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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



(Mark One)



x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended September 30, 2004



OR



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934



For the transition period from
 to



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Commission file number 1-16077



ORION POWER HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)



|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                      |  | 52-2087649                          
|(State or Other Jurisdiction of Incorporation orOrganization) |  | (I.R.S. Employer Identification No.)

c/o Reliant Energy, Inc.

1000 Main Street

Houston, Texas 77002

(Address of Principal Executive Offices) (Zip Code)



(713) 497-3000

(Registrants Telephone
Number, Including Area Code)



---





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes ̈No  x



As of November 1, 2004, Orion Power Holdings, Inc. had 1,000 shares of voting common stock
outstanding. All shares of voting common stock are held by Reliant Energy, Inc.



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##### Table of Contents

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2004



Table of Contents



PART I.

FINANCIAL INFORMATION



|                  |  |                                                                                                |  |   
|----------------- |  | ---------------------------------------------------------------------------------------------- |  | --
|Item   1.         |  | FinancialStatements                                                                            |  |   
|                  |  | Consolidated Statements of Operations (unaudited)                                              |  |   
|                  |  | Three and Nine Months Ended September 30, 2004 and 2003                                        |  | 1 
|                  |  | Consolidated Balance Sheets (unaudited)                                                        |  |   
|                  |  | September 30, 2004 and December 31, 2003                                                       |  | 2 
|                  |  | Consolidated Statements of Cash Flows (unaudited)                                              |  |   
|                  |  | Nine Months Ended September 30, 2004 and 2003                                                  |  | 3 
|                  |  | Notes to Unaudited Consolidated Interim Financial Statements                                   |  | 4 
|Item 2.           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 14
|                  |  | Recent Developments and Other Information                                                      |  | 14
|                  |  | Consolidated Results of Operations                                                             |  | 14
|                  |  | Financial Condition                                                                            |  | 18
|Item 3.           |  | Quantitative and Qualitative Disclosures About Non-trading Activities and Related Market Risks |  | 22
|Item 4.           |  | Controls and Procedures                                                                        |  | 23
|                 
|PART II.         
|OTHER INFORMATION
|                  |  |                                                                                               
|Item 1.           |  | Legal Proceedings                                                                              |  | 24
|Item 6.           |  | Exhibits                                                                                       |  | 24



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION



As used in this Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2004 (this Form 10-Q), Orion Power refers to Orion Power Holdings, Inc. and its consolidated subsidiaries.



When Orion Power makes statements containing projections, estimates or assumptions about revenues, income and other financial items, plans for the future,
future economic performance, transactions and dispositions and financings related thereto, Orion Power is making forward-looking statements. Forward-looking statements relate to future events and anticipated revenues, earnings, business
strategies, competitive position or other aspects of the operations or operating results. In many cases you can identify forward-looking statements by terminology such as anticipate, estimate, believe,
continue, could, intend, may, plan, potential, predict, should, will, expect, objective, projection,
forecast, goal, guidance, outlook, effort, target and other similar words. However, the absence of these words does not mean that the statements are not forward-looking.
Although Orion Power believes that the expectations and the underlying assumptions reflected in the forward-looking statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are
not guarantees of future performance or events. Such statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the forward-looking statements.



Among other things, the matters described in:



| |  | note 14 to Orion Powers consolidated financial statements in Orion Powers Annual Report on Form 10-K for the year ended December 31, 2003 (Form 10-K);
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Managements Discussion and Analysis of Financial Condition and Results of Operations and notes 11 and 12 to Orion Powers interim financial statements in
Orion Powers Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 (First Quarter Form 10-Q);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Managements Discussion and Analysis of Financial Condition and Results of Operations and notes 11 and 12 to Orion Powers interim financial statements in
Orion Powers Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 (Second Quarter Form 10-Q); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Managements Discussion and Analysis of Financial Condition and Results of Operations and notes 11 and 12 to the interim financial statements in this Form 10-Q
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



could cause actual results to differ materially from those
expressed or implied in the forward-looking statements.



Each
forward-looking statement speaks only as of the date of the particular statement and Orion Power undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.



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##### Table of Contents

PART I.

FINANCIAL INFORMATION



ITEM 1. FINANCIAL
STATEMENTS



ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of Dollars)

(Unaudited)



|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|-------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | -------- | ---- |  | - | ------- | - |  | - | --------- | -
|                                                               |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                               |  | 2004                            |         |   | 2003                           |   |          | 2004 |  |   | 2003    |  
|Revenues:                                                      |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Revenues                                                       |  | $                               | 381,236 |   |                                | $ | 372,674  |      |  | $ | 930,320 |   |  | $ | 841,976   |  
|Revenuesaffiliate                                             |  |                                 | 1,155   |   |                                |   | 6,166    |      |  |   | 13,682  |   |  |   | 23,939    |  
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Total                                                          |  |                                 | 382,391 |   |                                |   | 378,840  |      |  |   | 944,002 |   |  |   | 865,915   |  
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Expenses:                                                      |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Fuel                                                           |  |                                 | 74,780  |   |                                |   | 80,037   |      |  |   | 229,575 |   |  |   | 232,967   |  
|Fuelaffiliate                                                 |  |                                 | 93,043  |   |                                |   | 71,751   |      |  |   | 190,108 |   |  |   | 115,106   |  
|Purchased power                                                |  |                                 | 6,726   |   |                                |   | 4,306    |      |  |   | 19,783  |   |  |   | 12,880    |  
|Purchased poweraffiliate                                      |  |                                 | 16,798  |   |                                |   | 7,443    |      |  |   | 55,401  |   |  |   | 19,690    |  
|Operation and maintenance                                      |  |                                 | 55,413  |   |                                |   | 47,764   |      |  |   | 177,581 |   |  |   | 158,179   |  
|General and administrativeaffiliates                          |  |                                 | 12,362  |   |                                |   | 11,785   |      |  |   | 39,541  |   |  |   | 39,923    |  
|Taxes other than income taxes                                  |  |                                 | 15,685  |   |                                |   | 13,290   |      |  |   | 41,299  |   |  |   | 35,714    |  
|Goodwill impairment                                            |  |                                 |        |   |                                |   | 585,000  |      |  |   |        |   |  |   | 585,000   |  
|Depreciation                                                   |  |                                 | 33,022  |   |                                |   | 30,001   |      |  |   | 95,180  |   |  |   | 88,103    |  
|Amortization                                                   |  |                                 | 16,717  |   |                                |   | 8,923    |      |  |   | 34,124  |   |  |   | 19,318    |  
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Total                                                          |  |                                 | 324,546 |   |                                |   | 860,300  |      |  |   | 882,592 |   |  |   | 1,306,880 |  
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Operating Income (Loss)                                        |  |                                 | 57,845  |   |                                |   | (481,460 | )    |  |   | 61,410  |   |  |   | (440,965  | )
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Other Income (Expense):                                        |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Other, net                                                     |  |                                 | 22      |   |                                |   | 2,199    |      |  |   | 406     |   |  |   | 2,152     |  
|Interest expense                                               |  |                                 | (25,650 | ) |                                |   | (25,909  | )    |  |   | (71,331 | ) |  |   | (71,932   | )
|Interest income                                                |  |                                 | 522     |   |                                |   | 354      |      |  |   | 1,254   |   |  |   | 1,281     |  
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Total other expense                                            |  |                                 | (25,106 | ) |                                |   | (23,356  | )    |  |   | (69,671 | ) |  |   | (68,499   | )
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Income (Loss) from Continuing Operations Before Income Taxes   |  |                                 | 32,739  |   |                                |   | (504,816 | )    |  |   | (8,261  | ) |  |   | (509,464  | )
|Income tax expense (benefit)                                   |  |                                 | 8,414   |   |                                |   | 31,859   |      |  |   | (10,913 | ) |  |   | 28,113    |  
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Income (Loss) from Continuing Operations                       |  |                                 | 24,325  |   |                                |   | (536,675 | )    |  |   | 2,652   |   |  |   | (537,577  | )
|Income (loss) from discontinued operations before income taxes |  |                                 | 128,884 |   |                                |   | (3,778   | )    |  |   | 119,984 |   |  |   | (7,043    | )
|Income tax expense (benefit)                                   |  |                                 | 85,274  |   |                                |   | (3,076   | )    |  |   | 78,434  |   |  |   | (6,697    | )
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Income (loss) from discontinued operations                     |  |                                 | 43,610  |   |                                |   | (702     | )    |  |   | 41,550  |   |  |   | (346      | )
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Income (Loss) Before Cumulative Effect of Accounting Change    |  |                                 | 67,935  |   |                                |   | (537,377 | )    |  |   | 44,202  |   |  |   | (537,923  | )
|Cumulative effect of accounting change, net of tax             |  |                                 |        |   |                                |   |         |      |  |   |        |   |  |   | 2,121     |  
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  
|Net Income (Loss)                                              |  | $                               | 67,935  |   |                                | $ | (537,377 | )    |  | $ | 44,202  |   |  | $ | (535,802  | )
|                                                               |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |           |  



See Notes to the
Unaudited Consolidated Interim Financial Statements



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##### Table of Contents

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except share amounts)

(Unaudited)



|                                                                                          |  |                   |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                          |  | September 30,2004 |           |   | December 31,2003 |  
|ASSETS                                                                                    |  |                   |           |   |                  |   |           |  
|Current Assets:                                                                           |  |                   |           |   |                  |   |           |  
|Cash and cash equivalents                                                                 |  | $                 | 8,206     |   |                  | $ | 33,161    |  
|Restricted cash                                                                           |  |                   | 265,513   |   |                  |   | 172,805   |  
|Accounts receivable, principally customer, net of allowance of $6,546 and $7,014          |  |                   | 109,514   |   |                  |   | 99,852    |  
|Receivable from affiliates, net                                                           |  |                   |          |   |                  |   | 221       |  
|State income taxes receivable                                                             |  |                   | 37,742    |   |                  |   | 15,624    |  
|Inventory                                                                                 |  |                   | 73,643    |   |                  |   | 67,209    |  
|Derivative assets                                                                         |  |                   | 72,802    |   |                  |   | 23,045    |  
|Accumulated deferred income taxes                                                         |  |                   | 678       |   |                  |   | 8,138     |  
|Prepaid insurance and property taxes                                                      |  |                   | 12,580    |   |                  |   | 3,062     |  
|Other current assets                                                                      |  |                   | 12,563    |   |                  |   | 7,858     |  
|Current assets of discontinued operations                                                 |  |                   |          |   |                  |   | 66,324    |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Total current assets                                                                      |  |                   | 593,241   |   |                  |   | 497,299   |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Property, plant and equipment, gross                                                      |  |                   | 3,436,138 |   |                  |   | 3,413,902 |  
|Accumulated depreciation                                                                  |  |                   | (312,615  | ) |                  |   | (220,708  | )
|                                                                                          |  |                   |           |   |                  |   |           |  
|Property, Plant and Equipment, net                                                        |  |                   | 3,123,523 |   |                  |   | 3,193,194 |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Other Assets:                                                                             |  |                   |           |   |                  |   |           |  
|Goodwill, net                                                                             |  |                   | 291,079   |   |                  |   | 395,079   |  
|Other intangibles, net                                                                    |  |                   | 357,969   |   |                  |   | 365,492   |  
|Derivative assets                                                                         |  |                   | 29,020    |   |                  |   | 12,150    |  
|Deferred financing costs, net                                                             |  |                   | 3,000     |   |                  |   | 4,843     |  
|Restricted cash                                                                           |  |                   | 1,548     |   |                  |   | 8,656     |  
|Other                                                                                     |  |                   | 4,697     |   |                  |   | 5,496     |  
|Long-term assets of discontinued operations                                               |  |                   |          |   |                  |   | 617,828   |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Total other assets                                                                        |  |                   | 687,313   |   |                  |   | 1,409,544 |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Total Assets                                                                              |  | $                 | 4,404,077 |   |                  | $ | 5,100,037 |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                      |  |                   |           |   |                  |   |           |  
|Current Liabilities:                                                                      |  |                   |           |   |                  |   |           |  
|Current portion of long-term debt and short-term borrowings                               |  | $                 | 317,322   |   |                  | $ | 368,409   |  
|Accounts payable, principally trade                                                       |  |                   | 24,467    |   |                  |   | 42,073    |  
|Derivative liabilities                                                                    |  |                   | 6,746     |   |                  |   | 10,875    |  
|Payable to affiliates, net                                                                |  |                   | 8,200     |   |                  |   |          |  
|Accumulated deferred income taxes                                                         |  |                   | 39,817    |   |                  |   | 2,355     |  
|Accrued interest                                                                          |  |                   | 45,675    |   |                  |   | 19,168    |  
|Other                                                                                     |  |                   | 43,168    |   |                  |   | 23,462    |  
|Current liabilities of discontinued operations                                            |  |                   |          |   |                  |   | 61,109    |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Total current liabilities                                                                 |  |                   | 485,395   |   |                  |   | 527,451   |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Other Liabilities:                                                                        |  |                   |           |   |                  |   |           |  
|Accumulated deferred income taxes                                                         |  |                   | 332,646   |   |                  |   | 359,054   |  
|Derivative liabilities                                                                    |  |                   | 6,121     |   |                  |   | 9,582     |  
|Contractual obligations                                                                   |  |                   | 19,486    |   |                  |   | 50,938    |  
|Other                                                                                     |  |                   | 61,668    |   |                  |   | 66,552    |  
|Long-term liabilities of discontinued operations                                          |  |                   |          |   |                  |   | 880,570   |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Total other liabilities                                                                   |  |                   | 419,921   |   |                  |   | 1,366,696 |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Long-term Debt                                                                            |  |                   | 798,477   |   |                  |   | 790,413   |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Commitments and Contingencies                                                             |  |                   |           |   |                  |   |           |  
|Stockholders Equity:                                                                     |  |                   |           |   |                  |   |           |  
|Common stock; par value $1.00 per share (1,000 shares authorized, issued and outstanding) |  |                   | 1         |   |                  |   | 1         |  
|Additional paid-in capital                                                                |  |                   | 3,421,894 |   |                  |   | 3,233,308 |  
|Retained deficit                                                                          |  |                   | (768,899  | ) |                  |   | (813,101  | )
|Accumulated other comprehensive income                                                    |  |                   | 47,288    |   |                  |   | 4,810     |  
|Accumulated other comprehensive loss from discontinued operations                         |  |                   |          |   |                  |   | (9,541    | )
|                                                                                          |  |                   |           |   |                  |   |           |  
|Stockholders equity                                                                      |  |                   | 2,700,284 |   |                  |   | 2,415,477 |  
|                                                                                          |  |                   |           |   |                  |   |           |  
|Total Liabilities and Stockholders Equity                                                |  | $                 | 4,404,077 |   |                  | $ | 5,100,037 |  
|                                                                                          |  |                   |           |   |                  |   |           |  



See Notes to the
Unaudited Consolidated Interim Financial Statements



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##### Table of Contents

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)



|                                                                                                                |  |                                |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                |  | Nine Months EndedSeptember 30, |         
|                                                                                                                |  | 2004                           |          |   | 2003 |  
|Cash Flows from Operating Activities:                                                                           |  |                                |          |   |      |   |          |  
|Net income (loss)                                                                                               |  | $                              | 44,202   |   |      | $ | (535,802 | )
|(Income) loss from discontinued operations                                                                      |  |                                | (41,550  | ) |      |   | 346      |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net income (loss) from continuing operations and cumulative effect of accounting change                         |  |                                | 2,652    |   |      |   | (535,456 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:                        |  |                                |          |   |      |   |          |  
|Cumulative effect of accounting changes                                                                         |  |                                |         |   |      |   | (2,121   | )
|Goodwill impairment                                                                                             |  |                                |         |   |      |   | 585,000  |  
|Depreciation and amortization                                                                                   |  |                                | 129,304  |   |      |   | 107,421  |  
|Non-cash equity contribution of operation and maintenance and general and administrative costs from stockholder |  |                                | 44,113   |   |      |   | 41,000   |  
|Deferred income taxes                                                                                           |  |                                | (39,854  | ) |      |   | 28,572   |  
|Net unrealized gains on derivatives                                                                             |  |                                | (1,604   | ) |      |   | (1,248   | )
|Net amortization of contractual rights and obligations                                                          |  |                                | (28,502  | ) |      |   | (19,849  | )
|Amortization of deferred financing costs                                                                        |  |                                | 1,992    |   |      |   | 2,119    |  
|Amortization of revaluation of acquired swaps and debt                                                          |  |                                | (11,653  | ) |      |   | (14,979  | )
|Other, net                                                                                                      |  |                                | (603     | ) |      |   | 757      |  
|Changes in other assets and liabilities:                                                                        |  |                                |          |   |      |   |          |  
|Restricted cash                                                                                                 |  |                                | (85,600  | ) |      |   | (9,689   | )
|Accounts receivable, net                                                                                        |  |                                | (9,662   | ) |      |   | (12,492  | )
|Inventory                                                                                                       |  |                                | (6,152   | ) |      |   | (8,808   | )
|Prepaid insurance and property taxes and other current assets                                                   |  |                                | (14,855  | ) |      |   | (6,167   | )
|Other assets                                                                                                    |  |                                | (27,865  | ) |      |   | (40,687  | )
|Accounts payable                                                                                                |  |                                | (17,860  | ) |      |   | (9,588   | )
|Payable to/receivable from affiliates, net                                                                      |  |                                | 8,457    |   |      |   | (2,111   | )
|Taxes payable/receivable                                                                                        |  |                                | 32,450   |   |      |   | 11,880   |  
|Accrued interest                                                                                                |  |                                | 26,507   |   |      |   | 7,938    |  
|Other current liabilities                                                                                       |  |                                | 8,152    |   |      |   | (10,638  | )
|Other liabilities                                                                                               |  |                                | 2,434    |   |      |   | (3,404   | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net cash provided by continuing operations from operating activities                                            |  |                                | 11,851   |   |      |   | 107,450  |  
|Net cash (used in) provided by discontinued operations from operating activities                                |  |                                | (4,333   | ) |      |   | 453      |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net cash provided by operating activities                                                                       |  |                                | 7,518    |   |      |   | 107,903  |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Cash Flows from Investing Activities:                                                                           |  |                                |          |   |      |   |          |  
|Capital expenditures                                                                                            |  |                                | (33,245  | ) |      |   | (37,239  | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net cash used in continuing operations from investing activities                                                |  |                                | (33,245  | ) |      |   | (37,239  | )
|Net cash provided by (used in) discontinued operations from investing activities                                |  |                                | 861,557  |   |      |   | (5,966   | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                                                             |  |                                | 828,312  |   |      |   | (43,205  | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|Cash Flows from Financing Activities:                                                                           |  |                                |          |   |      |   |          |  
|Payments of long-term debt                                                                                      |  |                                | (72,283  | ) |      |   | (59,492  | )
|Increase (decrease) in short-term borrowings and revolving credit facilities, net                               |  |                                | 17,500   |   |      |   | (6,000   | )
|Contributions from stockholder                                                                                  |  |                                |         |   |      |   | 15,000   |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net cash used in continuing operations from financing activities                                                |  |                                | (54,783  | ) |      |   | (50,492  | )
|Net cash used in discontinued operations from financing activities                                              |  |                                | (806,002 | ) |      |   | (13,545  | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net cash used in financing activities                                                                           |  |                                | (860,785 | ) |      |   | (64,037  | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|Net Change in Cash and Cash Equivalents                                                                         |  |                                | (24,955  | ) |      |   | 661      |  
|Cash and Cash Equivalents at Beginning of Period                                                                |  |                                | 33,161   |   |      |   | 7,400    |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Cash and Cash Equivalents at End of Period                                                                      |  | $                              | 8,206    |   |      | $ | 8,061    |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Supplemental Disclosure of Cash Flow Information:                                                               |  |                                |          |   |      |   |          |  
|Cash Payments:                                                                                                  |  |                                |          |   |      |   |          |  
|Interest paid (net of amounts capitalized) for continuing operations                                            |  | $                              | 69,816   |   |      | $ | 94,011   |  
|Income taxes paid (net of income tax refunds received) for continuing operations                                |  | $                              | (3,235   | ) |      | $ | (12,605  | )



See Notes to the
Unaudited Consolidated Interim Financial Statements



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##### Table of Contents

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES



N
OTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS



(1) Background and Basis of Presentation



Background



As used in this Form 10-Q,
Orion Power Holdings refers to Orion Power Holdings, Inc. Orion Power refers to Orion Power Holdings, Inc. and its consolidated subsidiaries. Orion Power Holdings, a Delaware corporation, and its subsidiaries own and operate
electric generation facilities in New York, Ohio, Pennsylvania and West Virginia with an aggregate generating capacity from continuing operations of 5,967 megawatts as of September 30, 2004. Orion Power typically sells its wholesale products to
electric power retailers, which are the entities that supply power to consumers.



Orion Power is an indirect, wholly-owned subsidiary of Reliant Energy, Inc. (Reliant Energy).



This Form 10-Q includes Orion Powers consolidated interim financial statements and notes (interim financial statements). The interim financial
statements are unaudited, omit certain financial statement disclosures and should be read in conjunction with (a) Orion Powers audited consolidated financial statements and notes in its Form 10-K, (b) Orion Powers unaudited interim
financial statements and notes in its First Quarter Form 10-Q and (c) Orion Powers unaudited interim financial statements and notes in its Second Quarter Form 10-Q.



Basis of Presentation



Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.



Adjustments and Reclassifications. In September 2004, Orion Power sold 770 megawatts (MW) of generation assets located in upstate New York (hydropower plants) for $874 million in cash. Orion Power has reported
the operations of the hydropower plants as discontinued operations since May 2004 and, accordingly, has reclassified amounts for all periods. See notes 5 and 13 for further discussion.



The interim financial statements reflect all normal recurring adjustments necessary, in managements opinion to present
fairly the financial position and results of operations for the reported periods. Amounts reported for interim periods, however, may not be indicative of a full year period due to seasonal fluctuations in demand for energy and energy services,
changes in energy commodity prices, timing of maintenance and other expenditures, dispositions, changes in interest expense and other factors.



Orion Power has reclassified certain amounts reported in this Form 10-Q from prior periods to conform to the 2004 presentation of financial statements.
These reclassifications had no impact on reported earnings.



Orion Power has reclassified general and administrative expenses and operation and maintenance expenses from prior years presentation. Other general and administrative expenses in the consolidated statements of operations include (a)
administrative services (including management services, financial and accounting, cash management and treasury support, certain legal costs, information technology system support, communications, office management and human resources), (b)
regulatory costs and (c) certain benefit costs.



FIN No.
46R. In January 2004, Orion Power adopted Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN No. 46R), which modified certain criteria in determining which entities should be considered as variable interest entities. The
adoption had no impact on the financial statements. The application of FIN No. 46R continues to evolve as the FASB continues to address issues submitted for consideration. Orion Power will continue to assess its application of clarified or revised
guidance related to FIN No. 46R.



Each of Orion Power New York,
LP (Orion New York); Orion Power New York LP, LLC; Orion Power New York GP, Inc.; Astoria Generating Company, L.P. (Astoria); Orion Power MidWest, LP (Orion MidWest); Orion



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##### Table of Contents

Power MidWest LP, LLC; Orion Power MidWest GP, Inc.; Twelvepole Creek, LLC and Orion Power Capital, LLC (Orion Capital) is a separate legal entity and has
its own assets.



(2) Related Party Transactions



The interim financial statements include significant transactions between
Orion Power and Reliant Energy and its other subsidiaries. The majority of these transactions involve the purchase or sale of energy, capacity, fuel, emissions allowances or related services (including transportation, transmission and storage
services) by Reliant Energy Services, Inc. (Reliant Energy Services), a wholly-owned subsidiary of Reliant Energy, from or to Orion Power. In addition, significant technical and administrative support services are provided by affiliates. The
following describes the impacts on the interim financial statements for the particular transactions:



Support Services Agreement. In October 2002, Orion Power entered into a services arrangement with Reliant Energy Wholesale Service Company (REWSC),
a wholly-owned subsidiary of Reliant Energy. REWSC allocates certain support services costs to Orion Power based on Orion Powers direct labor costs relative to the direct labor costs of other entities to which REWSC provides similar services.
Management believes this method of allocation is reasonable. These allocations are not necessarily indicative of what would have been incurred had Orion Power been an unaffiliated entity. Orion MidWest and Orion New York may only pay a fixed amount
for certain of these services due to contractual restrictions. The excess of the allocated amount over the fixed amount has been recorded as a non-cash equity contribution to Orion Power from Reliant Energy. During the three months ended September
30, 2004 and 2003, $16 million and $14 million, respectively, and during the nine months ended September 30, 2004 and 2003, $55 million and $52 million, respectively, of support services costs were allocated to Orion Power by REWSC (and are recorded
in operation and maintenance expenses and general and administrative expenses). Of these amounts, during the nine months ended September 30, 2004 and 2003, $11 million were billed and $44 million and $41 million, respectively, were recorded as
non-cash equity contributions from Reliant Energy.



Services
and Commodity Agreements.In October 2002, Reliant Energy Services entered into agreements to provide support services to Orion Power Holdings subsidiaries, Orion MidWest and Orion New York, and their respective subsidiaries. Purchases
from Reliant Energy Services under various commodity agreements, recorded in fuel expense and purchased power expense, were $69 million and $17 million, respectively, and $65 million and $7 million, respectively, during the three months ended
September 30, 2004 and 2003, respectively. Purchases from Reliant Energy Services under various commodity agreements, recorded in fuel expense and purchased power expense, were $131 million and $55 million, respectively, and $108 million and $20
million, respectively, during the nine months ended September 30, 2004 and 2003, respectively. Sales to Reliant Energy Services under various commodity agreements, recorded in revenue, were $1 million and $6 million during the three months ended
September 30, 2004 and 2003, respectively, and were $14 million and $24 million during the nine months ended September 30, 2004 and 2003, respectively.



Technical Services Arrangement. Beginning July 2002, REWSC agreed to provide personnel and technical services as required to the operating services
subsidiaries of Orion Power Holdings under an informal agreement. These services assure that facilities are properly operated and maintained. Amounts incurred under this agreement during the three months ended September 30, 2004 and 2003, were $2
million and during the nine months ended September 30, 2004 and 2003, were $7 million and $6 million, respectively, and are included in operation and maintenance expense or property, plant and equipment, as appropriate.



Liberty Energy Services Agreement and Gas Purchase Agreement. In
August 2003, Liberty Electric Power, LLC (Liberty Power) entered into an agreement with Reliant Energy Services to provide certain services to Liberty Power. Reliant Energy Services received a flat monthly fee from Liberty Power for providing these
services in the amount of $0.1 million. During the three and nine months ended September 30, 2004, $0.2 million and $0.6 million, respectively, was incurred and expensed under this agreement. In addition, in August 2003, Liberty Power and Reliant
Energy Services entered into a base contract for sale and purchase of natural gas pursuant to which Liberty Power buys natural gas from Reliant Energy Services. Liberty Power was required to pre-pay Reliant Energy Services for all gas purchases.
During the three and nine months ended September 30, 2004, $24 million and $59 million, respectively, was incurred and expensed under this agreement. During the three and nine months ended September 30, 2003, $7 million was incurred and expensed
under this agreement. In September 2004, both agreements expired by their terms. In October 2004, Reliant Energy Services and Liberty Power reentered into substantially similar agreements with a term of seven days. Upon expiration, a third party
began providing substantially similar services to Liberty Power. See note 12.



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##### Table of Contents

Other.In May 2003 and November 2003, Reliant Energy contributed $15 million and $20 million,
respectively, to Orion Power Holdings, as a partial funding of the semi-annual interest payments of $24 million on the senior notes due at those dates. Orion Power Holdings used the cash from income tax refunds to fund the $24 million interest
payments in May 2004 and November 2004. While Reliant Energy has no obligation, it intends to contribute any funding shortfall of the semi-annual interest payments due in May 2005 should Orion Power Holdings funds be insufficient. See note 7.



Deemed contributions from Reliant Energy related to current
federal income taxes were $42 million during the three and nine months ended September 30, 2004. In addition, during the three and nine months ended September 30, 2004, Orion Power Holdings distributed deferred income tax liabilities of $103 million
to Reliant Energy due to the capital gain for federal income tax purposes recognized in connection with the sale of the hydropower plants. See note 13.



(3) Retirement Plans



Net benefit cost for Orion Powers qualified retirement plans includes the following components:



|                               |  |                                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|------------------------------ |  | -------------------------------- | ---- | - | ----------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                               |  | Pension Benefits                 |      |   | Postretirement Benefits |  
|                               |  | Three Months Ended September 30, |     
|                               |  | 2004                             |      |   | 2003                    |   |      | 2004 |  |   | 2003 |  
|                               |  | (in millions)                    |     
|Service cost                   |  | $                                | 1.0  |   |                         | $ | 0.9  |      |  | $ | 0.3  |   |  | $ | 0.3  |  
|Interest cost                  |  |                                  | 0.8  |   |                         |   | 0.7  |      |  |   | 0.4  |   |  |   | 0.4  |  
|Expected return on plan assets |  |                                  | (0.5 | ) |                         |   | (0.4 | )    |  |   |     |   |  |   |     |  
|Net amortization               |  |                                  | 0.3  |   |                         |   | 0.2  |      |  |   | (0.1 | ) |  |   | (0.1 | )
|                               |  |                                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|Net benefit cost               |  | $                                | 1.6  |   |                         | $ | 1.4  |      |  | $ | 0.6  |   |  | $ | 0.6  |  
|                               |  |                                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|                               |  |                                 
|                               |  | Pension Benefits                 |      |   | Postretirement Benefits |  
|                               |  | Nine Months Ended September 30,  |     
|                               |  | 2004                             |      |   | 2003                    |   |      | 2004 |  |   | 2003 |  
|                               |  | (in millions)                    |     
|Service cost                   |  | $                                | 3.0  |   |                         | $ | 2.7  |      |  | $ | 0.9  |   |  | $ | 0.9  |  
|Interest cost                  |  |                                  | 2.4  |   |                         |   | 2.1  |      |  |   | 1.2  |   |  |   | 1.2  |  
|Expected return on plan assets |  |                                  | (1.5 | ) |                         |   | (1.2 | )    |  |   |     |   |  |   |     |  
|Net amortization               |  |                                  | 0.9  |   |                         |   | 0.6  |      |  |   | (0.3 | ) |  |   | (0.3 | )
|                               |  |                                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|Net benefit cost               |  | $                                | 4.8  |   |                         | $ | 4.2  |      |  | $ | 1.8  |   |  | $ | 1.8  |  
|                               |  |                                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  



Orion Power expects
cash contributions to its pension plans for continuing operations will be approximately $5 million during 2004. As of September 30, 2004, Orion Power had contributed $5 million.



(4) Comprehensive Income (Loss)



The following table summarizes the components of total comprehensive income (loss):



|                                                                                               |  |                                  |     |   |                                 |   |      |      |  |   |      |   |  |   |      |  
|---------------------------------------------------------------------------------------------- |  | -------------------------------- | --- | - | ------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                                               |  | Three Months Ended September 30, |     |   | Nine Months Ended September 30, |  
|                                                                                               |  | 2004                             |     |   | 2003                            |   |      | 2004 |  |   | 2003 |  
|                                                                                               |  | (in millions)                    |    
|Net income (loss)                                                                              |  | $                                | 68  |   |                                 | $ | (537 | )    |  | $ | 44   |   |  | $ | (536 | )
|Other comprehensive income (loss), net of tax:                                                 |  |                                  |     |   |                                 |   |      |      |  |   |      |   |  |   |      |  
|Deferred gain from cash flow hedges                                                            |  |                                  | 10  |   |                                 |   | 6    |      |  |   | 65   |   |  |   | 1    |  
|Reclassification of net deferred (gain) loss from cash flow hedges realized in net income/loss |  |                                  | (13 | ) |                                 |   | 2    |      |  |   | (23  | ) |  |   | 3    |  
|Comprehensive income resulting from discontinued operations                                    |  |                                  | 2   |   |                                 |   | 2    |      |  |   | 10   |   |  |   | 4    |  
|                                                                                               |  |                                  |     |   |                                 |   |      |      |  |   |      |   |  |   |      |  
|Comprehensive income (loss)                                                                    |  | $                                | 67  |   |                                 | $ | (527 | )    |  | $ | 96   |   |  | $ | (528 | )
|                                                                                               |  |                                  |     |   |                                 |   |      |      |  |   |      |   |  |   |      |  



(5) Goodwill and Property, Plant
and Equipment



Orion Power evaluates goodwill annually (in
November) and goodwill and property, plant and equipment when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable.



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##### Table of Contents

July 2003 Goodwill Impairment Test. In July 2003, Reliant Energy entered into a definitive
agreement to sell a power generation plant, Desert Basin. The sale closed in October 2003. Orion Power did not own the plant. This sale required Reliant Energy to allocate a portion of the goodwill in the wholesale energy reporting unit to the
Desert Basin plant operations on a relative fair value basis as of July 2003 in order to compute the loss on disposal. Reliant Energy was also required to test the recoverability of goodwill in its remaining wholesale energy reporting unit as of
July 2003. As a result of the July 2003 test, Orion Power recognized an impairment of $585 million (pre-tax and after-tax) in the third quarter of 2003. This impairment was due to a decrease in the estimated fair value of Orion Power.



November 2003 Annual Goodwill Impairment Test. Orion Power performed
its annual goodwill impairment test effective November 1, 2003 and determined that no additional impairments of goodwill had occurred since July 2003.



May 2004 Goodwill Impairment Test. In May 2004, Orion Power signed an agreement to sell 770 MW of generation assets. The sale closed in September
2004. Generally accepted accounting principles required Orion Power to allocate a portion of its goodwill to the assets being sold on a relative fair value basis as of May 2004 in order to compute the gain on disposal. As of May 2004, Orion Power
also tested the recoverability of it remaining goodwill and determined that no impairment had occurred. As of September 30, 2004, Orion Power had consolidated goodwill of $291 million. See note 13.



For additional information regarding the process and assumptions used in
Orion Powers impairment tests for 2003 and 2002, see note 5 to its consolidated financial statements in its Form 10-K. The significant assumptions used in the May 2004 test are consistent with the November 2003 annual impairment test
assumptions, which were previously disclosed in the Form 10-K.



Potential Future Impairments of Property, Plant and Equipment. See note 12 for discussion of an anticipated future impairment of Orion Powers net investment in a subsidiary.



(6) Derivative Instruments



Derivative assets and liabilities at September 30, 2004 and December 31,
2003 are as follows:



|                                              |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|--------------------------------------------- |  | ------------- | -- | ----------- | - | ------- | ----------------------- | - | --------- | - |  | - | --- | - |  | - | --- | -
|                                              |  | Assets        |    | Liabilities |   |         | Net Assets(Liabilities) |  
|                                              |  | Current       |    | Long-term   |   | Current |                         |   | Long-term |   | 
|                                              |  | (in millions) |    |             |   |        
|September 30, 2004:                           |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Derivative activities:                        |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Cash flow hedges:                             |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Commodity                                     |  | $             | 66 |             | $ | 28      |                         | $ |          |   |  | $ |    |   |  | $ | 94  |  
|Interest                                      |  |               |   |             |   |        |                         |   | (7        | ) |  |   | (6  | ) |  |   | (13 | )
|                                              |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Total                                         |  |               | 66 |             |   | 28      |                         |   | (7        | ) |  |   | (6  | ) |  |   | 81  |  
|Derivatives marked to market through earnings |  |               | 7  |             |   | 1       |                         |   |          |   |  |   |    |   |  |   | 8   |  
|                                              |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Total                                         |  | $             | 73 |             | $ | 29      |                         | $ | (7        | ) |  | $ | (6  | ) |  | $ | 89  |  
|                                              |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|December 31, 2003:                            |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Derivative activities:                        |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Cash flow hedges:                             |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Commodity                                     |  | $             | 17 |             | $ | 10      |                         | $ |          |   |  | $ |    |   |  | $ | 27  |  
|Interest                                      |  |               |   |             |   |        |                         |   | (10       | ) |  |   | (10 | ) |  |   | (20 | )
|                                              |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Total                                         |  |               | 17 |             |   | 10      |                         |   | (10       | ) |  |   | (10 | ) |  |   | 7   |  
|Derivatives marked to market through earnings |  |               | 6  |             |   | 2       |                         |   | (1        | ) |  |   |    |   |  |   | 7   |  
|                                              |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  
|Total                                         |  | $             | 23 |             | $ | 12      |                         | $ | (11       | ) |  | $ | (10 | ) |  | $ | 14  |  
|                                              |  |               |    |             |   |         |                         |   |           |   |  |   |     |   |  |   |     |  



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##### Table of Contents

Pre-tax income (loss) of derivative instruments from continuing operations, including energy derivatives
and interest rate derivatives, for the three and nine months ended September 30, 2004 and 2003 are as follows:



|                                                       |  |                                  |    |                                 |      |   |      |  |      |   |  |   |  
|------------------------------------------------------ |  | -------------------------------- | -- | ------------------------------- | ---- | - | ---- |  | ---- | - |  | - | -
|                                                       |  | Three Months Ended September 30, |    | Nine Months Ended September 30,
|                                                       |  | 2004                             |    |                                 | 2003 |   | 2004 |  | 2003
|                                                       |  | (in millions)                   
|Energy derivative instruments:                         |  |                                  |    |                                 |      |   |      |  |      |   |  |   |  
|Hedge ineffectiveness (1)                              |  | $                                |   |                                 |      | $ |     |  | $    |  |  | $ | 
|Other net unrealized (losses) gains on derivatives (2) |  |                                  | (1 | )                               |      |   |     |  |      | 2 |  |   | 1
|Interest rate derivative instruments:                  |  |                                  |    |                                 |      |   |      |  |      |   |  |   |  
|Hedge ineffectiveness (1)                              |  |                                  |   |                                 |      |   |     |  |      |  |  |   | 
|Other net unrealized gains on derivatives              |  |                                  |   |                                 |      |   |     |  |      |  |  |   | 
|                                                       |  |                                  |    |                                 |      |   |      |  |      |   |  |   |  
|Total                                                  |  | $                                | (1 | )                               |      | $ |     |  | $    | 2 |  | $ | 1
|                                                       |  |                                  |    |                                 |      |   |      |  |      |   |  |   |  

---

|(1) | For the three and nine months ended September 30, 2004 and 2003, no component of the derivative instruments gain or loss was excluded from the assessment of effectiveness.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes $16 million and $0 for the three months ended September 30, 2004 and 2003, respectively, and $16 million and $0 for the nine months ended September 30, 2004 and 2003,
respectively, of income recognized in the results of continuing operations as a result of the discontinuance of cash flow hedges because it was probable that the forecasted transaction would not occur.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of September 30, 2004 and December 31, 2003, the maximum length of time
Orion Power is hedging its exposure to the variability in future cash flows for forecasted transactions, excluding the payment of variable interest on existing financial instruments, is two years. As of September 30, 2004 and December 31, 2003, the
maximum length of time Orion Power is hedging its exposure to the payment of variable interest rates is three years and four years, respectively. As of September 30, 2004, Orion Power expects $35 million of net gains deferred in accumulated other
comprehensive income to be reclassified into net income (loss) during the period from October 1, 2004 to September 30, 2005.



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##### Table of Contents

(7) Credit Facilities and Debt



The following table sets forth the debt outstanding to third parties as of September 30, 2004 and December 31, 2003:



|                                                        |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|------------------------------------------------------- |  | ------------------------------------------ | - | ----------------- | --------- | --- | ----------- | - | ------------------------------------------ |  | ----- | --------- |  | ----------- | --- |  | - | ---
|                                                        |  | September 30, 2004                         |   | December 31, 2003
|                                                        |  | WeightedAverageContractualInterestRate (1) |   |                   | Long-term |     | Current (2) |   | WeightedAverageContractualInterestRate (1) |  |       | Long-term |  | Current (2)
|                                                        |  | (in millions, except interest rates)      
|Credit Facilities                                       |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|Orion Power Holdings senior notes                       |  | 12.00                                      | % |                   | $         | 400 |             | $ |                                           |  | 12.00 | %         |  | $           | 400 |  | $ |   
|Orion MidWest term loan                                 |  | 5.04                                       |   |                   |           | 334 |             |   | 20                                         |  | 3.93  |           |  |             | 312 |  |   | 91 
|Orion MidWest revolving working capital facility        |  | 5.03                                       |   |                   |           |    |             |   | 18                                         |  |      |           |  |             |    |  |   |   
|Liberty credit agreement:                               |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|Floating rate debt (3)                                  |  | 5.00                                       |   |                   |           |    |             |   | 97                                         |  | 2.40  |           |  |             |    |  |   | 97 
|Fixed rate debt (3)                                     |  | 9.02                                       |   |                   |           |    |             |   | 165                                        |  | 9.02  |           |  |             |    |  |   | 165
|                                                        |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|Total facilities (4)                                    |  |                                            |   |                   |           | 734 |             |   | 300                                        |  |       |           |  |             | 712 |  |   | 353
|                                                        |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|Other                                                   |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|Adjustment to fair value of debt (5)                    |  |                                           |   |                   |           | 51  |             |   | 9                                          |  |      |           |  |             | 58  |  |   | 8  
|Adjustment to fair value of interest rate swaps (5) (6) |  |                                           |   |                   |           | 14  |             |   | 8                                          |  |      |           |  |             | 20  |  |   | 8  
|                                                        |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|Total other debt                                        |  |                                            |   |                   |           | 65  |             |   | 17                                         |  |       |           |  |             | 78  |  |   | 16 
|                                                        |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    
|Total debt                                              |  |                                            |   |                   | $         | 799 |             | $ | 317                                        |  |       |           |  | $           | 790 |  | $ | 369
|                                                        |  |                                            |   |                   |           |     |             |   |                                            |  |       |           |  |             |     |  |   |    

---

|(1) | The weighted average contractual interest rates are for borrowings outstanding as of September 30, 2004 or December 31, 2003, as applicable.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes amounts due within one year of the date noted and loans outstanding under revolving and working capital facilities classified as current liabilities. See sub-footnote 3
below.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The entire balance outstanding under this credit agreement has been classified as current as of September 30, 2004 and December 31, 2003. Included in the outstanding amount as of
September 30, 2004 and December 31, 2003, is $9 million and $2 million, respectively, of presently due scheduled principal payments, for which no payment has been made. The scheduled principal payments totaled approximately $2 million in each of
October 2003, January 2004, April 2004 and July 2004. In addition, no payment has been made for the $2 million principal payment scheduled for October 2004. As interest payments were also not made when due, additional interest has been charged on
the past due interest amounts. In addition to the $9 million past due, the amount shown as current includes $9 million that matures within 12 months of September 30, 2004. See note 12.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | As of December 31, 2003, Orion Power has classified the following debt amounts as discontinued operations: (a) Orion New York credit facility  $333 million and (b) Orion
MidWest credit facility  $482 million. See note 13.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | As a result of the acquisition of Orion Power by Reliant Energy, debt and interest rate swaps were adjusted to fair market value as of the acquisition date. Included in the
adjustment to fair value of debt is $60 million and $66 million related to the Orion Power Holdings senior notes as of September 30, 2004 and December 31, 2003, respectively. Included in the adjustment to fair value of interest rate swaps is $22
million and $28 million related to the Orion MidWest credit facility as of September 30, 2004 and December 31, 2003, respectively. Included in interest expense is amortization of $1 million and $2 million for valuation adjustments for debt and $2
million and $3 million for valuation adjustments for interest rate swaps, respectively, for the three months ended September 30, 2004 and 2003, respectively. Included in interest expense is amortization of $6 million and $6 million for valuation
adjustments for debt and $6 million and $10 million for valuation adjustments for interest rate swaps, respectively, for the nine months ended September 30, 2004 and 2003. These valuation adjustments are being amortized over the respective remaining
terms of the related financial instruments.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | As of December 31, 2003, the adjustment to fair value of interest rate swaps related to the Orion New York credit facility and the related amortization of the adjustment to interest
expense for the three and nine months ended September 30, 2004 and 2003 have been classified as discontinued operations. See note 13.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table provides a summary of the amounts owed and amounts available from continuing operations as of September 30, 2004, under the various
committed credit facilities:



|                                                 |  |                      |       |     |             |   |                  |  |              |    |  |                                         |    |                                                       |  |   |    |  |                             
|------------------------------------------------ |  | -------------------- | ----- | --- | ----------- | - | ---------------- |  | ------------ | -- |  | --------------------------------------- | -- | ----------------------------------------------------- |  | - | -- |  | ----------------------------
|                                                 |  | TotalCommittedCredit |       |     | DrawnAmount |   | Letters ofCredit |  | UnusedAmount |    |  | CommitmentsExpiring BySeptember 30,2005 |    | Principal Amortization and Commitment Expiration Date
|                                                 |  | (in millions)       
|Orion Power Holdings senior notes                |  | $                    | 400   |     |             | $ | 400              |  | $            |   |  | $                                       |   |                                                       |  | $ |   |  | May 2010                    
|Orion MidWest term loan                          |  |                      | 354   |     |             |   | 354              |  |              |   |  |                                         |   |                                                       |  |   | 20 |  | December 2004  October 2005
|Orion MidWest revolving working capital facility |  |                      | 75    |     |             |   | 18               |  |              | 10 |  |                                         | 47 |                                                       |  |   |   |  | October 2005                
|Liberty credit agreement                         |  |                      | 284   |     |             |   | 262              |  |              | 17 |  |                                         | 5  | (1)                                                   |  |   | 9  |  | October 2004  April 2026   
|                                                 |  |                      |       |     |             |   |                  |  |              |    |  |                                         |    |                                                       |  |   |    |  |                             
|Total                                            |  | $                    | 1,113 | (2) |             | $ | 1,034            |  | $            | 27 |  | $                                       | 52 |                                                       |  | $ | 29 |  |                             
|                                                 |  |                      |       |     |             |   |                  |  |              |    |  |                                         |    |                                                       |  |   |    |  |                             

---

|(1) | This amount is currently not available to Liberty Electric PA, LLC and Liberty Power. See note 12.
|--- | --------------------------------------------------------------------------------------------------

|(2) | As of September 30, 2004, only the Orion Power Holdings senior notes aggregating $400 million were unsecured.
|--- | -------------------------------------------------------------------------------------------------------------



9



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##### Table of Contents

(8) Stockholders Equity



For a discussion of Orion Power equity transactions related to Reliant Energy, see note 2.



(9) Income Taxes



A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:



|                                                                                                        |  |                                  |      |   |                                 |   |        |      |  |   |       |     |  |   |        |    
|------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ---- | - | ------------------------------- | - | ------ | ---- |  | - | ----- | --- |  | - | ------ | ---
|                                                                                                        |  | Three Months Ended September 30, |      |   | Nine Months Ended September 30, |  
|                                                                                                        |  | 2004                             |      |   | 2003                            |   |        | 2004 |  |   | 2003  |    
|                                                                                                        |  | (in millions)                    |     
|Income (loss) from continuing operations before income taxes and cumulative effect of accounting change |  | $                                | 32.7 |   |                                 | $ | (504.8 | )    |  | $ | (8.3  | )   |  | $ | (509.5 | )  
|Federal statutory rate                                                                                  |  |                                  | 35   | % |                                 |   | 35     | %    |  |   | 35    | %   |  |   | 35     | %  
|                                                                                                        |  |                                  |      |   |                                 |   |        |      |  |   |       |     |  |   |        |    
|Income tax expense (benefit) at statutory rate                                                          |  |                                  | 11.4 |   |                                 |   | (176.7 | )    |  |   | (2.9  | )   |  |   | (178.3 | )  
|                                                                                                        |  |                                  |      |   |                                 |   |        |      |  |   |       |     |  |   |        |    
|Net (reduction) addition in taxes resulting from:                                                       |  |                                  |      |   |                                 |   |        |      |  |   |       |     |  |   |        |    
|Non-deductible goodwill impairment                                                                      |  |                                  |     |   |                                 |   | 204.8  |      |  |   |      |     |  |   | 204.8  |    
|State tax credits (Empire Zone tax credits)                                                             |  |                                  | (1.3 | ) |                                 |   | (1.3   | )    |  |   | (4.1  | )   |  |   | (4.1   | )  
|State income taxes, net of federal income tax benefit                                                   |  |                                  | (0.4 | ) |                                 |   | 5.4    |      |  |   | (3.1  | )   |  |   | 5.6    |    
|Other                                                                                                   |  |                                  | (1.3 | ) |                                 |   | (0.3   | )    |  |   | (0.8  | )   |  |   | 0.1    |    
|                                                                                                        |  |                                  |      |   |                                 |   |        |      |  |   |       |     |  |   |        |    
|Total                                                                                                   |  |                                  | (3.0 | ) |                                 |   | 208.6  |      |  |   | (8.0  | )   |  |   | 206.4  |    
|                                                                                                        |  |                                  |      |   |                                 |   |        |      |  |   |       |     |  |   |        |    
|Income tax expense (benefit)                                                                            |  | $                                | 8.4  |   |                                 | $ | 31.9   |      |  | $ | (10.9 | )   |  | $ | 28.1   |    
|                                                                                                        |  |                                  |      |   |                                 |   |        |      |  |   |       |     |  |   |        |    
|Effective tax rate                                                                                      |  |                                  | 26   | % |                                 |   | NM     | (2)  |  |   | NM    | (1) |  |   | NM     | (2)

---

|(1) | Not meaningful primarily due to the Empire Zone tax credits and revisions of estimates for state taxes accrued in prior periods.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(2) | Not meaningful as Orion Power had a pre-tax loss of $505 million and income tax expense of $32 million for the three months ended September 30, 2003, and a pre-tax loss of $509
million and income tax expense of $28 million for the nine months ended September 30, 2003. The primary reason is due to Orion Powers goodwill impairment of $585 million, for which no tax benefit can be recognized, as the goodwill is
non-deductible.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



---

##### Table of Contents

(10) Commitments



Guarantees. Together with certain of Reliant Energys other subsidiaries, Orion Power Holdings is a guarantor of the obligations under Reliant
Energys Amended and Restated Credit and Guaranty Agreement dated as of March 28, 2003, subject to certain limitations under Orion Power Holdings senior notes. These limitations limit the amount of the guarantee based on a fixed charge
coverage ratio, consolidated tangible assets and a restricted payment ceiling test, under the Orion Power Holdings senior notes. Additionally, Orion Power Holdings is the only limited guarantor of the obligations under Reliant Energys senior
secured notes issued in July 2003, subject to the same limitations. None of Orion Power Holdings subsidiaries guarantee Reliant Energys senior secured notes.



Reliant Energy has calculated the aggregate amount permitted to be guaranteed under both the guarantee for its March 2003
credit facility and the guarantee for its senior secured notes to be approximately $1.1 billion, which is the maximum potential amount of future payments. These guarantees terminate at varying dates from 2007 to 2013.



Orion Power routinely enters into contracts that include indemnification and
guarantee provisions. Examples of these contracts include purchase and sale agreements, commodity purchase and sale agreements, operating agreements, service agreements, lease agreements, procurement agreements and certain debt agreements. In
general, these provisions indemnify the counterparty for matters such as breaches of representations and warranties and covenants contained in the contract and/or against certain specified liabilities. In the case of commodity purchase and sale
agreements, generally damages are limited through liquidated damages clauses whereby the parties agree to establish damages as the costs of covering any breached performance obligations. In the case of debt agreements, Orion Power generally
indemnifies against liabilities that arise from the preparation, entry into, administration or enforcement of the agreement. Orion Power is unable to estimate its maximum potential amount under these provisions unless and until an event triggering
payment under these provisions occurs. However, based on current information, Orion Power considers the likelihood of making any material payments under these provisions to be remote.



Restrictions. Both Reliant Energys March 2003 credit facility and its senior secured notes restrict Orion Power
Holdings and its subsidiaries ability to take specific actions, subject to numerous exceptions that are designed to allow for the execution of Reliant Energys and its subsidiaries business plans in the ordinary course,
including the preservation and optimization of existing investments in the retail energy and wholesale energy businesses and the ability to provide credit support for commercial obligations. Orion Powers failure to comply with these
restrictions could result in an event of default under Reliant Energys March 2003 credit facility or its senior secured notes that, if not cured or waived, could result in Reliant Energy being required to repay its borrowings before their due
date.



(11) Contingencies



Legal and Environmental Matters.For information regarding legal
proceedings and environmental matters, see (a) note 14 to Orion Powers consolidated financial statements in its Form 10-K, (b) notes 11 and 12 to Orion Powers interim financial statements in its First Quarter Form 10-Q and (c) notes 11
and 12 to Orion Powers interim financial statements in its Second Quarter Form 10-Q, which notes are incorporated herein by reference and filed as exhibits to this Form 10-Q.



(12) Liberty Generating Station



Liberty Power is a wholly-owned subsidiary of Liberty Electric PA, LLC (Liberty Electric), which is an indirect wholly-owned subsidiary of Orion Power
Holdings. Liberty Power and Liberty Electric are collectively referred to as Liberty. Liberty owns a 530 MW combined cycle gas fired power generation facility (the Liberty generating station).



In October 2004, Orion Power and Reliant Energy agreed on the principal terms
and conditions for a transfer of Orion Powers interest in the Liberty generating station, including its project-finance debt, with Libertys lenders (the lenders). The transfer, which is subject to the execution of definitive agreements
and receipt of various third party approvals, is expected to be completed in the fourth quarter of 2004. The terms of the proposed transfer do not require Orion Power or Reliant Energy to make payments to the lenders and the transfer of Liberty will
not result in an event of default under any agreements.



In the
fourth quarter of 2004, Orion Power expects to record a pre-tax non-cash loss of approximately $75 million reflecting the impairment of its net book value in Liberty. Orion Power does not anticipate any goodwill being allocated to Liberty and
therefore, does not anticipate recording any additional loss attributable to goodwill.



11



---

##### Table of Contents

Upon completion of the transfer, Orion Power will cease to record Libertys debt ($262 million as of
September 30, 2004) in its consolidated balance sheet and will reclassify Libertys results of operations to discontinued operations.



Revenues, pre-tax loss and net loss related to the Liberty generating stations operations were as follows:



|                         |  |                                  |    |   |                                 |   |    |      |  |   |      |   |  |   |     |  
|------------------------ |  | -------------------------------- | -- | - | ------------------------------- | - | -- | ---- |  | - | ---- | - |  | - | --- | -
|                         |  | Three Months Ended September 30, |    |   | Nine Months Ended September 30, |  
|                         |  | 2004                             |    |   | 2003                            |   |    | 2004 |  |   | 2003 |  
|                         |  | (in millions)                    |   
|Revenues                 |  | $                                | 34 |   |                                 | $ | 10 |      |  | $ | 81   |   |  | $ | 25  |  
|Loss before income taxes |  |                                  | (5 | ) |                                 |   | (7 | )    |  |   | (19  | ) |  |   | (15 | )
|Net loss                 |  |                                  | (2 | ) |                                 |   | (4 | )    |  |   | (11  | ) |  |   | (9  | )



As previously
disclosed, Liberty is a party to a lawsuit in which it is seeking a termination payment under a tolling agreement. Following the transfer of Liberty, Orion Power will not share in the proceeds of any judgment resulting from this litigation. In
October 2004, the counterparty to the tolling agreement agreed to return to Orion Power for cancellation a $35 million letter of credit posted for its benefit by Reliant Energy, which formerly secured Libertys obligations under the agreement.



For additional information, see (a) notes 7(a) and 14(b) to
Orion Powers consolidated financial statements in its Form 10-K, (b) note 12 to Orion Powers interim financial statements in its First Quarter Form 10-Q and (c) note 12 to Orion Powers interim financial statements in its Second
Quarter Form 10-Q.



(13) Discontinued OperationsSale of Hydropower
Plants



General.In September 2004, Orion Power
sold its equity interests in subsidiaries owning 71 operating hydropower plants and a fossil-fueled, combined-cycle generation plant with a total aggregate net generating capacity of 770 MW located in upstate New York. The purchaser is an indirect
subsidiary of Brascan Corporation, a Canadian asset management company. The purchase price, prior to closing adjustments for changes in certain intercompany accounts, interest and taxes, was $900 million in cash. The adjusted purchase price paid at
closing was $874 million. After transaction costs, estimated purchase price adjustments, estimated taxes, accrued interest and interest rate swap termination, the estimated net proceeds were $808 million.



Use of Proceeds. Under the terms of certain credit agreements, Orion
Power was required to apply all net cash proceeds from the sale to pay off indebtedness (including swap obligations) (a) first, under the Orion New York credit facility, and (b) then under the Orion MidWest credit facility. The Orion New York credit
facility, including swap obligations, was repaid in its entirety and terminated. As of September 30, 2004, there remains $372 million outstanding under the Orion MidWest credit facility. See note 7. Notwithstanding the repayment of the Orion New
York credit facility, Orion New York and its assets will continue to be subject to the credit facilitys covenants and security interests, which will continue in effect for the benefit of the Orion MidWest credit facility lenders until the
Orion MidWest credit facility is extinguished. In addition, the lender consents obtained in connection with the hydropower plants sale prohibit Orion Capital from making distributions to Orion Power Holdings until the extinguishment of the Orion
MidWest credit facility occurs. For additional information, see note 7(a) to the consolidated financial statements in Orion Powers Form 10-K.



Assumptions Related to Debt, Interest Rate Swaps and Interest Expense of Discontinued Operations. Based on the contractual obligation to apply the
net proceeds from the sale to the prepayment of debt under the Orion New York and Orion MidWest credit facilities, Orion Power has reported as discontinued operations all outstanding debt, interest rate swaps and deferred financing costs, including
associated interest, under the Orion New York credit facility.



In addition, Orion Power has reported as discontinued operations $482 million of outstanding debt under the Orion MidWest credit facility as of December 31, 2003, as well as the associated interest expense for the applicable periods, based
on the receipt of $808 million in net proceeds from the sale. In connection with the debt reported as discontinued operations under the Orion MidWest credit facility, Orion Power has reported the associated interest expense on the interest rate
swaps and deferred financing costs as discontinued operations.



Accounting Treatment of Sale Transaction.Orion Power recorded an after-tax gain on the closing of the sale of approximately $48 million, which includes the effects of allocated goodwill of $104 million. This estimated gain is
subject to changes due to the final determination of state taxes to be paid and post closing purchase price adjustments, if any. See note 5 for further discussion of the allocation of goodwill to the assets to be sold.



12



---

##### Table of Contents

Assets and liabilities related to the hydropower plants were as follows as of December 31, 2003 (in
millions):



|                                                            |  |   |     |    
|----------------------------------------------------------- |  | - | --- | ---
|Current Assets:                                             |  |   |     |    
|Cash and cash equivalents                                   |  | $ |    |    
|Restricted cash                                             |  |   | 17  |    
|Accounts receivable, net                                    |  |   | 31  |    
|Other current assets                                        |  |   | 18  |    
|                                                            |  |   |     |    
|Total current assets                                        |  |   | 66  |    
|                                                            |  |   |     |    
|Property, Plant and Equipment, net                          |  |   | 536 |    
|Other Assets:                                               |  |   |     |    
|Other intangibles, net                                      |  |   | 69  |    
|Other                                                       |  |   | 13  |    
|                                                            |  |   |     |    
|Total long-term assets                                      |  |   | 618 |    
|                                                            |  |   |     |    
|Total Assets                                                |  | $ | 684 |    
|                                                            |  |   |     |    
|Current Liabilities:                                        |  |   |     |    
|Current portion of long-term debt and short-term borrowings |  | $ | 39  |    
|Accounts payable, principally trade                         |  |   | 7   |    
|Derivative liabilities                                      |  |   | 9   |    
|Other current liabilities                                   |  |   | 6   |    
|                                                            |  |   |     |    
|Total current liabilities                                   |  |   | 61  |    
|                                                            |  |   |     |    
|Other Liabilities:                                          |  |   |     |    
|Derivative liabilities                                      |  |   | 8   |    
|Other liabilities                                           |  |   | 78  |    
|                                                            |  |   |     |    
|Total other liabilities                                     |  |   | 86  |    
|Long-term Debt                                              |  |   | 795 | (1)
|                                                            |  |   |     |    
|Total long-term liabilities                                 |  |   | 881 |    
|                                                            |  |   |     |    
|Total Liabilities                                           |  | $ | 942 |    
|                                                            |  |   |     |    
|Accumulated other comprehensive loss                        |  | $ | (10 | )  
|                                                            |  |   |     |    

---

|(1) | As of December 31, 2003, this amount includes $19 million related to adjustment to fair value of interest rate swaps. See note 7.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



Revenues and pre-tax income (loss) related to the hydropower plants
discontinued operations were as follows:



|                                  |  |                                  |     |     |                                 |   |    |      |  |   |      |        |  |   |    |  
|--------------------------------- |  | -------------------------------- | --- | --- | ------------------------------- | - | -- | ---- |  | - | ---- | ------ |  | - | -- | -
|                                  |  | Three Months Ended September 30, |     |     | Nine Months Ended September 30, |  
|                                  |  | 2004                             |     |     | 2003                            |   |    | 2004 |  |   | 2003 |       
|                                  |  | (in millions)                    |    
|Revenues                          |  | $                                | 33  |     |                                 | $ | 25 |      |  | $ | 95   |        |  | $ | 85 |  
|Income (loss) before income taxes |  |                                  | 129 | (1) |                                 |   | (4 | )    |  |   | 120  | (1)(2) |  |   | (7 | )

---

|(1) | Included in this amount is a $143 million pre-tax gain related to the disposition on September 28, 2004.
|--- | --------------------------------------------------------------------------------------------------------

|(2) | Included in this amount is a $6 million loss related to the reclassification of other comprehensive loss from equity to the statement of operations during the three months ended
June 30, 2004, related to the Orion New York interest rate swaps as it became probable during that period that the related forecasted transactions would not occur.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





*    *    *



13



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



As used in this Form 10-Q, Orion Power Holdings refers to Orion Power Holdings, Inc. and Orion
Power, we, us and our refer to Orion Power Holdings, Inc. and its consolidated subsidiaries.



The following discussion is provided as a supplement to our interim financial statements to help provide an understanding of our results of operations,
financial condition and changes in financial condition. It should be read in conjunction with our (a) Form 10-K, (b) First Quarter Form 10-Q and (c) Second Quarter Form 10-Q.



R
ecent Developments and Other Information



Liberty Generating Station.In October 2004, we agreed on the principal terms and conditions for a transfer of our interest in the Liberty generating station, including its project-finance debt, with Libertys lenders. The
transfer, which is subject to the execution of definitive agreements and receipt of various third party approvals, is expected to be completed in the fourth quarter of 2004. See note 12 to our interim financial statements.



Sale of Hydropower Plants. In September 2004, we sold 770 MW of
generation assets located in upstate New York for $874 million in cash. We recorded an after-tax gain on the closing of the sale of approximately $48 million, which includes the effects of allocated goodwill of $104 million. See notes 5 and 13 to
our interim financial statements.



Coal Contract Suppliers.Approximately 33% of our generating units use coal as their primary fuel source. These units represent approximately 45% of our annual electricity output. As of September 30, 2004, we had committed to purchase approximately 100% and 90% of our
expected coal-fuel requirements through 2004 and for 2005, respectively, pursuant to coal supply contracts. No individual coal supplier represents more than 18% of our estimated annual coal supply requirements.



During the past 12 months, the average price of spot eastern coal has
increased from $30 per ton to $65 per ton, which represents market prices higher than those for which we have contracted to purchase coal. In recent months, two of our coal suppliers, representing 17% of our remaining 2004 contracted coal supplies
and 9% of our 2005 expected needs, have indicated that they intend to default or have defaulted under their supply contracts. We intend to vigorously enforce the performance of the supply contracts. To date, we do not believe these defaults have had
a material adverse impact on our results of operations, financial condition or cash flows.



Consolidated Results of Operations



|                             |  |                                  |  |                                 |  |        |  |       
|---------------------------- |  | -------------------------------- |  | ------------------------------- |  | ------ |  | ------
|                             |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|                             |  | 2004                             |  | 2003                            |  | 2004   |  | 2003  
|                             |  | (gigawatt hours)                
|Power Generation (1):        |  |                                  |  |                                 |  |        |  |       
|Net power generation volumes |  | 4,515                            |  | 4,794                           |  | 12,030 |  | 12,360
|Power purchase volumes       |  | 398                              |  | 172                             |  | 1,270  |  | 450   
|                             |  |                                  |  |                                 |  |        |  |       
|Power sales volumes (2)      |  | 4,913                            |  | 4,966                           |  | 13,300 |  | 12,810
|                             |  |                                  |  |                                 |  |        |  |       

---

|(1) | These amounts exclude volumes associated with our discontinued operations. See note 13 to our interim financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(2) | These amounts include physically delivered volumes, physical transactions that are settled prior to delivery and hedge activity related to our power generation portfolio.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Three Months Ended September 30, 2004 Compared to Three
Months Ended September 30, 2003



Net Income (Loss).
We reported $68 million consolidated net income for the three months ended September 30, 2004 compared to $537 million consolidated net loss for the same period in 2003. The reasons for the change from net loss to net income are explained below.



14



---

##### Table of Contents

Revenues. Revenues increased $3 million during the three months ended September 30, 2004 compared
to the same period in 2003. The detail is as follows:



|                     |  |                                  |     |      |   |        |  |   |    |    
|-------------------- |  | -------------------------------- | --- | ---- | - | ------ |  | - | -- | ---
|                     |  | Three Months Ended September 30, |    
|                     |  | 2004                             |     | 2003 |   | Change | 
|Third-party revenues |  | $                                | 381 |      | $ | 373    |  | $ | 8  | (1)
|Revenuesaffiliates  |  |                                  | 1   |      |   | 6      |  |   | (5 | )  
|                     |  |                                  |     |      |   |        |  |   |    |    
|Total revenues       |  | $                                | 382 |      | $ | 379    |  | $ | 3  |    
|                     |  |                                  |     |      |   |        |  |   |    |    

---

|(1) | Increase primarily due to (a) increased energy revenues at the Liberty generating station, which was out of service from July 3, 2003 until August 26, 2003 after the termination of
a tolling contract, (b) a 2% increase in power prices, (c) amortization of contractual rights and obligations and (d) increased capacity revenues. These increases were partially offset by an 8% decrease in power sales volumes.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fuel and Purchased Power.Fuel and
purchased power increased $27 million during the three months ended September 30, 2004 compared to the same period in 2003. The detail is as follows:



|                                           |  |                                  |     |      |   |        |  |   |    |    
|------------------------------------------ |  | -------------------------------- | --- | ---- | - | ------ |  | - | -- | ---
|                                           |  | Three Months Ended September 30, |    
|                                           |  | 2004                             |     | 2003 |   | Change | 
|Third-party fuel and purchased power costs |  | $                                | 80  |      | $ | 85     |  | $ | (5 | )  
|Fuel and purchased poweraffiliates        |  |                                  | 110 |      |   | 79     |  |   | 31 |    
|Unrealized losses                          |  |                                  | 1   |      |   |       |  |   | 1  |    
|                                           |  |                                  |     |      |   |        |  |   |    |    
|Total fuel and purchased power             |  | $                                | 191 |      | $ | 164    |  | $ | 27 | (1)
|                                           |  |                                  |     |      |   |        |  |   |    |    

---

|(1) | Increase primarily due to (a) increased fuel expense at Orion MidWest and Liberty primarily due to increased natural gas and coal prices and (b) the termination of the tolling
agreement at the Liberty generating station in July 2003, which resulted in Liberty purchasing fuel to operate the station as a merchant plant. These increases were partially offset by increased amortization of contractual rights and obligations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gross margins. Gross margins decreased
$24 million during the three months ended September 30, 2004 compared to the same period in 2003. The detail is as follows:



|                   |  |                                  |     |      |   |        |  |   |     |     
|------------------ |  | -------------------------------- | --- | ---- | - | ------ |  | - | --- | ----
|                   |  | Three Months Ended September 30, |    
|                   |  | 2004                             |     | 2003 |   | Change | 
|Orion MidWest      |  | $                                | 88  |      | $ | 104    |  | $ | (16 | )(1)
|Orion New York     |  |                                  | 94  |      |   | 108    |  |   | (14 | )(2)
|Liberty            |  |                                  | 9   |      |   | 3      |  |   | 6   | (3) 
|                   |  |                                  |     |      |   |        |  |   |     |     
|Total gross margin |  | $                                | 191 |      | $ | 215    |  | $ | (24 | )   
|                   |  |                                  |     |      |   |        |  |   |     |     

---

|(1) | Decrease primarily due to (a) decreased generation volumes from increased unplanned outages, (b) reduced demands under a provider of last resort contract resulting from
milder weather conditions and (c) increased fuel costs.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Decrease primarily due to (a) reduced generation as a result of unfavorable weather conditions and (b) lower prices. These decreases were partially offset by higher capacity
revenues.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Increase primarily due to the termination of the tolling agreement in July 2003, which resulted in operations ceasing until late August 2003 as compared to operating as a merchant
plant for substantially all of the third quarter of 2004. See note 2 to our interim financial statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operation and Maintenance.Operation and maintenance expenses, including amounts allocated from affiliates, increased $8 million during the three
months ended September 30, 2004 compared to the same period in 2003. The increase is detailed as follows (in millions):



|                                                            |  |   |   |    
|----------------------------------------------------------- |  | - | - | ---
|Planned power generation maintenance projects and outages   |  | $ | 3 | (1)
|Unplanned power generation maintenance projects and outages |  |   | 2 | (2)
|Legal costs                                                 |  |   | 1 | (3)
|Other, net                                                  |  |   | 2 |    
|                                                            |  |   |   |    
|Net increase in expense                                     |  | $ | 8 |    
|                                                            |  |   |   |    

---

|(1) | Increase primarily due to timing of maintenance projects at the MidWest coal plants.
|--- | ------------------------------------------------------------------------------------

|(2) | Increase due to higher maintenance costs at Cheswick ($1 million) caused by a fire in the second quarter of 2004 and Elrama ($1 million).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(3) | Increase due to higher legal costs associated with the Liberty generating station. See note 12 to our interim financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

General and AdministrativeAffiliates.General and administrative expenses, which are
allocated from Reliant Energy, did not change significantly during the three months ended September 30, 2004 compared to the same period in 2003.



Taxes Other Than Income Taxes.Taxes other than income taxes increased $2 million during the three months ended September 30, 2004 compared to the
same period in 2003 due to increased franchise taxes for Orion New York.



Goodwill Impairment.See note 5 to our interim financial statements.



Depreciation and Amortization.Depreciation and amortization expense increased $11 million during the three months ended September 30, 2004
compared to the same period in 2003 primarily due to increased amortization of air emissions regulatory allowances and increased depreciation as a result of an increase in depreciable assets.



Interest Expense.Interest expense to third parties did not change
significantly during the three months ended September 30, 2004 compared to the same period in 2003.



Income Tax (Benefit) Expense. For the three months ended September 30, 2004, our effective tax rate was 26%. Our effective tax rate for the three
months ended September 30, 2003 is not meaningful due to the goodwill impairment charge of $585 million, which is non-deductible for income tax purposes. Our reconciling items from the federal statutory rate of 35% to the effective tax rate totaled
$3 million and $4 million, excluding the goodwill impairment charge, for the three months ended September 30, 2004 and 2003, respectively. For the three months ended September 30, 2004, these items primarily related to Empire Zone tax credits (see
below). For the three months ended September 30, 2003, these items primarily related to state income taxes, which were partially offset by Empire Zone tax credits.



Certain of our New York operations qualify for the Empire Zone program beginning with calendar tax year ended December 31,
2001. The benefits under the program include a New York state income tax reduction credit, a wage tax credit, a sales tax credit and a real property tax credit. All credits are used to offset New York state income tax with any excess credits being
refundable. Under current law, we are entitled to program benefits for a 14-year period, which began in 2001 and ends in 2014. Earlier in the year, legislation was introduced that, if passed, could have materially changed or eliminated the benefits
received from the Empire Zone program. Such legislation did not pass.



Nine
Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003



Net Income (Loss). We reported $44 million consolidated net income for the nine months ended September 30, 2004 compared to $536 million consolidated net loss for the same period in 2003. The reasons for the
change from net loss to net income are explained below.



Revenues.Revenues increased $78 million during the nine months ended September 30, 2004 compared to the same period in 2003. The detail is as follows:



|                          |  |                                 |     |   |      |   |        |  |   |     |    
|------------------------- |  | ------------------------------- | --- | - | ---- | - | ------ |  | - | --- | ---
|                          |  | Nine Months Ended September 30, |    
|                          |  | 2004                            |     |   | 2003 |   | Change | 
|Third-party revenues      |  | $                               | 931 |   |      | $ | 841    |  | $ | 90  | (1)
|Revenuesaffiliates       |  |                                 | 14  |   |      |   | 24     |  |   | (10 | )  
|Unrealized (losses) gains |  |                                 | (1  | ) |      |   | 1      |  |   | (2  | )  
|                          |  |                                 |     |   |      |   |        |  |   |     |    
|Total revenues            |  | $                               | 944 |   |      | $ | 866    |  | $ | 78  |    
|                          |  |                                 |     |   |      |   |        |  |   |     |    

---

|(1) | Increase primarily due to (a) increased energy revenues at the Liberty generating station, which was out of service from July 3, 2003 until August 26, 2003 after the termination of
a tolling contract, (b) 3% increase in power prices, (c) amortization of contractual rights and obligations and (d) increased capacity revenues. These increases were partially offset by a 1% decrease in power sales volumes.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



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##### Table of Contents

Fuel and Purchased Power.Fuel and purchased power increased $114 million during the nine months
ended September 30, 2004 compared to the same period in 2003. The detail is as follows:



|                                           |  |                                 |     |   |      |   |        |  |   |     |    
|------------------------------------------ |  | ------------------------------- | --- | - | ---- | - | ------ |  | - | --- | ---
|                                           |  | Nine Months Ended September 30, |    
|                                           |  | 2004                            |     |   | 2003 |   | Change | 
|Third-party fuel and purchased power costs |  | $                               | 252 |   |      | $ | 246    |  | $ | 6   |    
|Fuel and purchased poweraffiliates        |  |                                 | 246 |   |      |   | 135    |  |   | 111 | (1)
|Unrealized gains                           |  |                                 | (3  | ) |      |   |       |  |   | (3  | )  
|                                           |  |                                 |     |   |      |   |        |  |   |     |    
|Total fuel and purchased power             |  | $                               | 495 |   |      | $ | 381    |  | $ | 114 |    
|                                           |  |                                 |     |   |      |   |        |  |   |     |    

---

|(1) | Increase primarily due to (a) the termination of the tolling agreement at the Liberty generating facility in July 2003, which resulted in Liberty purchasing fuel to operate the
station as a merchant plant and (b) increased fuel expense primarily due to increased natural gas and coal prices.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gross margins. Gross margins decreased $36 million during the nine months ended September 30, 2004 compared to the same period in 2003. The detail
is as follows:



|                   |  |                                 |     |      |   |        |  |   |     |     
|------------------ |  | ------------------------------- | --- | ---- | - | ------ |  | - | --- | ----
|                   |  | Nine Months Ended September 30, |    
|                   |  | 2004                            |     | 2003 |   | Change | 
|Orion MidWest      |  | $                               | 189 |      | $ | 234    |  | $ | (45 | )(1)
|Orion New York     |  |                                 | 242 |      |   | 234    |  |   | 8   | (2) 
|Liberty            |  |                                 | 18  |      |   | 17     |  |   | 1   |     
|                   |  |                                 |     |      |   |        |  |   |     |     
|Total gross margin |  | $                               | 449 |      | $ | 485    |  | $ | (36 | )   
|                   |  |                                 |     |      |   |        |  |   |     |     

---

|(1) | Decrease primarily due to increased unplanned outages, which resulted in increased purchase power and operation of less efficient plants to fulfill our contractual load obligations
under a provider of last resort contract in the second quarter of 2004 and lower volumes in the third quarter of 2004, as the demand under a provider of last resort contract declined due to milder weather in the third quarter
of 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Increase primarily due to higher capacity revenues at our New York City facilities, which were partially offset by increased amortization of contractual rights and obligations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operation and Maintenance.Operation and
maintenance expenses, including amounts allocated from affiliates, increased $19 million during the nine months ended September 30, 2004 compared to the same period in 2003. The increase is detailed as follows (in millions):



|                                                            |  |   |    |     
|----------------------------------------------------------- |  | - | -- | ----
|Unplanned power generation maintenance projects and outages |  | $ | 9  | (1) 
|Planned power generation maintenance projects and outages   |  |   | 9  | (2) 
|Legal costs                                                 |  |   | 3  | (3) 
|Bad debt expense                                            |  |   | (6 | )(4)
|Other, net                                                  |  |   | 4  |     
|                                                            |  |   |    |     
|Net increase in expense                                     |  | $ | 19 |     
|                                                            |  |   |    |     

---

|(1) | Increase due to higher maintenance costs at Cheswick ($6 million) caused by fire in the second quarter of 2004, Avon Lake ($2 million) and Elrama ($2 million).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Increase primarily due to timing of maintenance projects at the MidWest coal ($7 million) and the New York ($3 million) plants.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(3) | Increase due to higher legal costs associated with the Liberty generating station. See note 12 to our interim financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(4) | Decrease primarily due to the recognition of $6 million of bad debt expense during the nine months ended September 30, 2003, related to the Liberty generating station tolling
agreement. See note 12 to our interim financial statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



General and AdministrativeAffiliates.General and administrative expenses, which are allocated from Reliant Energy, did not change significantly during the nine months ended September 30, 2004
compared to the same period in 2003.



Taxes Other Than
Income Taxes.Taxes other than income taxes increased $6 million during the nine months ended September 30, 2004 compared to the same period in 2003 primarily due to a tax refund of $5 million received in April 2003.



Goodwill Impairment.See note 5 to our interim financial statements.



Depreciation and Amortization.Depreciation and
amortization expense increased $22 million during the nine months ended September 30, 2004 compared to the same period in 2003 primarily due to increased amortization of air emissions regulatory allowances and increased depreciation as a result of
an increase in depreciable assets.



17



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##### Table of Contents

Interest Expense.Interest expense to third parties did not change significantly during the nine
months ended September 30, 2004 compared to the same period in 2003. The detail is as follows (in millions):



|                                                                                                         |  |   |    |    
|-------------------------------------------------------------------------------------------------------- |  | - | -- | ---
|Reduction in outstanding debt                                                                            |  | $ | (4 | )  
|Reduction in overall interest rates                                                                      |  |   | (3 | )  
|Financing fees expensed                                                                                  |  |   | 3  |    
|Offset to interest expense for amortization of adjustments to fair value of acquired interest rate swaps |  |   | 4  | (1)
|Other, net                                                                                               |  |   | (1 | )  
|                                                                                                         |  |   |    |    
|Net change in expense                                                                                    |  | $ | (1 | )  
|                                                                                                         |  |   |    |    

---



(1) See note 7 to our interim financial statements.



Income Tax Expense. Our effective tax rate for the nine months ended September 30, 2004 is not meaningful primarily due to the Empire Zone tax
credits and revisions of estimates for state taxes accrued in prior periods. Our effective tax rate for the nine months ended September 30, 2003 is not meaningful due to the goodwill impairment charge of $585 million, which is non-deductible for
income tax purposes. Our reconciling items from the federal statutory rate of 35% to the effective tax rate totaled $8 million and $2 million, excluding the goodwill impairment charge, for the nine months ended September 30, 2004 and 2003,
respectively. For the nine months ended September 30, 2003, these items primarily related to state income taxes, which were partially offset by Empire Zone tax credits.



Financial Condition



In this
section, we provide updates related to sources of liquidity and capital resources, liquidity and capital requirements and historical cash flows. For additional information, see Managements Discussion and Analysis of Financial Condition
and Results of OperationsLiquidity and Capital Resources in Item 7 of our Form 10-K.



Sources of Liquidity and Capital Resources



Our principal sources of liquidity and capital resources are cash flows from operations, borrowings under our various revolving credit facilities, as described below, and capital contributions from Reliant Energy.



Cash Flows from Operations. All of our operations are
conducted by our subsidiaries. As a result, our cash flow is dependent upon the receipt from our subsidiaries of cash dividends, distributions or other transfers of cash generated by their operations.



For the three months ended September 30, 2003, our earnings from continuing
operations were insufficient to cover our fixed charges by $505 million. For the nine months ended September 30, 2004 and 2003, our earnings from continuing operations were insufficient to cover our fixed charges by $7 million and $509 million,
respectively. See Exhibit 12.1 to this Form 10-Q.



Credit
Capacity, Cash and Cash Equivalents. The following table summarizes our credit capacity, cash and cash equivalents and current restricted cash for our continuing operations at September 30, 2004 (in millions):



|                              |  |   |       |    
|----------------------------- |  | - | ----- | ---
|Total committed credit(1)     |  | $ | 1,113 |    
|Outstanding borrowings        |  |   | 1,034 |    
|Outstanding letters of credit |  |   | 27    |    
|                              |  |   |       |    
|Unused borrowing capacity     |  |   | 52    | (2)
|Cash and cash equivalents     |  |   | 8     |    
|Current restricted cash(3)    |  |   | 266   |    
|                              |  |   |       |    
|Total                         |  | $ | 326   |    
|                              |  |   |       |    

---

|(1) | As of September 30, 2004, we had consolidated current and long-term debt outstanding from continuing operations of $1.1 billion. As of September 30, 2004, $29 million of our
committed credit facilities are to expire by September 30, 2005. For a discussion of our credit facilities and other debt, see note 7 to our interim financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See notes 7 and 12 to our interim financial statements; $5 million of the unused capacity relates to Libertys working capital facility, which is currently not available to
Liberty.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



---

##### Table of Contents

|(3) | Current restricted cash includes cash at certain subsidiaries, the transfer or distribution of which is effectively restricted by the terms of financing agreements but is otherwise
available to the applicable subsidiary for use in satisfying certain of its obligations.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Liquidity and Capital Requirements



Our liquidity and capital requirements are primarily a function of our operations, borrowings under our various revolving credit facilities, as described below, and capital contributions from Reliant Energy.



All of our credit and other debt agreements contain
restrictive covenants. Failure to comply with these covenants could have a number of effects, including limitations on our ability to make additional borrowings under the credit facilities, increases in borrowing costs and the acceleration of
indebtedness.



Contributions from Reliant Energy.Orion
Power has outstanding $400 million aggregate principal amount of 12% senior notes due 2010. The senior notes are unsecured. The Orion New York covenant agreement and Orion MidWest credit agreement contain requirements that restrict Orion New York
and Orion MidWest from making dividends, loans or advances to Orion Power Holdings for future interest payments on the senior notes. If at the time such payments are due, funds generated from Orion Power Holdings other subsidiaries or from
other sources are insufficient, payment default under Orion Power Holdings senior notes may occur unless Reliant Energy elects to invest additional funds in Orion Power Holdings. In May 2003 and November 2003, Reliant Energy contributed
$15 million and $20 million, respectively, to us, as a partial funding of the semi-annual interest payments of $24 million on the senior notes due at those dates. Orion Power Holdings used the cash from income tax refunds to fund the $24 million
interest payments in May 2004 and November 2004. While Reliant Energy has no obligation, it intends to contribute any funding shortfall of the semi-annual interest payments due in May 2005 should Orion Power Holdings funds be insufficient. See
note 2 to our interim financial statements.



Historical Cash Flows



The following table provides an overview of cash flows
relating to our operating, investing and financing activities for the nine months ended September 30, 2004 and 2003:



|                            |  |                                 |      |   |      |   |     |  
|--------------------------- |  | ------------------------------- | ---- | - | ---- | - | --- | -
|                            |  | Nine Months Ended September 30, |     
|                            |  | 2004                            |      |   | 2003 |  
|                            |  | (in millions)                   |     
|Cash provided by (used in): |  |                                 |      |   |      |   |     |  
|Operating activities        |  | $                               | 8    |   |      | $ | 108 |  
|Investing activities        |  |                                 | 828  |   |      |   | (43 | )
|Financing activities        |  |                                 | (861 | ) |      |   | (64 | )



Cash
FlowsOperating Activities



Net cash provided by
operating activities decreased by $100 million during the nine months ended September 30, 2004 compared to the same period in 2003. The change is detailed as follows (in millions):



|                                                                                                  |  |   |      |     
|------------------------------------------------------------------------------------------------- |  | - | ---- | ----
|Changes in working capital and other assets and liabilities                                       |  | $ |     | (1) 
|Changes in cash flows from operations, excluding working capital and other assets and liabilities |  |   | (95  | )(2)
|Changes in cash flows related to our discontinued operations                                      |  |   | (5   | )   
|                                                                                                  |  |   |      |     
|Net change                                                                                        |  | $ | (100 | )   
|                                                                                                  |  |   |      |     

---

|(1) | No change in net cash outflows, which were $84 million for the nine months ended September 30, 2004 compared to $84 million for the same period in 2003. See further analysis below.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Decrease in net cash inflows to $96 million for the nine months ended September 30, 2004 from $191 million for the same period in 2003 due primarily to changes in our results of
operations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19



---

##### Table of Contents

Nine Months Ended September 30, 2004. Changes in working capital and other assets and liabilities
from continuing operations for the nine months ended September 30, 2004 is detailed as follows (in millions):



|                                                                          |  |   |     |     
|------------------------------------------------------------------------- |  | - | --- | ----
|Increase in restricted cash                                               |  | $ | (86 | )(1)
|Net purchases of emissions credits                                        |  |   | (29 | )   
|Net change in accounts receivable and accounts payable                    |  |   | (28 | )(2)
|Increase in prepaid insurance and property taxes and other current assets |  |   | (15 | )(3)
|Increase in accrued interest                                              |  |   | 27  | (4) 
|Taxes payable/receivable, net                                             |  |   | 32  | (5) 
|Other, net                                                                |  |   | 15  |     
|                                                                          |  |   |     |     
|Cash used                                                                 |  | $ | (84 | )   
|                                                                          |  |   |     |     

---

|(1) | Increase primarily due to $61 million due to increased revenues at our New York facilities.
|--- | -------------------------------------------------------------------------------------------

|(2) | Net change primarily due to seasonality at our New York facilities, coupled with timing of cash payments.
|--- | ---------------------------------------------------------------------------------------------------------

|(3) | Increase primarily due to property tax prepayments related to our New York facilities for normal operations.
|--- | ------------------------------------------------------------------------------------------------------------

|(4) | Increase primarily due to the accrual of interest on the Orion Power Holdings senior notes at 12% and the Liberty credit agreement. See note 7 to our interim financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Increase primarily due to $27 million in accrued tax liabilities related to Orion MidWest and $3 million in net income tax refunds.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



Nine Months Ended September 30, 2003.Changes in working capital and
other assets and liabilities from continuing operations for the nine months ended September 30, 2003 is detailed as follows (in millions):



|                                                       |  |   |     |     
|------------------------------------------------------ |  | - | --- | ----
|Net purchases of emissions credits                     |  | $ | (42 | )   
|Net change in accounts receivable and accounts payable |  |   | (22 | )(1)
|Increase in restricted cash                            |  |   | (10 | )   
|Taxes payable/receivable, net                          |  |   | 12  | (2) 
|Other, net                                             |  |   | (22 | )   
|                                                       |  |   |     |     
|Cash used                                              |  | $ | (84 | )   
|                                                       |  |   |     |     

---

|(1) | Increase primarily due to seasonality and the timing of cash payments.
|--- | ----------------------------------------------------------------------

|(2) | Change primarily relates to $13 million in net income tax refunds.
|--- | ------------------------------------------------------------------



Cash FlowsInvesting Activities



Net cash provided by/used in investing activities changed by $871 million during the nine months ended September 30, 2004 compared to same period in 2003,
primarily due to net proceeds of $ 874 million (or $867 million after transaction costs of $7 million) from the sale of our hydropower plants in September 2004. See note 13 to our interim financial statements. In addition, we incurred $33 million
and $37 million during the nine months ended September 30, 2004 and 2003, respectively, in capital expenditures.



Cash FlowsFinancing Activities



Net cash used in financing activities during the nine months ended September 30, 2004 increased by $797 million compared to the same period in 2003. See
below for discussion.



Nine Months Ended September 30, 2004.Net cash used in financing activities during the nine months ended September 30, 2004 of $861 million is primarily due to cash outflows of $806 million related to our discontinued operations. As a result of the sale, our Orion New York credit
facility was repaid in its entirety (totaling $348 million) and $458 million of our Orion MidWest credit facility was repaid. See note 13 to our interim financial statements. In addition, there were $72 million of payments of long-term debt
(primarily Orion MidWest term loans).



Nine Months Ended
September 30, 2003.Net cash used in financing activities during the nine months ended September 30, 2003 of $64 million is primarily due to $59 million of payments of long-term debt relating to Orion MidWest and a decrease in short-term
borrowings, partially offset by contributions from stockholder of $15 million.



New Accounting Pronouncements, Significant Accounting Policies and Critical Accounting Estimates



New Accounting Pronouncements



20



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##### Table of Contents

As of October 2004, there are no new accounting pronouncements that would have a material impact on our
results of operations, financial position or cash flows, which we have not already adopted and/or disclosed elsewhere in the notes to our interim financial statements.



Significant Accounting Policies



For discussion regarding our significant accounting policies, see note 2 to our consolidated financial statements in our Form 10-K and note 1 to our
interim financial statements.



Critical Accounting Estimates



For a discussion of our critical accounting estimates, see
Managements Discussion and Analysis of Financial Condition and Results of OperationsAccounting EstimatesNew Accounting Pronouncements, Significant Accounting Policies and Critical Accounting EstimatesCritical Accounting
Estimates in Item 7 in our Form 10-K and note 2 to our consolidated financial statements in our Form 10-K.



21



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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT NON-TRADING ACTIVITIES AND RELATED MARKET RISKS
|------- | ----------------------------------------------------------------------------------------------



Market Risk and Risk Management



We are exposed to various market risks. These risks arise from the ownership of our assets and operation of our business. Most of the revenues, expenses,
results of operations and cash flows from our business activities are impacted by market risks. Categories of significant market risks include exposures primarily related to commodity prices and interest rates.



Non-trading Market Risks



Commodity Price Risk. Commodity price risk is an inherent component
of our business. Prior to the energy delivery period, we attempt to hedge, in part, the economics of our business. Derivative instruments are used to mitigate exposure to variability in future cash flows from probable, anticipated future
transactions attributable to a commodity risk.



The following
table sets forth the fair values of the outstanding contracts related to our net derivative assets and liabilities as of September 30, 2004:



|                                                       |  |                                               |    |   |                  |   |      |  |   |      |   |  |      |    |                    |  |                 |   |  |   |   |  |   |    |  
|------------------------------------------------------ |  | --------------------------------------------- | -- | - | ---------------- | - | ---- |  | - | ---- | - |  | ---- | -- | ------------------ |  | --------------- | - |  | - | - |  | - | -- | -
|                                                       |  | Fair Value of Contracts at September 30, 2004 |   
|Source of Fair Value                                   |  | TwelveMonthsEndedSeptember 30,2005            |    |   | Remainderof 2005 |   | 2006 |  |   | 2007 |   |  | 2008 |    | 2009 andthereafter |  | Total fairvalue |  
|                                                       |  | (in millions)                                 |   
|Prices provided by other external sources (1)          |  | $                                             | 73 |   |                  | $ | 13   |  | $ | 13   |   |  | $    | (1 | )                  |  | $               |  |  | $ |  |  | $ | 98 |  
|Prices based on models and other valuation methods (2) |  |                                               | (7 | ) |                  |   |     |  |   | (2   | ) |  |      |   |                    |  |                 |  |  |   |  |  |   | (9 | )
|                                                       |  |                                               |    |   |                  |   |      |  |   |      |   |  |      |    |                    |  |                 |   |  |   |   |  |   |    |  
|Total                                                  |  | $                                             | 66 |   |                  | $ | 13   |  | $ | 11   |   |  | $    | (1 | )                  |  | $               |  |  | $ |  |  | $ | 89 |  
|                                                       |  |                                               |    |   |                  |   |      |  |   |      |   |  |      |    |                    |  |                 |   |  |   |   |  |   |    |  

---

|(1) | Represents our forward positions in power, oil and coal commodities at points for which over-the-counter market (OTC) broker quotes are available, which on average, extend 24, 36
and 36 months into the future, respectively. Positions are valued against internally developed forward market price curves that are frequently validated and recalibrated against OTC broker quotes. This category includes some transactions whose
prices are obtained from external sources and then modeled to hourly, daily or monthly prices, as appropriate. This category also includes our interest rate derivative instruments, which are valued based on information from market participants.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the value of (a) our valuation adjustments for liquidity, credit and administrative costs, (b) options or structured transactions not quoted by an exchange or OTC broker,
but for which the prices of the underlying position are available and (c) transactions for which an internally developed price curve was constructed as a result of the long-dated nature of the transaction or the illiquidity of the market point.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We assess the risk of our derivatives using a
sensitivity analysis method. Derivative instruments, which we use as economic hedges, create exposure to commodity prices, which, in turn, offset the commodity exposure inherent in our business. The stand-alone commodity risk created by these
instruments, without regard to the offsetting effect of the underlying exposure these instruments are intended to hedge, is described below. The sensitivity analysis performed on our energy derivatives measures the potential loss in fair value based
on a hypothetical 10% movement in the underlying energy prices. A decrease of 10% in the market prices of energy commodities from their September 30, 2004 levels would have decreased the fair value of our energy derivatives by $21 million. Of this
amount, $19 million relates to a loss in fair value of our derivatives that are designated as cash flow hedges and $2 million relates to a loss in earnings of our economic hedges. A decrease of 10% in the market prices of energy commodities from
their December 31, 2003 levels would have decreased the fair value of our energy derivatives by $14 million.



Interest Rate Risk. There was no significant change for our continuing operations in our interest rate risk based on sensitivity analyses during
the three and nine months ended September 30, 2004 from December 31, 2003. See Quantitative and Qualitative Disclosures about Non-trading Activities and Related Market Risks in Item 7A of our Form 10-K.



22



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ITEM 4.
CONTROLS AND PROCEDURES



Evaluation of
Disclosure Controls and Procedures



Our president and
chief financial officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Form
10-Q. Based on such evaluation, such officers have concluded that, as of the end of such period, our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to be included in our reports
filed or submitted under the Securities Exchange Act of 1934.



Changes in
Internal Controls



In connection with the evaluation
described above, we identified no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during our fiscal quarter ended September 30, 2004, that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



23



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##### Table of Contents

PART II.

OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



For
information in response to this Item, see (a) note 14 to the consolidated financial statements in Orion Powers Form 10-K, (b) notes 11 and 12 to the interim financial statements in Orion Powers First Quarter Form 10-Q, (c) notes 11 and
12 to the interim financial statements in Orion Powers Second Quarter Form 10-Q and (d) notes 11 and 12 to the interim financial statements in this Form 10-Q.



ITEM 6. EXHIBITS



Exhibits.



See Index of Exhibits.



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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.



|                 |  |                                                       
|---------------- |  | ------------------------------------------------------
|                 |  | ORION POWER HOLDINGS, INC.                            
|                 |  | (Registrant)                                          
|                 | 
|November 4, 2004 |  | By:/s/ Thomas C. Livengood                            
|                 |  | Thomas C. Livengood                                   
|                 |  | Vice President and Controller                         
|                 |  | (Duly Authorized Officer and Chief Accounting Officer)



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##### Table of Contents

INDEX OF EXHIBITS



Exhibits not incorporated by reference to a prior filing are designated by a cross (+); all exhibits not so
designated are incorporated herein by reference to a prior filing as indicated.



|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                              |  |                               |  |                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ----------------------------- |  | ----------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                              |  | Report or Registration Statement                                                             |  | SEC File orRegistrationNumber |  | ExhibitReference
|3.1           |  | Certificate of Merger of Reliant Energy Power Generation Merger Sub, Inc. into Orion Power Holdings, Inc., dated February 19, 2002, with Certificate of Incorporation of the Survivor Corporation
attached                                                        |  | Orion Power Holdings, Inc.s Annual Report on Form 10-K for the year ended December 31, 2002 |  | 1-10677                       |  | 3.1.1           
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|3.2           |  | Amendment of Certificate of Incorporation of Reliant Energy Power Generation Merger Sub, Inc., dated February 19, 2002, renaming the corporation Orion Power Holdings, Inc.                                                                                       |  | Orion Power Holdings, Inc.s Annual Report on Form 10-K for the year ended December 31, 2002 |  | 1-10677                       |  | 3.1.2           
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|3.3           |  | Amended and Restated Bylaws                                                                                                                                                                                                                                       |  | Orion Power Holdings, Inc.s Annual Report on Form 10-K for the year ended December 31, 2002 |  | 1-10677                       |  | 3.2.1           
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|3.4           |  | Amendment to Amended and Restated Bylaws                                                                                                                                                                                                                          |  | Orion Power Holdings, Inc.s Annual Report on Form 10-K for the year ended December 31, 2002 |  | 1-10677                       |  | 3.2.2           
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|4.1           |  | Indenture, dated as of April 27, 2000 between Orion Power Holdings, Inc. and Wilmington Trust Company                                                                                                                                                             |  | Orion Power Holdings, Inc.s Registration Statement on Form S-1, dated August 18, 2000       |  | 333-44118                     |  | 4.1             
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+12.1         |  | Orion Power Holdings, Inc. and Subsidiaries Ratio of Earnings from Continuing Operations to Fixed Charges                                                                                                                                                         |  |                                                                                              |  |                               |  |                 
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+31.1         |  | Certification of the President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                          |  |                                                                                              |  |                               |  |                 
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+31.2         |  | Certification of the Executive Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                               |  |                                                                                              |  |                               |  |                 
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+32.1         |  | Certification of the President of Orion Power Holdings, Inc. Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title
18, United States Code)                                        |  |                                                                                              |  |                               |  |                 
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+32.2         |  | Certification of Executive Vice President and Chief Financial Officer of Orion Power Holdings, Inc. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code) |  |                                                                                              |  |                               |  |                 
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+99.1         |  | Orion Power Holdings, Inc.s note 14 to its consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2003                                                                                                              |  |                                                                                              |  |                               |  |                 
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+99.2         |  | Orion Power Holdings, Inc.s notes 11 and 12 to its consolidated unaudited interim financial statements in its Quarterly Report on Form 10-Q for the period ended March 31, 2004                                                                                  |  |                                                                                              |  |                               |  |                 
|              |  |                                                                                                                                                                                                                                                                   |  |                                                                                             
|+99.3         |  | Orion Power Holdings, Inc.s notes 11 and 12 to its consolidated unaudited interim financial statements in its Quarterly Report on Form 10-Q for the period ended June 30, 2004                                                                                   |  |                                                                                              |  |                               |  |