central caused by NRG South Central’s pending financial restructuring and business realignment. During the second half of 2002, there were material changes and vacancies in senior NRG South Central management positions and a diversion of NRG South Central’s financial and management resources to restructuring efforts. These circumstances detracted from NRG South Central’s ability through its internal controls to timely monitor and accurately assess the impact of certain transactions, as would be expected in an effective financial reporting control environment. NRG South Central has dedicated and will continue to dedicate in 2003 resources to make corrections to those control deficiencies. Notwithstanding the foregoing and as indicated in the certification accompanying the signature page to this report, the Certifying Officers have certified that, to the best of their knowledge, the financial statements, and other financial information

included in this report on Form 10-Q, fairly present in all material respects the financial conditions, results of operations and cash flows of NRG South Central as of, and for the periods presented in this report.

NRG’s South Central’s Certifying Officers are primarily responsible for the accuracy of the financial information that is represented in this report. To meet their responsibility for financial reporting, they have established internal controls and procedures which, subject to the disclosure in the foregoing paragraph, they believe are adequate to provide reasonable assurance that NRG South Centrals’ assets are protected from loss. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of the Certifying Officers evaluation.

Part II — OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of material legal proceedings in which NRG South Central was involved through June 30, 2003, see Note 8, “Commitments and Contingencies” to NRG South Central’s Consolidated Financial Statements and Footnotes contained in Part I, Item 1 of this Form 10-Q.

Item 3. Defaults on Senior Securities

$500 million of 8.962% Series A-1 Senior Secured Notes due 2016 issued by NRG South Central Generating LLC

•

Failure to make $20.2 million interest and $12.8 million principal payment due on September 16, 2002

•

Failure to make $12.8 million principal payment due on March 17, 2003

•

Failure to fund debt service reserve account

•

Acceleration of debt on November 21, 2002, rendering the debt immediately due and payable

$300 million 9.479% Series B-1 Senior Secured bonds due 2024 issued by NRG South Central Generating LLC

•

Failure to make $14.2 million interest payment due on September 16, 2002

•

Failure to fund debt service reserve account

•

Acceleration of debt on November 21, 2002, rendering the debt immediately due and payable

$325 million Series A floating rate Senior Secured Bonds due 2019 issued by NRG Peaker Finance Company LLC

•

Failure to remove liens placed on one of the project company assets

•

A cross default resulting from failure by NRG Energy to make payments of principal, interest and other amounts due on NRG Energy’s debt for borrowed money in excess of $50 million in the aggregate

•

Notice of default issued on October 22, 2002

•

Acceleration of debt on May 13, 2003, rendering the debt immediately due and payable

In addition to the foregoing, there may be additional technical defaults with respect to these or other NRG Energy debt instruments. Defaults on or acceleration of the foregoing debt instruments may result in cross-defaults on or cross-acceleration of these or other NRG Energy debt instruments. However, NRG South Central Generating LLC made a total of $34.4 million of interest payments due March 15, 2003 on Series A-1 and B-1, and has made the interest payments when due with respect to the NRG Peaker Finance Company, LLC Series A Bonds.

Item 6. Exhibits and Reports on Form 8-K

(a)		Exhibits

31		Section 302 Certifications

32		Section 906 Certification

(b)		Reports on Form 8-K:

		None

Cautionary Statement Regarding Forward-Looking Information

The information presented in this Form 10-Q includes forward-looking statements in addition to historical information. These statements involve known and unknown risks and relate to future events, or projected business results. In some cases forward-looking statements may be identified by their use of such words as “may,” “expects,” “plans,” “anticipates,” “contemplates,” “believes,” and similar terms. Forward-looking statements are only predictions or expectations and actual results may differ materially from the expectations expressed in any forward-looking statement. While NRG South Central believes that the expectations expressed in such forward-looking statements are reasonable, NRG South Central can give no assurances that these expectations will prove to have been correct. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following:

•

The impact of NRG Energy’s or NRG South Central’s Chapter 11 bankruptcy filing in the United States Bankruptcy Court for the Southern District of New York, including the actions and decisions of creditors of NRG Energy and NRG South Central and/or interested third parties, the various instructions, orders and decisions of the Bankruptcy Court, and the possibility of a bankruptcy filing by additional NRG Energy subsidiaries;

•

NRG Energy’s ability or the ability of any of its subsidiaries to reach agreements with its lenders, creditors and other

stakeholders regarding a comprehensive restructuring of NRG Energy;

•

Cost and other effects of legal and administrative proceedings, settlements, investigations and claims;

•

NRG Energy’s ability to sell assets in the amounts and on the time table assumed;

•

General economic conditions including inflation rates and monetary exchange rate fluctuations;

•

Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where NRG South Central has a financial interest;

•

Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services and solvency;

•

Supplier financial condition, including solvency, the ability to deliver procured commodities and services as required and directed and the outcome of the bankruptcy filing by American Commercial Marine Services Company;

•

Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and similar entities with regulatory oversight;

•

Factors affecting power generation operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel, or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints;

•

Employee workforce factors including loss or retirement of key executives, collective bargaining agreements with union employees, or work stoppages;

•

Volatility of energy prices in a deregulated market environment:

•

Increased competition in the power generation industry;

•

Technological developments that result in competitive disadvantages and create the potential for impairment of existing assets;

•

Limitations on NRG South Central’s ability to control projects in which NRG South Central has less than 100% interest;

•

Limited operating history at recently acquired or constructed projects provide only a limited basis for management to project the results of future operations;

•

Risks associated with timely completion of projects under construction, including obtaining competitive commercial agreements, obtaining regulatory and permitting approvals, local opposition, construction delays and other factors beyond NRG South Central’s control;

•

Factors associated with various investments including competition, operating risks, dependence on certain suppliers and customers, and environmental and energy regulations;

•

Changes in government regulation or the implementation of new government regulations, including pending changes within or outside of California as a result of the California energy crisis, or the outcome of litigation pending in California and other western states, which could adversely affect the continued deregulation of the electric industry;

•

Changes in market design or implementation of rules that affects NRG South Central’s ability to transmit or sell power in any market.

•

Other business or investment considerations that may be disclosed from time to time in NRG South Central’s Securities and Exchange Commission filings or in other publicly disseminated written documents.

NRG South Central’s undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG South Central’s actual results to differ materially from those contemplated in any forward-looking statements included in this Form 10-Q should not be construed as exhaustive.

SIGNATURES

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


		NRG South Central Generating LLC

		(Registrant)

		/s/ Scott J. Davido

		Scott J. Davido
		Vice President
		(Principal Executive Officer)

		/s/ George P. Schaefer

Date: August 13, 2003		George P. Schaefer, Treasurer
		(Principal Financial Officer)

		/s/ William T. Pieper

		William T. Pieper, Controller
		(Principal Accounting Officer)

For the six months ended

June 30,

(In thousands)

Net cash used by investing activities