**LOUISIANAGENERATING LLC**

**FINANCIALSTATEMENTS**

 

**REPORTOF INDEPENDENT ACCOUNTANTS**

To the Board of DirectorsofLouisiana Generating LLC:

In our opinion,the accompanying balance sheet and the related statements of operations, ofmember's equity and of cash flows present fairly, in all material respects, thefinancial position of Louisiana Generating LLC at December 31, 2000, and theresults of its operations and its cash flows for the period from March 30, 2000(Inception) through December 31, 2000 in conformity with accounting principlesgenerally accepted in the United States of America. These financial statementsare the responsibility of the Company's management, our responsibility is toexpress an opinion on these financial statements based on our audit. Weconducted our audit of these statements in accordance with auditing standardsgenerally accepted in the United States of America, which require that we planand perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

/s/PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLPMinneapolis, MinnesotaMarch 2, 2000
**LOUISIANAGENERATING LLC**

**BALANCESHEET**
   **December  31,*****(In thousands)***** 2000****ASSETS**   CURRENT ASSETS:      Cash$     3,146   Accounts  receivable52,644   Inventory24,214   Prepaid  expenses1,530     Total current  assets81,534NON CURRENT ASSETS:      Property,  plant & equipment, net999,607   Deferred  financing costs, net10,065   Decommissioning  fund investments3,863   Other  assets2,328     Total  assets$1,097,397**LIABILITIES AND MEMBER'S EQUITY**   LIABILITIES:   Current liabilities:      Note payable to member$25,250   Accounts  payable2,439   Accounts  payable — affiliates38,082   Accrued  fuel and purchased power expense14,171   Accrued  interest21,297   Other  current liabilities6,460     Total  current liabilities107,699   Note payable to member763,500   Other non-current liabilities4,863     Total  Liabilities876,062MEMBER'S  EQUITY221,335     Total  liabilities and member's equity$1,097,397
 

See accompanying notes tofinancial statements.

 

**LOUISIANAGENERATING LLC**

**STATEMENTOF OPERATIONS**
   **For the  Period  March 30, 2000  (Inception)  Through December 31,   2000****(In thousands)**         Revenues$309,010Operating  costs205,188Depreciation  and amortization20,335General  and administrative expenses5,175   Operating  Income78,312Other  income(651)Interest  expense55,981   Net  income$22,982
 

See accompanying notes tofinancial statements.

 

**LOUISIANAGENERATING LLC**

**STATEMENTOF CASH FLOWS**
   **For the  Period  March 30, 2000  (Inception)  Through December 31,  2000****(In thousands)**         **Cash Flow from operating activities:**   Net  income$22,982Adjustments  to reconcile net income to net cash provided      from  operating activities:      Depreciation  and amortization20,659   Changes  in assets and liabilities:        Accounts  receivable, net(52,644)     Inventories8,872     Prepaid  expenses(1,330)     Accounts  payable2,439     Accounts  payable — affiliates(330)     Accrued  fuel and purchased power expense14,171     Accrued  interest21,297     Other  current liabilities5,183   Cash  provided by changes in other assets and liabilities1,719     **Net cash provided by operating activities**43,018**Cash flows from investing activities:**      Business  acquisition, net of liabilities assumed(1,030,353)   Proceeds  from disposition of property and equipment9,017   Capital  expenditures(5,333)   Investment  in decommissioning fund(306)     **Net cash used in investing activities**(1,026,975)**Cash flows from financing activities:**      Proceeds  from issuance of long-term debt800,000   Payment  of long-term borrowings(11,250)   Contributions  by members230,353   Distribution  to members(32,000)     **Net cash provided by financing activities**987,103**Net increase in cash and cash equivalents**3,146**Cash and cash equivalents at beginning of period**-**Cash and cash equivalents at end of period**$3,146**Supplemental Disclosures of Cash Flow Information**   Interest  paid $33,510Liabilities  assumed in acquistions$4,833
 

See accompanying notes tofinancial statements.

 

**LOUISIANAGENERATING LLC**

**STATEMENTOF MEMBER'S EQUITY**
**(In thousands)**   Balance,  March 30, 2000 (Inception)$      —   Contributions  from member230,353   Distributions  to member(32,000)   Net  Income22,982Balance,  December 31, 2000$221,335
 

See accompanying notes to financial statements.
**LOUISIANAGENERATING LLC**

**NOTES TOFINANCIAL STATEMENTS**

 

            Louisiana Generating LLC (LouisianaGenerating or the Company) is an indirect wholly owned subsidiary of NRGEnergy, Inc. (NRG). NRG South Central owns 100% of Louisiana Generating LLC.NRG South Central's members are NRG Central U.S. LLC (NRG Central) and SouthCentral Generation Holding LLC (South Central Generation). NRG Central andSouth Central Generation are wholly owned subsidiaries of NRG, each of whichown a 50% interest in NRG South Central.

            Louisiana Generating was formed forthe purpose of acquiring, owning, operating and maintaining the electricgenerating facilities acquired from Cajun Electric Power Cooperative, Inc.(Cajun Electric).

            Pursuant to a competitive biddingprocess, following the Chapter 11 bankruptcy proceeding of Cajun Electric,Louisiana Generating acquired the non-nuclear electric power generating assetsof Cajun Electric.

**Note 1 —Business Developments**

            On March 31, 2000, for approximately$1,055.9 million, the Company acquired 1,708 MW of electric power generationfacilities located in New Roads, Louisiana (Cajun facilities). The acquisitionwas financed through a combination of debt and equity from NRG South Central.

**Note 2 —Summary of Significant Accounting Policies**

*Use ofEstimates in Financial Statements*

            The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect reported amounts of assets and liabilities at the date of thefinancial statements and reported amounts of revenue and expenses during thereporting period. Actual results may differ from those estimates.

            In recording transactions andbalances resulting from business operations, the Company uses estimates basedon the best information available. Estimates are used for such items as plantdepreciable lives and uncollectible accounts, among others. As better informationbecomes available (or actual amounts are determinable), the recorded estimatesare revised. Consequently, operating results can be affected by revisions toprior accounting estimates.
**Cash*

            The Company considers cash toinclude cash and short-term investments with original maturities of threemonths or less.

*Inventory*

            Inventory consists of coal, spareparts and fuel oil and is stated at the lower of weighted average cost ormarket (Note 6).

*PrepaidExpenses*

            Prepaid expenses include insurance,taxes and other prepayments. 

*Property,Plant and Equipment*

            Property, plant and equipment arestated at cost. Depreciation is computed on a straight-line basis over thefollowing estimated useful lives:

 
   Facilities,  machinery and equipment25  to 40 years   Office  furnishings and equipment3  to 10 years
 

*DeferredFinancing Costs*

            Deferred financing costs consist oflegal and other costs incurred to obtain debt financing. These costs are beingamortized over the terms of the related debt.

*RevenueRecognition*

            Revenues from the sale ofelectricity are recorded based upon the output delivered and capacity providedat rates specified under contract terms or prevailing market rates. Underfixed-price contract, revenues are recognized as products or services are delivered.Revenues and related costs under cost reimbursable contract provisions arerecorded as costs are incurred. Anticipated future losses on contracts arecharged against income when identified.

*PowerMarketing Activities*

            The Company has entered into a contractwith a marketing affiliate for the sale of energy, capacity and ancillaryservices produced, which enables the affiliate to engage in forward sales andhedging transactions to manage the Company's electricity price exposure. Netgains or losses on hedges by the marketing affiliate, which are physicallysettled, are recognized in the same manner as the hedged item. The Companyreceives the net transaction price on all contracts that are physically settledby its marketing affiliate.
**IncomeTaxes*

            The net income or loss of theCompany for income tax purposes, along with any associated tax credits, isincluded in the tax returns of NRG. Accordingly, no provision has been made forfederal or state income taxes in the accompanying financial statements.

            As of December 31, 2000, theaccompanying financial statements report a balance of $999.6 million for netproperty, plant and equipment. The tax basis of this property is estimated tobe $983.1 million. The primary difference is due to accelerated tax depreciation.

*NewAccounting Pronouncements*

In June 1998, the Financial Accounting Standards Board (the FASB) issuedStatement No. 133, *Accounting for DerivativeInstruments and Hedging Activities*(SFAS No. 133), subsequentlyamended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 requires NRG Energy to record all derivatives on thebalance sheet at fair value.  Changes infair value of non-hedge derivatives will be immediately recognized inearnings.  Changes in fair values ofderivatives accounted for as hedges will either be recognized in earnings asoffsets to the changes in fair value of related hedged assets, liabilities andfirm commitments, or, for forecasted transactions, deferred and recorded as acomponent of other accumulated comprehensive income until the hedgedtransactions occur and are recognized in earnings.  The ineffective portion of a hedging derivative’s change in fairvalue will be immediately recognized in earnings.  

SFAS NO. 133 will apply to the Company’s energy and energy relatedcommodities financial instruments, long-term power sales contracts andlong-term gas purchase contracts used to mitigate variability in earnings dueto fluctuations in spot market prices, hedge fuel requirements at generationfacilities and protect investment in fuel inventories.  SFAS No. 133 will also apply to variousinterest rate swaps used to mitigate the risks associated with movements ininterest rates.  

The Company has adopted SFAS No. 133 effective January 1, 2001. Theeffect of adopting SFAS No. 133 was as follows:

 
•A one-time after-tax unrealized gain of $0.5 million  recorded to other accumulated comprehensive income for the initial adoption  of SFAS No. 133 during the quarter ended March 31, 2001; and•Increased volatility in future earnings due to the  impact of market fluctuations on derivative instruments used by the Company.
In September 2000, the FASB issued Statement No. 140, *Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities – A Replacement of FASB Statement No.125* (SFAS No. 140). SFAS No. 140 revises the standards foraccounting for securizations and other transfers of financial assets andcollateral and requires certain disclosures, but it carries over most of SFASNo. 125’s provisions without reconsideration. SFAS No. 140 is effective for theCompany’s fiscal year ending December 31, 2001. The adoption of SFAS No. 140 isnot expected to have a significant impact on the Company’s consolidatedfinancial position or results of operations.

**Note 3 —Pro Forma Results of Operations (Unaudited)**

            On March 31, 2000, the Companycompleted the acquisition of two fossil fueled generating plants from CajunElectric Power Cooperative, Inc. for approximately $1,055.9 million. Thefollowing information summarizes the pro forma results of operations for theyear ended December 31, 2000 and 1999 as if the acquisition had occurred as ofthe beginning of the years ended December 31, 2000 and 1999.  The pro forma information presented is forinformational purposes only and is not necessarily indicative of futureearnings or financial position or of what the earnings and financial positionwould have been had the acquisition of the Cajun facilities been consummated atthe beginning of the respective periods or as of the date for which pro formafinancial information is presented.
   **Pro Forma**   **Year Ended**   **December  31, 2000**** (In thousands)**   Revenues$386,416Operating costs263,816Depreciation  and amortization27,392General  and administrative expenses7,598   Operating  Income87,610Other  expense (income), net(651)Interest  expense73,772Net  income$14,489
 

**Note 4 —Property, Plant and Equipment**

            Property, plant and equipmentconsists of the following: 
   **December  31, 2000****(In thousands)**   Land$3,733Facilities,  machinery and equipment1,000,958Construction  in progress11,587Office  furnishings and equipment3,631Accumulated  depreciation(20,302)Property,  plant and equipment (net)$999,607
 

            Property, plant and equipmentconsist primarily of the electric generating facilities acquired from CajunElectric. The assets are comprised of Units 1 and 2 of Big Cajun I and 100% ofUnits 1 and 2 and 58% of Unit 3 of Big Cajun II; an energy control center andheadquarters building; a 17.5 mile gas pipeline system; and certaintransmission assets and all other substations.

 

**Note 5 —Note Payable to Member**

            On March 30, 2000, NRG South Centralissued $800 million of senior secured bonds in two tranches. The first tranchewas for $500 million with a coupon of 8.962% and a maturity of 2016. The secondtranche was for $300 million with a coupon of 9.479% and a maturity of 2024.Interest on the bonds is payable in arrears on each March 15 and September 15.Principal payments will be made semi-annually on each March 15 and September 15with $11,250,000 due, $25,250,000 due in 2001, $25,500,000 due in 2002 and2003, $15,000,000 due in 2004 and 2005. The remaining $682,500,000 is duebetween March 15, 2006 and September 15, 2024. The proceeds of the bonds wereused to finance the Company's acquisition of the Cajun generating facilities onMarch 31, 2000. Effective March 30, 2000 NRG South Central and the Companyentered into a Guarantor loan agreement that provides for substantially thesame terms and conditions of the bonds.

            NRG South Central's obligations inrespect to the bonds are secured by a security interest in NRG Central's andSouth Central's interests in NRG South Central and NRG South Central'smembership interest in the Company; all of the assets related to the Cajunfacilities including NRG South Central's rights under all intercompany notesbetween NRG South Central and the Company but excluding those assets of NRG NewRoads specifically held for resale; the revenue account and the debt servicereserve account.

            The Company issued a guarantee infavor of the bondholders, which unconditionally and irrevocably guarantee thepayment of principal, of premium (if any) and interest on the bonds. Theguarantee is a guarantee of payment and the bond trustee is entitled to makedemands for payment under the guarantee any time that amounts due and payableon the bonds have not been paid.

            The Company's obligations withrespect to the guarantee and the intercompany loan are secured by a mortgagewith respect to Big Cajun I and II and an interest in:
•All of the Company's  interest in the Cajun facilities and substantially all personal property  associated with the Cajun facilities except for fixtures not located on the  Cajun facilities and the assets of NRG New Roads specifically held for  resale;      •Substantially all  contracts, associated with the Cajun facilities to which the Company is a  party and all consents to the assignment of these contracts that have been  obtained;      •All licenses, permits  and governmental approvals associated with the Cajun facilities;      •All insurance policies  associated with the Cajun facilities and all monies paid to the Company on  these policies;      •All revenues of the  Cajun facilities, including revenues from power sales contracts entered into  by NRG Power Marketing or any other entity which has entered into a power  marketing agreement with the Company associated with the Cajun facilities;  and the revenue account.      
* *
**OptionalRedemption*

            NRG South Central may redeem thebonds in whole or in part at any time at a redemption price equal to:
•100% of the  principal amount of the bonds being redeemed, plus•interest on the bonds  being redeemed, accrued and unpaid to, but excluding, the date of redemption,  plus•a make whole premium  based on an amount equal to the excess, if any, of (a) the discounted present  value of all interest and principal payments scheduled to become due in  respect to the bonds to be redeemed (such discounted present value to be  determined on the basis of a discount rate equal to (i) the treasury rate and  (ii) 50 basis points), over (b) the outstanding principal amount of the  applicable bonds to be redeemed.
*DebtService Reserve Account*

            NRG South Central established a debtservice reserve account for the benefit of the bondholders. This account mustconstitute at all times a sufficient fund to pay the scheduled principal andinterest on the bonds due in the next six months. NRG South Central may fundthis account with cash or credit support. NRG South Central has obtained creditsupport and therefore need not fund this account with cash. Currently the debtservice reserve requirement is being satisfied by a guarantee given by NRG.

**Note 6 —Inventory**

            Inventory, which is stated at thelower of weighted average cost or market, consists of:
      **December  31, 2000**   **(In thousands)**      Coal$8,099   Spare  Parts15,277   Fuel  oil838   Total$24,214
 

**Note 7 —Related Party Transactions**

            Louisiana Generating entered into apower sale and agency agreement with NRG Power Marketing Inc., a wholly ownedsubsidiary of NRG. The agreement is effective until December 31, 2030. Underthe agreement, NRG Power Marketing Inc. will (i) have the exclusive right tomanage, market and sell all power not otherwise sold or committed to or byLouisiana Generating, (ii) procure and provide to Louisiana Generating all fuelrequired to operate its respective facilities and (iii) market, sell andpurchase all emission credits owned, earned or acquired by LouisianaGenerating. In addition, NRG Power Marketing Inc. will have the exclusive rightand obligation to direct the power output from the facilities.

            Under the agreement, NRG PowerMarketing, Inc. pays to Louisiana Generating gross receipts generated throughsales, less costs incurred by NRG Power Marketing, Inc. relative to itsproviding services (e.g. transmission and delivery costs, fuel cost, taxes,employee labor, contract services, etc.).

            During the period March 30, 2000(Inception) through December 31, 2000, Louisiana Generating recorded grossreceipts from NRG Power Marketing Inc. less costs incurred totaling $3.2million.

            Louisiana Generating entered into anoperation and maintenance agreement with NRG Operating Services, Inc., (NRGOperating Services) a wholly-owned subsidiary of NRG Energy. The agreement isperpetual in term until terminated in writing by Louisiana Generating or untilearlier terminated upon an event of default. Under the agreement, at therequest of Louisiana Generating, NRG Operating Services manages, oversees andsupplements the operation and maintenance of the Cajun facilities.

            During the period March 30, 2000(Inception) through December 31, 2000, Louisiana Generating incurred nooperating and maintenance costs from NRG Operating Services.  

            Louisiana Generating and NRG SouthCentral each entered into an agreement with NRG Energy for corporate supportand services. The agreement is perpetual in term until terminated in writing byLouisiana Generating or NRG South Central or until earlier terminated upon anevent of default. Under the agreement, NRG Energy will provide services, asrequested, in areas such as human resources, accounting, finance, treasury,tax, office administration, information technology, engineering, constructionmanagement, environmental, legal and safety. Under the agreement, NRG Energy ispaid for personnel time as well as out-of-pocket costs.

            During the period March 30, 2000(Inception) through December 31, 2000, Louisiana Generating incurredapproximately $0.5 million for corporate support and services.

            As of December 31, 2000, the Companyhad an accounts payable-affiliates balance of approximately $38.1 million,which consisted primarily of a payable to NRG Energy for capitalizeddevelopment costs incurred prior to the acquisition of the Cajun facilities andother expenses paid on Louisiana Generating's behalf.

**Note 8 —Benefits Disclosures**

            The Company retained a number of theadministrative and operating personnel of Cajun Electric upon acquisition ofCajun Electric's generating facilities. Prior to March 31, 2000 these employeeswere participants in the National Rural Electric Cooperative Association'sRetirement and Security Program, a master multiple-employer defined benefitplan. Effective March 31, 2000, the Cooperative's defined benefit and 401-Kplans were terminated and no on-going pension obligation was assumed by theCompany or NRG. The Company sponsors a cash balance pension plan arrangementwhereby the employees are entitled to a pension benefit of approximately 7% oftotal payroll. The employees are also eligible to participate in a 401-K planthat provides for the matching of specified amounts of employee contributionsto the plan.

            For the period March 30, 2000(Inception) through December 31, 2000, the Company recorded approximately $1million of pension expense and approximately $265,000 of 401-K matching funds.

**Note 9 —Sales to Significant Customers**

            During the period March 30, 2000(Inception) through December 31, 2000, sales to two customers accounted for16.7% and 16.1%, respectively, of our total revenues.  During March 2000, we entered into certain power sales agreementswith eleven distribution cooperatives that were customers of Cajun Electricprior to our acquisition of the Cajun facilities. The initial terms of theseagreements provide for the sale of energy, capacity and ancillary services forperiods ranging from four to 25 years. In addition, we assumed Cajun Electric'sobligations under four long-term power supply agreements. The terms of theseagreements range from 10 to 26 years. These power sales agreements accountedfor the majority (81.4%) of our total revenues during the period March 30, 2000(Inception) through December 31, 2000 (Note 10).

**Note10 — Financial Instruments**

**           **The estimated fairvalue of Louisiana Generating's recorded financial instruments, as of December31, are as follows:
   **2000*****(In thousands)*****Carrying  Amount****Fair  Value**Cash$3,146$3,146Long-term debt,  including current portion788,750817,922Decommissioning  funds3,8633,863
For cash, thecarrying amount approximates fair value because of the short-term maturity ofthose instruments. The fair value of long-term debt is estimated based on thequoted market prices for similar issues. Decommissioning fund investments are comprised of various debtsecurities of the United States and are carried at amortized cost, whichapproximates their fair value.

*DerivativeFinancial Instruments*

In the normalcourse of business, Louisiana Generating may employ a variety of off-balancesheet instruments to manage its exposure to fluctuations in interest rates andenergy and energy related commodities prices. Louisiana Generating does notenter into transactions for speculative purposes. Accordingly, LouisianaGenerating classifies its derivative financial instruments as held or issuedfor purposes other than trading. 

*InterestRates*

From time to timeLouisiana Generating may use interest rate hedging instruments to protect itfrom an increase in the cost of borrowing. As of December 31, 2000, there wereno such instruments outstanding. 

*Energyand energy related commodities*

LouisianaGenerating is exposed to commodity price variability in electricity, emissionallowances, natural gas, oil and coal used to meet fuel requirements. In orderto manage these commodity price risks, Louisiana Generating enters intotransactions for physical delivery of particular commodities for a specificperiod. These financial instruments are used to hedge physical deliveries,which may take the form of fixed price, floating price or indexed sales orpurchases, and options, such as puts, calls, basis transactions and swaps.These transactions are utilized to:
•Manage and hedge  its fixed-price purchase and sales commitments;•Reduce its  exposure to the volatility of spot market prices;•Hedge fuel  requirements at its generations facilities; and •Protect its  investment in fuel inventories.
 

**Note 11— Commitments and Contingencies**

*ContractualCommitments*

*PowerSupply Agreements with the Distribution Cooperatives*

            During March 2000, the Companyentered into certain power supply agreements with eleven distributioncooperatives to provide energy, capacity and transmission services. Theagreements are standardized into three types, Form A, B and C.
**Form AAgreements*

            Six of the distribution cooperativesentered into Form A power supply agreements. The Form A agreement is anall-requirements power supply agreement which has an initial term of 25 years,commencing on March 31, 2000. After the initial term, the agreement continueson a year-to-year basis, unless terminated by either party giving five yearsadvanced notice.

            Under the Form A power supplyagreement, the Company is obligated to supply the distribution cooperative andis required to purchase all of the energy and capacity required by thedistribution cooperative for service to its retail customers although thedistribution cooperative has certain limited rights under which it can purchaseenergy and capacity from third parties.

            The Company must contract for alltransmission service required to serve the distribution cooperative and willpass through the costs of transmission service to the cooperative. The Companyis required to supply at its cost, without pass through, control area servicesand ancillary services which transmission providers are not required toprovide.

            The Company owns and maintains thesubstations and other facilities used to deliver energy and capacity to thedistribution cooperative and charges the cooperative a monthly specificdelivery facility charge for such facilities any additions to, or new deliveryfacilities. The initial monthly charge is 1% of the value of all of thedistribution cooperative's specific delivery facilities. The cost of additionalinvestment during the term of the agreement will be added to the initial valueof the delivery facilities to calculate the monthly specific delivery facilitycharge.

            The Company charges the distributioncooperative a demand charge, a fuel charge and a variable operation andmaintenance charge. The demand charge consists of two components, a capitalrate and a fixed operation and maintenance rate. The distribution cooperativeshave an option to choose one of two fuel options, all six have selected thefirst option which is a fixed fee through 2004 and determined using a formulawhich is based on gas prices and the cost of delivered coal for the periodthereafter. At the end of the fifteenth year of the contract, the cooperativesmay switch to the second fuel option. The second fuel option consists of apass-through of fuel costs, with a guaranteed coal heat rate and purchasedenergy costs, excluding the demand component in purchased power. From time totime the Company may offer fixed fuel rates which the cooperative may elect toutilize. The variable operation and maintenance charge is fixed through 2004and escalates at either approximately 3% per annum or in accordance with actualchanges in specified indices as selected by the distribution cooperative. Fiveof the distribution cooperatives elected the fixed escalation provision and oneelected the specified indices provision.

 

            The Form A agreement also containsprovisions for special rates for certain customers based on the economicdevelopment benefits the customer will provide and other rates to improve thedistribution cooperative's ability to compete with service offered by politicalsubdivisions.

*Form BAgreements*

            One distribution cooperativeselected the Form B Power Supply Agreement. The term of the Form B power supplyagreement commences on March 31, 2000 and ends on December 31, 2024. The Form Bpower supply agreement allows the distribution cooperative the right to electto limit its purchase obligations to "base supply" or also topurchase "supplemental supply." Base supply is the distributioncooperative's ratable share of the generating capacity purchased by the companyfrom Cajun Electric. Supplemental supply is the cooperative's requirements inexcess of the base supply amount. The distribution cooperative which selectedthe Form B agreement also elected to purchase supplemental supply.

            The Company charges the distributioncooperative a monthly specific delivery facility charge of approximately 1.75%of the depreciated net book value of the specific delivery facilities, includingadditional investment. The distribution cooperative may assume the right tomaintain the specific delivery facilities and reduce the charge to 1.25% of thedepreciated net book value of the specific delivery facilities. The Companyalso charges the distribution cooperative its ratable share of 1.75% of thedepreciated book value of common delivery facilities, which includecommunications, transmission and metering facilities owned by the Company toprovide supervisory control and data acquisition, and automatic control for itscustomers.

            For base supply, the Company chargesthe distribution cooperative a demand charge, an energy charge and a fuelcharge. The demand charge for each contract year is set forth in the agreementand is subject to increase for environmental legislation or occupational safetyand health laws enacted after the effective date of the agreement. The Companycan increase the demand charge to the extent its cost of providing supplementalsupply exceeds $400/MW. The energy charge is fixed through 2004, and deceasedslightly for the remainder of the contract term. The fuel charge is a passthrough of fuel and purchased energy costs. The distribution cooperative mayelect to be charged based on a guaranteed coal fired heat rate of 10,600Btu/kWh, and it may also select fixed fuel factors as set forth in theagreement for each year through 2008. The one distribution cooperative whichselected this form of agreement elected to utilize the fixed fuel factors. Forthe years after 2008, the Company will offer additional fixed fuel factors forfive-year periods that may be elected. For the years after 2008, thedistribution cooperative may also elect to have its charges computed under thepass through provisions with or without the guaranteed coal-fired heat rate.

 

            At the beginning of year six, theCompany will establish a rate fund equal to the ratable share of $18 million.The amount of the fund will be approximately $720,000. This fund will be usedto offset the energy costs of the Form B distribution cooperatives whichelected the fuel pass through provision of the fuel charge, to the extent thecost of power exceeds $0.04/kWh. Any funds remaining at the end of the term ofthe power supply agreement will be returned to the Company.

*Form CAgreements*

            Four distribution cooperativesselected the Form C power supply agreement. The Form C power supply agreementis identical to the Form A power supply agreement, except for the following.

            The term of the Form C power supplyagreement is for four years following the closing date of the acquisition ofthe Cajun facilities. The agreement can be terminated by the distributioncooperative at any time with 12 months prior notice given after the firstanniversary of the acquisition closing date.

            The Company will charge thedistribution cooperative a demand rate, a variable operation and maintenancecharge and a fuel charge. The Company will not offer the distributioncooperatives which select the Form C agreement any new incentive rates, butwill continue to honor existing incentive rates. At the end of the term of theagreement, the distribution cooperative is obligated to purchase the specificdelivery facilities for a purchase price equal to the depreciated book value.

*OtherPower Supply Agreements*

            The Company assumed Cajun Electric'srights and obligations under two consecutive long-term power supply agreementswith South Western Electric Power Company (SWEPCO), one agreement with SouthMississippi Electric Power Association (SMEPA) and one agreement with MunicipalEnergy Agency of Mississippi (MEAM).

            The SWEPCO Operating Reserves andOff-Peak Power Sale Agreement terminates on December 31, 2007. The agreementrequires the Company to supply 100 MW of off-peak energy during certain hoursof the day to a maximum of 292,000 MWh per year and an additional 100 MW ofoperating reserve capacity and the associated energy within ten minutes of aphone request during certain hours to a maximum of 43,800 MWh of operatingreserve energy per year. The obligation to purchase the 100 MW of off-peakenergy is contingent on the Company's ability to deliver operating reservecapacity and energy associated with operating reserve capacity. At theCompany's request it will supply up to 100 MW of non-firm, on peak capacity andassociated energy.

 

            The SWEPCO Operating ReservesCapacity and Energy Power Sale Agreement is effective January 1, 2008 throughDecember 31, 2026. The agreement requires the Company to provide 50 MW ofoperating reserve capacity within 10 minutes of a phone request. In addition,SWEPCO is granted the right to purchase up to 21,900 MWh/year of operatingreserve energy.

            The SMEPA Unit Power Sale Agreementis effective through May 31, 2009, unless terminated following certainregulatory changes, changes in fuel costs or destruction of the Cajunfacilities. The agreement requires the Company to provide 75 MW of capacity andthe associated energy from Big Cajun II, Unit 1 and an option for SMEPA topurchase additional capacity and associated energy if the Company determinesthat it is available, in 10 MW increments, up to a total of 200 MW. SMEPA isrequired to schedule a minimum of 25 MW plus 37% of any additional capacitythat is purchased. The capacity charge is fixed through May 31, 2004, andincreases for the period June 1, 2004 through May 31, 2009 includingtransmission costs to the delivery point and any escalation of expenses. Theenergy charge is 110% of the incremental fuel cost for Big Cajun II, Unit 1.

            The MEAM Power Sale Agreement iseffective through May 31, 2010 with an option for MEAM to extend throughSeptember 30, 2015 upon five years advance notice. The agreement requires theCompany to provide 20 MW of firm capacity and associated energy with an optionfor MEAM to increase the capacity purchased to a total of 30 MW upon five yearsadvance notice. The capacity charge is fixed. The operation and maintenancecharge is a fixed amount which escalates at 3.5% per year. There is atransmission charge which varies depending upon the delivery point. The pricefor energy associated with the firm capacity is 110% of the incrementalgenerating cost to the Company and is adjusted to include transmission lossesto the delivery point.

*CoalSupply Agreement*

            The Company has entered into a coalsupply agreement with Triton Coal. The coal is primarily sourced from TritonCoal's Buckskin and North Rochelle mines located in Powder River Basin,Wyoming. The Coal supply agreement has a term of five years from March 31,2000. The agreement is for the full coal requirements of Big Cajun II. Theagreement establishes a base price per ton for coal supplied by Triton Coal.The base price is subject to adjustment for changes in the level of taxes orother government fees and charges, variations in the caloric value of the coalshipped, changes in the price of SO(2) emission allowances. The base price isbased on certain annual weighted average quality specifications, subject tosuspension and rejection limits. The base price and quality of coalspecifications guarantee compliance with Big Cajun II's annual SO(2) emissionsallocation of 44,153 tons commencing in 2000 regardless of the burn level.
**CoalTransportation Agreement*

            The Company entered into a coaltransportation agreement with Burlington Northern and Santa Fe Railway andAmerican Commercial Terminal. The term of the agreement is five years fromMarch 31, 2000. This agreement provides for the transport of all of the coalrequirements of Big Cajun II from the mines in Wyoming to Big Cajun II.

*Transmissionand Interconnection Agreements*

            The Company assumed Cajun Electric'sexisting transmission agreements with Central Louisiana Electric Company,SWEPCO; and Entergy Services, Inc., acting as agent for Entergy Arkansas, Inc.,Entergy Gulf States, Entergy Louisiana, Inc., Entergy Mississippi, Inc., andEntergy New Orleans, Inc. The Cajun facilities are connected to thetransmission system of Entergy Gulf States and power is delivered to thedistribution cooperatives at various delivery points on the transmission systemsof Entergy Gulf States, Entergy Louisiana, Central Louisiana Electric Companyand SWEPCO. The Company also assumed from Cajun Electric 20 interchange andsales agreements with utilities and cooperatives, providing access to a 12state area.

**Note 12— Jointly Owned Plant**

            On March 31, 2000 LouisianaGenerating acquired a 58% interest in the Big Cajun II, Unit 3 generationplant. Entergy Gulf States owns the remaining 42%. Big Cajun II, Unit 3 isoperated and maintained by Louisiana Generating pursuant to a joint ownershipparticipation and operating agreement. Under this agreement, LouisianaGenerating and Entergy Gulf States are each entitled to their ownershippercentage of the hourly net electrical output of Big Cajun II, Unit 3. Allfixed costs are shared in proportion to the ownership interests. Fixed costsinclude the cost of operating common facilities. All variable costs are bornein proportion to the energy delivered to the owners. The Company's incomestatement includes the Company's share of all fixed and variable costs ofoperating the unit. The Company's 58% share of the original cost included inPlant, Property and Equipment at December 31, 2000 was $179.1 million. Thecorresponding accumulated depreciation and amortization was $3.4 million.

**Note 13— Decommissioning Fund**

*Decommissioning*

            The Company is required by the Stateof Louisiana Department of Environmental Quality ("DEQ") torehabilitate its Big Cajun II ash and wastewater impoundment areas upon removalfrom service of the Big Cajun II facilities. On July 1, 1989, a guarantor trustfund (the "Solid Waste Disposal Trust Fund") was established toaccumulate the estimated funds necessary for such purpose. The Company'spredecessor deposited $1.06 million in the Solid Waste Disposal Trust Fund in1989, and funded $116,000 annually thereafter, based upon an estimated futurerehabilitation cost (in 1989 dollars) of approximately $3.5 million and theremaining estimated useful life of the Big Cajun II facilities. Cumulativecontributions to the Solid Waste Disposal Trust Fund and earnings on theinvestments therein are accrued as a decommissioning liability. At December 31,2000 the carrying value of the trust fund investments and the related accrueddecommissioning liability was approximately $3.9 million. The trust fundinvestments are comprised of various debt securities of the United States andare carried at amortized cost, which approximates their fair value.*****