10-Q 1 g69180e10-q.txt LS POWER FUNDING CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2001 Commission File Number 33-95928 LS POWER FUNDING CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 81-0502366 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 9405 ARROWPOINT BOULEVARD, CHARLOTTE, NC 28273, (704) 525-3800 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) LSP-COTTAGE GROVE, L.P. LSP-WHITEWATER LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) DELAWARE 81-0493289 DELAWARE 81-0493287 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Numbers) 9405 ARROWPOINT BOULEVARD, CHARLOTTE, NC 28273, (704) 525-3800 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] 1 2 LS POWER FUNDING CORPORATION LSP-COTTAGE GROVE, L.P. LSP-WHITEWATER LIMITED PARTNERSHIP INDEX TO THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

2 3 PART I/ITEM 1. FINANCIAL STATEMENTS The unaudited condensed financial statements contained herein have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "Commission"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While the management of LS Power Funding Corporation ("Funding"), LSP-Cottage Grove, L.P. ("Cottage Grove") and LSP-Whitewater Limited Partnership ("Whitewater"), (Cottage Grove and Whitewater sometimes referred to herein individually as a "Partnership" and collectively as the "Partnerships") believes that the disclosures made are adequate to make the information presented not misleading, these unaudited condensed financial statements should be read in conjunction with the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2000, filed by Funding, and the Partnerships. PART I/ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to discussing and analyzing Funding and the Partnerships' recent historical financial results and condition, the following "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes statements concerning certain trends and other forward-looking information affecting or relating to Funding and the Partnerships which are intended to qualify for the protections afforded "Forward-Looking Statements" under the Private Securities Litigation Reform Act of 1995, Public Law 104-67. The forward-looking statements made herein are inherently subject to risks and uncertainties which could cause Funding's and the Partnerships' actual results to differ materially from the forward-looking statements. GENERAL Cottage Grove is a single purpose Delaware limited partnership established in December 1993 to develop, finance, construct and own a gas-fired cogeneration facility located in Cottage Grove, Minnesota (the "Cottage Grove Facility"). The 1% general partner, LSP-Cottage Grove, Inc., and the 72% limited partner, Cogentrix Cottage Grove, LLC, are indirect subsidiaries of Cogentrix Energy, Inc. ("Cogentrix Energy"). The other limited partner is TPC Cottage Grove, Inc. ("TPC Cottage Grove") and is not affiliated with Cogentrix Energy. Whitewater is a single purpose Delaware limited partnership established in December 1993 to develop, finance, construct and own a gas-fired cogeneration facility located in Whitewater, Wisconsin (the "Whitewater Facility", and collectively with the Cottage Grove Facility, the "Facilities"). The 1% general partner, LSP-Whitewater I, Inc., and the 73% limited partner, Cogentrix Whitewater, LLC, are indirect subsidiaries of Cogentrix Energy. The other limited partner is TPC Whitewater ("TPC Whitewater"), an affiliate of TPC Cottage Grove that is not affiliated with Cogentrix Energy. The Partnerships sell electric capacity and energy generated by their Facilities to two utilities under separate long-term power purchase agreements (individually, the "Power Purchase Agreement" and collectively, the "Power Purchase Agreements"). Whitewater sells up to 236.5 megawatts of electric capacity and associated energy generated by the Whitewater Facility to Wisconsin Electric Power Company ("WEPCO") pursuant to a 25-year Power Purchase Agreement expiring in September 2022. Whitewater may also sell to third parties up to 12 megawatts of electric capacity and any energy not dispatched by WEPCO. All of the electric capacity and energy generated by the Cottage Grove Facility is sold to Northern States Power Company ("NSP") pursuant to a 30-year Power Purchase Agreement which runs through October 2027. The Partnerships also have long-term steam supply agreements with steam hosts to supply thermal energy produced by the Facilities. The Whitewater Facility commenced commercial operations on September 18, 1997, and the Cottage Grove Facility commenced commercial operations on October 1, 1997. The Whitewater and Cottage Grove Power Purchase Agreements meet the criteria of a "sales-type" capital lease as described in Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." Cottage Grove and Whitewater each recognized a gain on sales-type capital lease for the difference between the estimated fair market value and the historical cost of the Facilities as of the commencement of each respective Power Purchase Agreement's terms (commencement of commercial operations). The Partnerships each recorded a net investment in lease that reflects the present value of future minimum lease payments. Future minimum lease payments represent the amount of capacity payments due 3 4 from the utilities under the Power Purchase Agreements in excess of fixed operating costs (i.e., executory costs). The difference between the undiscounted future minimum lease payments due from the utilities and the net investment in lease represents unearned income. This unearned income will be recognized as lease revenue over the respective terms of the Power Purchase Agreements using the effective interest rate method. The Partnerships will also recognize service revenue related to the reimbursement of costs incurred in operating the Facilities and providing electricity and thermal energy. The amount of service revenue recognized by each Partnership will be directly related to the level of dispatch of the Facilities by the respective utilities and to a lesser extent the level of thermal energy required by the steam hosts. Funding Funding was organized in June 1995 as a special purpose Delaware corporation to issue debt securities in connection with financing the construction of the Facilities. Funding's sole business activities are limited to maintaining its organization and activities necessary pursuant to the offering of the Senior Secured Bonds (defined below) and its acquisition of the First Mortgage Bonds (defined below) from the Partnerships. The Senior Secured Bonds are the following: 7.19% Senior Secured Bonds Due 2010, Series A of LS Power Funding Corporation 8.08% Senior Secured Bonds Due 2016, Series A of LS Power Funding Corporation The First Mortgage Bonds are the following: 7.19% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2010 8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2016 7.19% First Mortgage Bonds of LSP-Whitewater Limited Partnership Due 2010 8.08% First Mortgage Bonds of LSP-Whitewater Limited Partnership Due 2016 Cottage Grove and Whitewater each own 50% of the outstanding stock of Funding. RESULTS OF OPERATIONS Cottage Grove Operating revenues increased approximately 12.2% for the first quarter of 2001 as compared to the first quarter of 2000. This increase was primarily a result of an increase in service revenue and commodity sales. The increase in service revenue resulted from an increase in the variable energy rate charged to the purchasing utility and steam purchaser as a result of an increase in natural gas prices. The increase in service revenue was partially offset by a decrease in megawatt hours provided to the purchasing utility. The increase in commodity sales resulted primarily from an increase in remarketed fuel sales to third party purchasers which was also due to increased natural gas prices. Operating expenses increased approximately 25.6% for the first quarter of 2001 as compared to the first quarter of 2000. This increase was the result of increases in cost of services and commodity sales expense. The increase in cost of services resulted from an increase in fuel expense, a component of cost of services, as a result of an increase in natural gas prices. The increase in fuel expense was partially offset by a decrease in other operating expenses as a result of a decrease in megawatt hours provided to the purchasing utility. Commodity sales expense increased due to an increase in remarketed fuel sales to third party purchasers. Interest expense consists primarily of interest expense on the First Mortgage Bonds and amortization of the costs incurred to issue the bonds. Whitewater Operating revenues increased approximately 16.9% for the first quarter of 2001 as compared to the first quarter of 2000. This increase was primarily the result of an increase in service revenue and commodity sales. The 4 5 increase in service revenue resulted from an increase in the variable energy rate charged to the purchasing utility as a result of an increase in natural gas prices, which was partially offset by a decrease in megawatt hours provided to the purchasing utility. Commodity sales expense increased due to an increase in remarketed fuel sales to third party purchasers. Operating expenses increased approximately 34.5% for the first quarter of 2001 as compared to the first quarter of 2000. This increase was primarily the result of increases in cost of services and commodity sales expense. The increase in cost of services resulted from an increase in fuel expense, a component of cost of services, as a result of an increase in natural gas prices, which was partially offset by decreased megawatt hours sold to the purchasing utility. Commodity sales expense increased due to an increase in remarketed fuel sales to third party purchasers. Interest expense consists primarily of interest expense on the First Mortgage Bonds and amortization of the costs incurred to issue the bonds. OPERATIONS AND MAINTENANCE Operations and Maintenance Agreements Each of the Cottage Grove and Whitewater Facilities is operated by its respective general partner pursuant to operations and maintenance agreements (an "O&M Agreement", and collectively, the "O&M Agreements") expiring in 2004. Under each O&M Agreement, the general partners are required to provide certain services during the operation of the Facilities. As compensation for its services, each general partner is reimbursed under each O&M Agreement on a monthly basis for certain approved costs incurred in connection with operating the related Facility. In addition, each general partner will receive an annual management fee of $350,000 (subject to adjustment each year based on specified indices). The Partnerships contract directly with certain subcontractors for materials and services which are outside the scope of the general partners' obligations under the O&M Agreements, including major maintenance of the Facilities. The general partners are also subject to an annual performance bonus or penalty depending upon each Facility's availability relative to certain performance criteria reflecting aspects of similar criteria contained in each Facility's Power Purchase Agreement. Furthermore, the general partners are subject to a penalty payment depending upon each Facility's ability to produce an uninterrupted supply of thermal energy. LIQUIDITY AND CAPITAL RESOURCES Cottage Grove The principal components of operating cash flow for the three-month period ending March 31, 2001 were net income of $1.3 million, $0.1 million for amortization of debt issuance and financing costs and a net $3.9 million of cash provided by changes in other working capital assets and liabilities, which were partially offset by amortization of unearned lease income, net of minimum lease payments received of $0.1 million. Cash flow provided by operating activities of $5.2 million was primarily used to fund $4.5 million of restricted cash. Whitewater The principal components of operating cash flow for the three-month period ended March 31, 2001 were net income of $1.3 million, $0.2 million for depreciation and amortization of debt issuance and financing costs, a net $4.3 million of cash provided by changes in other working capital assets and liabilities, and amortization of unearned lease income, net of minimum lease payments received of $0.3 million. Cash flow provided by operating activities of $6.1 million and a portion of the cash on hand at the beginning of the period of $0.4 million was primarily used to fund $6.5 million of restricted cash. A portion of the proceeds received by the Partnerships from the sale of the First Mortgage Bonds was used by the Partnerships to maintain a debt service reserve fund as required by certain financing documents. During 2001 and 2000, the Partnerships transferred the cash held in their debt service reserve funds to Cogentrix Energy. The funds, currently equal to $6.8 million and $7.7 million for Cottage Grove and Whitewater, respectively, are included 5 6 on the respective balance sheets as a note receivable from affiliate. The receivables are backed by an irrevocable letter of credit issued on behalf of a subsidiary of Cogentrix Energy. In addition to funds received through the acquisition of the First Mortgage Bonds by Funding and through the receipt of equity contributions from each of TPC Cottage Grove and TPC Whitewater in 1997, in the respective amounts of $18.2 million for Cottage Grove and $20.6 million for Whitewater, each Partnership may each receive on its behalf certain letters of credit to be issued pursuant to a letter of credit facility which expires in June 2002. Each letter of credit facility provides for letters of credit in a face amount not to exceed $5,000,000 for Whitewater and $5,500,000 for Cottage Grove, which may be drawn on by the respective Partnership from time to time. Such letters of credit will satisfy certain requirements of the Partnerships under various project agreements. Cottage Grove has issued a $500,000 letter of credit under the Cottage Grove letter of credit facility to secure certain obligations of Cottage Grove under the Cottage Grove Power Purchase Agreement. In order to provide for the Partnerships' working capital needs, the Partnerships have each entered into a working capital facility. Each working capital facility will provide for working capital loans in an aggregate principal amount not to exceed $3,000,000 for each Partnership. At March 31, 2001, no amounts were outstanding under the working capital facilities. The Partnerships expect that payments from the utilities under the Power Purchase Agreements will provide the substantial majority of their revenues. Under and subject to the terms of the Power Purchase Agreements, each utility is obligated to purchase electric capacity made available to it and energy that it requests from the related Partnership. For additional information regarding NSP and WEPCO, reference is made to the respective Annual Reports filed on Form 10-K, the Quarterly Reports filed on Form 10-Q, proxy, and any other filings made by NSP and WEPCO with the Commission. The Power Purchase Agreements are dispatchable contracts that provide the utilities the right to suspend or reduce purchases of electricity from the Facilities. The Power Purchase Agreements are structured such that the Partnerships will continue to receive capacity payments during any period of dispatch. Each Partnership is dependent on capacity payments under its Power Purchase Agreement to meet its fixed obligations, including the payment of debt service under each Partnership's First Mortgage Bonds (which will be Funding's sole source of revenues for payment of debt service under the Senior Secured Bonds). Capacity payments by each of NSP and WEPCO are based on the tested capacity and availability of the Facilities and are unaffected by levels of dispatch. Each Facility's capacity is subject to semi-annual verification through testing. Capacity payments are subject to reduction if a Facility is operating at reduced or degraded capacity at the time of such test, although each Facility is permitted a retest subject to certain retest limitations. Also, capacity payments for each Facility are subject to rebate or reduction if the respective Facility does not maintain certain minimum levels of availability. Under the Cottage Grove Power Purchase Agreement, capacity payments are further adjusted by, among other things, the capacity loss factor which is determined in accordance with procedures jointly agreed to by Cottage Grove and NSP. The Partnerships expect to achieve the minimum capacity and availability levels; however, any material shortfall in tested capacity or availability over a significant period could result in a shortage of funds to the Partnerships. Each Partnership presently believes that funds available from cash and investments on hand, restricted funds, operations and letter of credit and working capital facilities will be more than sufficient to meet the Partnership's obligations as they come due, pay project debt service and make required contributions to project reserve accounts. As with any power generation facility, operation of the Facilities will involve certain risks, including the performance of a Facility below expected levels of output or efficiency, interruptions in fuel supply, pipeline disruptions, disruptions in the supply of thermal or electrical energy, power shut-downs due to the breakdown or failure of equipment or processes, violation of permit requirements (whether through operation, or change in law), operator error, labor disputes or catastrophic events such as fires, earthquakes, explosions, floods or other similar occurrences affecting a Facility or its power purchasers, thermal energy purchasers, fuel suppliers or fuel transporters. The occurrence of any of these events could significantly reduce or eliminate revenues generated by a Facility or significantly increase the expenses of that Facility, thereby impacting the ability of a Partnership to make payments of the amounts necessary to fund principal of and interest on its First Mortgage Bonds, and, consequently, Funding's ability to make payments of principal of and interest on the Senior Secured Bonds. Not all risks are 6 7 insured and the proceeds of such insurance applicable to covered risks may not be adequate to cover a Facility's lost revenues or increased expenses. In addition, extended unavailability under the Power Purchase Agreements, which may result from one or more of such events, may entitle the respective power purchaser to terminate its Power Purchase Agreement. IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION The Partnerships have attempted to mitigate the risk of increases in fuel and transportation costs by providing contractually for matching increases in the energy payments the Partnerships receive from the utilities purchasing electricity generated by the Facilities. In addition, the Partnerships have hedged against the risk of fluctuations in interest rates by arranging fixed-rate financing. 7 8 PART 2/ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Certificate of Incorporation of LS Power Funding Corporation(1) 3.2 Bylaws of LS Power Funding Corporation(1) 3.3 Certificate of Limited Partnership of LSP-Cottage Grove, L.P.(1) 3.4 Amended and Restated Partnership Agreement dated as of June 30, 1995 among LSP-Cottage Grove, Inc., Granite Power Partners, L.P. and TPC Cottage Grove, Inc.(1) 3.4.1 Amendment No. 1 to the Cottage Grove Partnership Agreement(2) 3.4.2 Consent, Waiver and Amendment No. 2 dated March 20, 1998 to the Amended and Restated Limited Partnership Agreement of LSP-Cottage Grove, L.P.(3) 3.4.3 Third Amendment, dated December 11, 1998, to the Amended and Restated Limited Partnership Agreement of LSP-Cottage Grove, L.P.(4) 3.5 Certificate of Limited Partnership of LSP-Whitewater Limited Partnership(1) 3.6 Amended and Restated Partnership Agreement dated as of June 30, 1995 among LSP-Whitewater I, Inc., Granite Power Partners, L.P. and TPC Whitewater, Inc.(1) 3.6.1 Consent, Waiver and Amendment No. 1 dated March 20, 1998 to the Amended and Restated Limited Partnership Agreement of LSP-Whitewater Limited Partnership (3) 3.6.2 Second Amendment, dated December 11, 1998, to the Amended and Restated Limited Partnership Agreement of LSP-Whitewater Limited Partnership (3) 4.1 Trust Indenture dated as of May 1, 1995 by and among LS Power Funding Corporation and IBJ Schroder Bank & Trust Company, as Trustee, with respect to the Senior Secured Bonds (as Supplemented by the First Supplemental Indenture dated as of May 1, 1995 by and among LS Power Funding Corporation and IBJ Schroder Bank & Trust Company, as Trustee(1) 4.2 Trust Indenture dated as of May 1, 1995 by and among LSP-Cottage Grove, L.P. and IBJ Schroder Bank & Trust Company, as Trustee, with respect to the Cottage Grove First Mortgage Bonds (as supplemented by the First Supplemental Indenture dated as of May 1, 1995 by and among LSP-Cottage Grove, L.P. and IBJ Schroder Bank & Trust Company, as Trustee)(1) 4.3 Trust and Indenture dated as of May 1, 1995 by and among LSP-Whitewater Limited Partnership and IBJ Schroder Bank & Trust Company, as Trustee, with respect to the Whitewater First Mortgage Bonds (as supplemented by the First Supplemental Indenture dated as of May 1, 1995 by and among LSP-Whitewater Limited Partnership and IBJ Schroder Bank & Trust Company, as Trustee) (1) 4.4 Registration Rights Agreement dated as of June 30, 1995 by and among Chase Securities, Inc., Morgan Stanley & Co. Incorporated, LS Power Funding Corporation, LSP-Cottage Grove, L.P., and LSP-Whitewater Limited Partnership 1) 4.5 Form of Senior Secured Bond (included in Exhibit 4.1)(1) 4.6 Form of Cottage Grove First Mortgage Bond (included in Exhibit 4.2)(1) 4.7 Form of Whitewater First Mortgage Bond (included in Exhibit 4.3)(1)

(b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter covered by this report. (1) Incorporated herein by reference to the Registration Statement on Form S-4 (File No. 33-95928) filed by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership on August 16, 1995, as amended, or to the Form 10-K (File No. 33-95928) filed for the fiscal year ended December 31, 1995 by LS Power Funding Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership. (2) Incorporated herein by reference to the Form 10-Q (File No. 33-95928) filed August 14, 1996. (3) Incorporated herein by reference to the Form 10-K (File No. 33-95928) filed April 15, 1998. (4) Incorporated herein by reference to the Form 10-K (File No. 33-95928) filed March 31, 1999. 8 9 SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. LS POWER FUNDING CORPORATION By: /s/ Thomas F. Schwartz ---------------------------------------------------------- Name: Thomas F. Schwartz Title: Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 15, 2001 LSP-COTTAGE GROVE, L.P. By: LSP-Cottage Grove, Inc. Its: General Partner By: /s/ Thomas F. Schwartz ---------------------------------------------------------- Name: Thomas F. Schwartz Title: Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 15, 2001 LSP-WHITEWATER LIMITED PARTNERSHIP By: LSP-Whitewater I, Inc. Its: General Partner By: /s/ Thomas F. Schwartz ---------------------------------------------------------- Name: Thomas F. Schwartz Title: Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 15, 2001 9 10 LS POWER FUNDING CORPORATION LSP-COTTAGE GROVE, L.P. LSP-WHITEWATER LIMITED PARTNERSHIP FINANCIAL STATEMENT INDEX

F-1 11 LS POWER FUNDING CORPORATION BALANCE SHEETS March 31, 2001 and December 31, 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-2 12 LS POWER FUNDING CORPORATION STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended March 31, 2001 and 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-3 13 LS POWER FUNDING CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2001 and 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-4 14 LS POWER FUNDING CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS UNAUDITED 1. FINANCIAL STATEMENTS The balance sheet as of March 31, 2001 and the statements of income and cash flows for the three-month periods ended March 31, 2001 and 2000 have been prepared by LS Power Funding Corporation ("Funding"), without audit. In the opinion of management, these unaudited condensed financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly Funding's financial position as of March 31, 2001, and the results of its operations and its cash flows for the three-month periods ended March 31, 2001 and 2000. The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While management believes that the disclosures made are adequate to make the information presented not misleading, these unaudited condensed financial statements should be read in conjunction with Funding's audited financial statements included in Funding's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 2. ORGANIZATION Funding was established on June 23, 1995 as a special purpose Delaware corporation to issue debt securities in connection with financing construction of two gas-fired cogeneration facilities, one located in Cottage Grove, Minnesota and the other located in Whitewater, Wisconsin. LSP-Cottage Grove, L.P. ("Cottage Grove") and LSP-Whitewater Limited Partnership ("Whitewater") are single purpose Delaware limited partnerships established to develop, finance, construct and own the facilities at Cottage Grove and Whitewater, respectively. Cottage Grove and Whitewater each owns 50% of the outstanding stock of Funding. Funding's sole business activities are limited to maintaining its organization, the offering of the Senior Secured Bonds and its acquisition of the First Mortgage Bonds issued by Cottage Grove and Whitewater. F-5 15 LSP-COTTAGE GROVE, L.P. BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-6 16 LSP-COTTAGE GROVE, L.P. STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-7 17 LSP-COTTAGE GROVE, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-8 18 LSP-COTTAGE GROVE, L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS UNAUDITED 1. FINANCIAL STATEMENTS The balance sheet as of March 31, 2001 and the statements of income and cash flows for the three-month periods ended March 31, 2001 and 2000 have been prepared by LSP-Cottage Grove, L.P. (the "Partnership"), without audit. In the opinion of management, these unaudited condensed financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Partnership's financial position as of March 31, 2001, and the results of its operations and its cash flows for the three-month periods ended March 31, 2001 and 2000. The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While management believes that the disclosures made are adequate to make the information presented not misleading, these unaudited condensed financial statements should be read in conjunction with the Partnership's audited financial statements included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 2. ORGANIZATION The Partnership is a Delaware limited partnership that was formed on December 14, 1993 to develop, finance, construct and own a gas-fired cogeneration facility with a design capacity of approximately 245 megawatts located in Cottage Grove, Minnesota (the "Facility"). Construction and start-up of the Facility was substantially completed and commercial operation commenced October 1, 1997 (the "Commercial Operations Date"). The 1% general partner of the Partnership is LSP-Cottage Grove, Inc., ("Cottage Grove"), a wholly-owned subsidiary of Cogentrix Cottage Grove, LLC, ("Cogentrix Cottage Grove"). Cogentrix Cottage Grove and TPC Cottage Grove, Inc., are the sole limited partners of the Partnership, owning approximately 72% and 27% limited partnership interests, respectively. The ultimate parent of Cogentrix Cottage Grove is Cogentrix Energy, Inc. ("Cogentrix Energy"), a North Carolina corporation. The Partnership holds a 50% equity ownership interest in LS Power Funding Corporation ("Funding"), which was established on June 23, 1995 as a special purpose funding corporation to issue debt securities (the "Senior Secured Bonds") in connection with financing construction of the Facility and a similar gas-fired cogeneration facility located in Whitewater, Wisconsin. On June 30, 1995, a portion of the proceeds from the offering and sale of the Senior Secured Bonds issued by Funding was used to purchase $155 million of First Mortgage Bonds issued simultaneously by the Partnership. All of the electric capacity and energy generated by the Facility is sold to Northern States Power Company, (the "Utility") under a 30-year power purchase agreement (the "Power Purchase Agreement"). The thermal energy generated by the Facility is sold in the form of steam to Minnesota Mining and Manufacturing Company (the "Steam Purchaser") under a 30-year thermal energy sales agreement. 3. SALES-TYPE CAPITAL LEASE The components of the net investment in lease at March 31, 2001, are as follows (dollars in thousands): Gross Investment in Lease $501,225 Unearned Income on Lease (264,322) -------- Net Investment in Lease $236,903 ========

Gross investment in lease represents total capacity payments receivable over the term of the Power Purchase Agreement, net of executory costs, which are considered minimum lease payments in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases". F-9 19 LSP-WHITEWATER LIMITED PARTNERSHIP BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-10 20 LSP-WHITEWATER LIMITED PARTNERSHIP STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-11 21 LSP-WHITEWATER LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (dollars in thousands)

The accompanying notes to the condensed financial statements are an integral part of these balance sheets. F-12 22 LSP-WHITEWATER LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS UNAUDITED 1. FINANCIAL STATEMENTS The balance sheet as of March 31, 2001 and the statements of income and cash flows for the three-month periods ended March 31, 2001 and 2000 have been prepared by LSP-Whitewater Limited Partnership (the "Partnership"), without audit. In the opinion of management, these unaudited condensed financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Partnership's financial position as of March 31, 2001 and the results of its operations and its cash flows for the three-month periods ended March 31, 2001 and 2000. The unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While management believes that the disclosures made are adequate to make the information presented not misleading, these unaudited condensed financial statements should be read in conjunction with the Partnership's audited financial statements included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. 2. ORGANIZATION LSP-Whitewater Limited Partnership is a Delaware limited partnership that was formed on December 14, 1993 to develop, finance, construct and own a gas-fired cogeneration facility with a design capacity of approximately 245 megawatts located in Whitewater, Wisconsin (the "Facility"). Construction and start-up of the Facility was substantially completed and commercial operation commenced September 18, 1997 (the "Commercial Operations Date"). The 1% general partner of the Partnership is LSP-Whitewater I, Inc., a wholly-owned subsidiary of Cogentrix Whitewater, LLC ("Cogentrix Whitewater"). Cogentrix Whitewater and TPC Whitewater, Inc. are the sole limited partners of the Partnership, owning approximately 73% and 26% limited partnership interests, respectively. The ultimate parent of Cogentrix Whitewater is Cogentrix Energy, Inc. ("Cogentrix Energy"), a North Carolina Corporation. The Partnership holds a 50% equity ownership interest in LS Power Funding Corporation ("Funding"), which was established on June 23, 1995 as a special purpose Delaware corporation to issue debt securities (the "Senior Secured Bonds") in connection with financing construction of the Facility and a similar gas-fired cogeneration facility located in Cottage Grove, Minnesota. On June 30, 1995, a portion of the proceeds from the offering and sale of the Senior Secured Bonds issued by Funding was used to purchase $177 million of First Mortgage Bonds issued simultaneously by the Partnership. The Partnership sells up to 236.5 megawatts of electric capacity and associated energy generated by the Facility to Wisconsin Electric Power Company ("WEPCO" or, as the context requires, the "Utility") pursuant to a 25-year power purchase agreement (the "Power Purchase Agreement"). The Partnership may also sell to third parties up to 12 megawatts of electric capacity and any energy that is not dispatched by WEPCO. The thermal energy generated by the Facility is provided in the form of steam to the University of Wisconsin - Whitewater under a steam supply agreement expiring on June 30, 2005 and in the form of hot water to a greenhouse owned by the Partnership (collectively, the "Steam Purchasers"). 3. SALES-TYPE CAPITAL LEASE The components of the net investment in lease at March 31, 2001 are as follows (dollars in thousands): Gross Investment in Lease $540,085 Unearned Income on Lease (277,424) -------- Net Investment in Lease $262,661 ========

F-13 23 Gross investment in lease represents total capacity payments receivable over the term of the Power Purchase Agreement, net of executory costs, which are considered minimum lease payments in accordance with Statement of Financial Accounting Standards No. 13, "Accounting for Leases". F-14

LS POWER FUNDING CORP 10-Q