##### 



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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

For the Quarterly Period Ended June 30, 2003

Commission File Number 33-82034

INDIANTOWN COGENERATION, L.P.

(Exact name of co-registrant as specified in its charter)


|                                |  |                                        
|------------------------------- |  | ---------------------------------------
|Delaware                        |  | 52-1722490                             
|                                |  |                                        
|(State or other jurisdiction of |  | (I.R.S. Employer Identification Number)
|incorporation or organization)  |  |                                        

INDIANTOWN COGENERATION FUNDING CORPORATION

(Exact name of co-registrant as specified in its charter)


|                                |  |                                        
|------------------------------- |  | ---------------------------------------
|Delaware                        |  | 52-1889595                             
|                                |  |                                        
|(State or other jurisdiction of |  | (I.R.S. Employer Identification Number)
|incorporation or organization)  |  |                                        

7600 Wisconsin Avenue




Bethesda, Maryland 20814-6161)





(Registrants address of principal executive offices)


(301)-280-6800




(Registrants 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 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.     [X] Yes     [  ] No

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





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##### 



Indiantown Cogeneration, L.P.
Indiantown Cogeneration Funding Corporation

|           |  |                                                                                       |  |                                                                                                                                         |    |          |   | 
|---------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- | -- | -------- | - | 
|           |  |                                                                                       |  |                                                                                                                                         |    | Page No.
|PART I     |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                                                         |    |         
|Item 1     |  | Financial Statements:                                                                 |  |                                                                                                                                         |    |         
|           |  |                                                                                       |  | Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and
December 31, 2002                                                       |    |          | 1 | 
|           |  |                                                                                       |  | Consolidated Statements of Operations for the Three Months and Six Months
Ended June 30, 2003 (Unaudited) and June 30, 2002 (Unaudited) |    |          | 3 | 
|           |  |                                                                                       |  | Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2003 (Unaudited) and June 30, 2002 (Unaudited)                  |    |          | 4 | 
|           |  |                                                                                       |  | Notes to Consolidated Financial Statements (Unaudited)                                                                                  |    |          | 5 | 
|Item 2     |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |                                                                                                                                         | 9  |         
|Item 3     |  | Qualitative and Quantitative Disclosures About Market Risk                            |  |                                                                                                                                         | 19 |         
|Item 4     |  | Controls and Procedures                                                               |  |                                                                                                                                         | 19 |         
|PART II    |  | OTHER INFORMATION                                                                     |  |                                                                                                                                         |    |         
|Item 5     |  | Other Information                                                                     |  |                                                                                                                                         | 20 |         
|Item 6     |  | Exhibits and Reports on Form 8K                                                       |  |                                                                                                                                         | 22 |         
|Signatures |  |                                                                                       |  |                                                                                                                                         | 24 |         





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##### 



PART I
FINANCIAL INFORMATION

Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Balance Sheets
(in thousands)

|                                                                                               |                                                                                            |                      |         |             |         |              |         |        |         | 
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------- | ------- | ----------- | ------- | ------------ | ------- | ------ | ------- | 
|                                                                                               |                                                                                            |                      |         | June 30,    |         | December 31,
|ASSETS                                                                                         |                                                                                            | 2003                 |         | 2002       
|                                                                                               |                                                                                            |                      |         |            
|                                                                                               |                                                                                            |                      |         | (Unaudited) |         |              |         |       
|CURRENT ASSETS:                                                                                |                                                                                            |                      |         |             |         |              |         |       
|                                                                                               | Cash and cash equivalents                                                                  |                      | $       | 402         |         |              | $       | 290    |        
|                                                                                               | Restricted cash                                                                            |                      |         | 1,700       |         |              |         | 1,700  |        
|                                                                                               | Accounts receivable-trade                                                                  |                      |         | 17,289      |         |              |         | 17,513 |        
|                                                                                               | Inventories                                                                                |                      |         | 1,807       |         |              |         | 741    |        
|                                                                                               | Prepaids                                                                                   |                      |         | 1,801       |         |              |         | 928    |        
|                                                                                               | Deposits                                                                                   |                      |         | 65          |         |              |         | 44     |        
|                                                                                               | Investments held by Trustee, including
restricted funds of $9,427 and $5,569,
respectively |                      |         | 17,672      |         |              |         | 14,913 |        
|                                                                                               |                                                                                            |                      |         |             |         |              |         |        |        
|                                                                                               |                                                                                            | Total current assets |         |             | 40,736  |              |         |        | 36,129  | 
|                                                                                               |                                                                                            |                      |         |             |         |              |         |       
|INVESTMENTS HELD BY TRUSTEE,                                                                   |                                                                                            |                      |         |             |         |              |         |       
|                                                                                               | restricted funds                                                                           |                      |         | 26,008      |         |              |         | 26,001 |        
|DEPOSITS                                                                                       |                                                                                            |                      | 192     |             |         |              | 185     |       
|NET PROPERTY, PLANT & EQUIPMENT                                                                |                                                                                            |                      | 592,395 |             |         |              | 599,925 |       
|FUEL RESERVE                                                                                   |                                                                                            |                      | 2,633   |             |         |              | 3,565   |       
|DEFERRED FINANCING COSTS, net of accumulated
amortization of $47,377 and $46,497,
respectively |                                                                                            |                      | 12,810  |             |         |              | 13,689  |       
|                                                                                               |                                                                                            |                      |         |             |         |              |         |        |        
|                                                                                               |                                                                                            | Total assets         |         | $           | 674,774 |              |         | $      | 679,494 | 
|                                                                                               |                                                                                            |                      |         |             |         |              |         |       

The accompanying notes are an integral part of these consolidated financial statements.

1



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Indiantown Cogeneration, L. P. and Subsidiary
Consolidated Balance Sheets
(in thousands)

|                                  |                   |                   |                                           |                                         |        |             |         |              |        |         |         | 
|--------------------------------- | ----------------- | ----------------- | ----------------------------------------- | --------------------------------------- | ------ | ----------- | ------- | ------------ | ------ | ------- | ------- | 
|                                  |                   |                   |                                           |                                         |        | June 30,    |         | December 31,
|LIABILITIES
AND PARTNERS CAPITAL |                   | 2003              |                                           | 2002                                   
|                                  |                   |                   |                                           |                                        
|                                  |                   |                   |                                           |                                         |        | (Unaudited) |         |              |        |        
|CURRENT LIABILITIES:              |                   |                   |                                           |                                         |        |             |         |             
|                                  |                   |                   | Accounts payable and accrued liabilities  |                                         | $      | 12,349      |         |              | $      | 12,612  |        
|                                  |                   |                   | Accrued interest                          |                                         |        | 2,377       |         |              |        | 2,322   |        
|                                  |                   |                   | Current portion - First Mortgage Bonds    |                                         |        | 15,676      |         |              |        | 14,566  |        
|                                  |                   |                   | Current portion lease payable  railcars  |                                         |        | 397         |         |              |        | 383     |        
|                                  |                   |                   | Current portion of term loans             |                                         |        | 1,483       |         |              |        | 1,431   |        
|                                  |                   |                   |                                           |                                         |        |             |         |             
|                                  |                   |                   |                                           | Total current liabilities               |        |             | 32,282  |              |        |         | 31,314  | 
|                                  |                   |                   |                                           |                                         |        |             |         |             
|LONG TERM DEBT:                   |                   |                   |                                           |                                         |        |             |         |             
|                                  |                   |                   | First Mortgage Bonds                      |                                         |        | 409,149     |         |              |        | 417,541 |        
|                                  |                   |                   | Tax Exempt Facility Revenue Bonds         |                                         |        | 125,010     |         |              |        | 125,010 |        
|                                  |                   |                   | Lease payable  railcars                  |                                         |        | 3,002       |         |              |        | 3,204   |        
|                                  |                   |                   | Term loans                                |                                         |        | 9,408       |         |              |        | 10,163  |        
|                                  |                   |                   |                                           |                                         |        |             |         |              |        |         |        
|                                  |                   |                   |                                           | Total long term debt                    |        |             | 546,569 |              |        |         | 555,918 | 
|                                  |                   |                   |                                           |                                         |        |             |         |             
|OTHER LONG TERM LIABILITIES       |                   |                   | 88                                        |                                         |        |             |        |             
|                                  |                   |                   |                                           |                                         |        |             |         |             
|                                  |                   |                   |                                           | Total liabilities                       |        |             | 578,939 |              |        |         | 587,232 | 
|                                  |                   |                   |                                           |                                         |        |             |         |             
|PARTNERS CAPITAL:                |                   |                   |                                           |                                         |        |             |         |             
|                                  | General Partners: |                   |                                           |                                         |        |             |         |              |       
|                                  |                   |                   | Palm Power Corporation                    |                                         |        | 9,584       |         |              |        | 9,226   |        
|                                  |                   |                   | Indiantown Project Investment Partnership |                                         |        | 19,119      |         |              |        | 18,406  |        
|                                  | Limited Partners: |                   |                                           |                                         |        |             |         |              |       
|                                  |                   | Toyan Enterprises |                                           |                                         | 28,798 |             |         |              | 27,725 |        
|                                  |                   | Thaleia, LLC      |                                           |                                         | 38,334 |             |         |              | 36,905 |        
|                                  |                   |                   |                                           |                                         |        |             |         |             
|                                  |                   |                   |                                           | Total partners capital                 |        |             | 95,835  |              |        |         | 92,262  | 
|                                  |                   |                   |                                           |                                         |        |             |         |             
|                                  |                   |                   |                                           | Total liabilities and partners capital |        | $           | 674,774 |              |        | $       | 679,494 | 
|                                  |                   |                   |                                           |                                         |        |             |         |              |        |         |        

The accompanying notes are an integral part of these consolidated financial statements.

2



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##### 



Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Statements of Operations
(in thousands)

|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |         |         |  
|----------------------------------------------------------------- | -------------------------------------------- | ------------------------------ | ------ | ------------- | ------- | ------------- | ------ | ------------- | ------- | ------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                                                                  |                                              |                                |        | Three Months  |         | Three Months  |        | Six Months    |         | Six Months   
|                                                                  |                                              |                                |        | Ended         |         | Ended         |        | Ended         |         | Ended        
|                                                                  |                                              |                                |        | June 30, 2003 |         | June 30, 2002 |        | June 30, 2003 |         | June 30, 2002
|                                                                  |                                              |                                |        |               |         |               |        |               |         |              
|                                                                  |                                              |                                |        | (Unaudited)   |         | (Unaudited)   |        | (Unaudited)   |         | (Unaudited)  
|Operating Revenues:                                               |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  | Electric capacity and capacity
bonus revenue |                                | $      | 31,282        |         |               | $      | 28,315        |         |               | $      | 62,476  |         |   | $      | 56,658  |        
|                                                                  | Electric energy revenue                      |                                |        | 13,436        |         |               |        | 11,629        |         |               |        | 27,025  |         |   |        | 25,518  |        
|                                                                  | Steam revenue                                |                                |        | 62            |         |               |        | 61            |         |               |        | 131     |         |   |        | 147     |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  |                                              | Total operating revenues       |        |               | 44,780  |               |        |               | 40,005  |               |        |         | 89,632  |   |        |         | 82,323  |  
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|Cost of Sales:                                                    |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  | Fuel and ash                                 |                                |        | 17,843        |         |               |        | 14,191        |         |               |        | 34,717  |         |   |        | 31,251  |        
|                                                                  | Operating and maintenance                    |                                |        | 7,788         |         |               |        | 5,608         |         |               |        | 11,429  |         |   |        | 9,318   |        
|                                                                  | Depreciation                                 |                                |        | 3,797         |         |               |        | 3,803         |         |               |        | 7,594   |         |   |        | 7,607   |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  |                                              | Total cost of sales            |        |               | 29,428  |               |        |               | 23,602  |               |        |         | 53,740  |   |        |         | 48,176  |  
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|Gross Profit                                                      |                                              |                                | 15,352 |               |         |               | 16,403 |               |         |               | 35,892 |         |         |   | 34,147 |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|Other Operating Expenses:                                         |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  | General and administrative                   |                                |        | 1,015         |         |               |        | 845           |         |               |        | 2,070   |         |   |        | 1,605   |        
|                                                                  | Insurance and taxes                          |                                |        | 1,806         |         |               |        | 1,727         |         |               |        | 3,407   |         |   |        | 3,448   |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  |                                              | Total other operating expenses |        |               | 2,821   |               |        |               | 2,572   |               |        |         | 5,477   |   |        |         | 5,053   |  
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|Operating Income                                                  |                                              |                                | 12,531 |               |         |               | 13,831 |               |         |               | 30,415 |         |         |   | 29,094 |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|Non-Operating Income (Expense):                                   |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  | Interest expense                             |                                |        | (13,865       | )       |               |        | (13,659       | )       |               |        | (27,333 | )       |   |        | (27,328 | )      
|                                                                  | Interest/other income (expense)              |                                |        | 312           |         |               |        | 296           |         |               |        | 541     |         |   |        | 571     |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|                                                                  |                                              | Net non-operating expense      |        |               | (13,553 | )             |        |               | (13,363 | )             |        |         | (26,792 | ) |        |         | (26,757 | )
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|Income Before Cumulative Effect of Change
in Accounting Principle |                                              |                                | (1,022 | )             |         |               | 468    |               |         |               | 3,623  |         |         |   | 2,337  |        
|Cumulative Effect of Change in Accounting
Principle               |                                              |                                |       |               |         |               |       |               |         |               | (49    | )       |         |   |       |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        
|Net Income(Loss)                                                  |                                              | ($                             | 1,022  | )             |         | $             | 468    |               |         | $             | 3,574  |         |         | $ | 2,337  |        
|                                                                  |                                              |                                |        |               |         |               |        |               |         |               |        |         |         |   |        |        

The accompanying notes are an integral part of these consolidated financial statements.

3



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Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Statements of Cash Flows
(in thousands)

|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |             |        |   |        |  
|-------------------------------------------- | ---------- | ------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------ | ----------- | ------ | ----------- | ------ | - | ------ | -
|                                             |            |                                                   |                                                                                   |                                                                        |        | Six Months  |        | Six Months 
|                                             |            |                                                   |                                                                                   |                                                                        |        | Ended       |        | Ended      
|                                             |            |                                                   |                                                                                   |                                                                        |        | June 30,    |        | June 30,   
|                                             |            |                                                   |                                                                                   |                                                                        |        | 2003        |        | 2002       
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|                                             |            |                                                   |                                                                                   |                                                                        |        | (Unaudited) |        | (Unaudited)
|CASH FLOWS FROM OPERATING ACTIVITIES:        |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|                                             | Net income |                                                   | $                                                                                 | 3,574                                                                  |        |             | $      | 2,337       |       
|                                             |            |                                                   | Adjustments to reconcile net income to net
cash provided by operating activities: |                                                                        |        |             |        |             |        |   |       
|                                             |            |                                                   |                                                                                   | Cumulative effect of a change in accounting
principle                  |        |             | 49     |             |        |   |       |  
|                                             |            |                                                   |                                                                                   | Depreciation, amortization and accretion                               |        |             | 8,478  |             |        |   | 8,019  |  
|                                             |            |                                                   |                                                                                   | Decrease in accounts receivable                                        |        |             | 224    |             |        |   | 924    |  
|                                             |            |                                                   |                                                                                   | Increase in inventories and fuel reserves                              |        |             | (134   | )           |        |   | (1,375 | )
|                                             |            |                                                   |                                                                                   | Increase in deposits and prepaids                                      |        |             | (901   | )           |        |   | (1,158 | )
|                                             |            |                                                   |                                                                                   | Decrease in accounts payable, accrued
liabilities and accrued interest |        |             | (208   | )           |        |   | (3,259 | )
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |             |       
|                                             |            |                                                   |                                                                                   | Net cash provided by operating activities                              |        |             | 11,082 |             |        |   | 5,488  |  
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|CASH FLOWS FROM INVESTING ACTIVITIES:        |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|                                             |            | Purchase of property, plant & equipment           |                                                                                   |                                                                        | (32    | )           |        |             | (40    | )
|                                             |            | (Increase) decrease in investment held by trustee |                                                                                   |                                                                        | (2,766 | )           |        |             | 401    |  
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |             |       
|                                             |            |                                                   |                                                                                   | Net cash (used in) provided by investing
activities                    |        |             | (2,798 | )           |        |   | 361    |  
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|CASH FLOWS FROM FINANCING ACTIVITIES:        |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|                                             |            | Payment on capital lease obligation  railcars    |                                                                                   |                                                                        | (187   | )           |        |             | (175   | )
|                                             |            | Repayments under letter of credit agreement       |                                                                                   |                                                                        | (702   | )           |        |             |       |  
|                                             |            | Payment of First Mortgage Bonds                   |                                                                                   |                                                                        | (7,283 | )           |        |             | (5,730 | )
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|                                             |            |                                                   |                                                                                   | Net cash used in financing activities                                  |        |             | (8,172 | )           |        |   | (5,905 | )
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |            
|CHANGE IN CASH AND CASH EQUIVALENTS          |            |                                                   | 112                                                                               |                                                                        |        |             | (56    | )          
|CASH and CASH EQUIVALENTS, beginning of year |            |                                                   | 290                                                                               |                                                                        |        |             | 332    |            
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |             |       
|CASH and CASH EQUIVALENTS, end of period     |            | $                                                 | 402                                                                               |                                                                        |        | $           | 276    |            
|                                             |            |                                                   |                                                                                   |                                                                        |        |             |        |            

The accompanying notes are an integral part of these consolidated financial statements.

4



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Indiantown Cogeneration, L.P. and Subsidiary
Notes to Consolidated Financial Statements
As of June 30, 2003
(Unaudited)

1.ORGANIZATION AND BASIS OF PRESENTATION:

Indiantown Cogeneration, L.P. (the Partnership) is a special purpose Delaware
limited partnership formed on October 4, 1991. The Partnership was formed to
develop, construct, own and operate an approximately 330 megawatt (net)
pulverized coal-fired cogeneration facility (the Facility) located on an
approximately 240-acre site in southwestern Martin County, Florida. The
Facility produces electricity for sale to Florida Power & Light Company (FPL)
and supplies steam to Louis Dreyfus Citrus, Inc. (LDC), successor to Caulkins
Indiantown Citrus Co.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and notes required by accounting principles generally accepted in
the United States for complete statements. Management believes that the
accompanying unaudited consolidated financial statements, which have been
prepared in accordance with interim reporting requirements, reflect all
adjustments that are necessary to present a fair statement of the consolidated
financial position and results of operations for the interim periods for
Indiantown Cogeneration, L.P. and Indiantown Cogeneration Funding Corporation.
All material adjustments are of a normal recurring nature unless otherwise
disclosed in this report on Form 10-Q. Results of operations for interim
periods are not necessarily indicative of results to be expected for a full
year.

This quarterly report should be read in conjunction with the Partnerships
consolidated financial statements and notes to consolidated financial
statements included in its 2002 Annual Report on Form 10-K and its other
reports filed with the Securities and Exchange Commission (SEC) since the
2002 Annual Report on Form 10-K was filed.

2.RELATIONSHIP
WITH PG&E CORPORATION AND PG&E NATIONAL ENERGY GROUP, INC:

The Partnership is managed by PG&E National Energy Group Company (NEG),
pursuant to a Management Services Agreement (the MSA). The Facility is
operated by PG&E Operating Services Company (PG&E OSC), pursuant to an
Operation and Maintenance Agreement (the O&M Agreement). NEG and PG&E OSC are
general partnerships indirectly wholly owned by NEG, Inc., an indirect
subsidiary of PG&E Corporation.

On July 8, 2003, NEG, Inc. and certain subsidiaries voluntarily filed petitions
for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code
(collectively, the NEG Bankruptcy) in the Greenbelt Division of the United
States Bankruptcy Court for the District of Maryland (the Bankruptcy Court).

5



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##### 



Additionally, on July 8, 2003, NEG, Inc. filed its plan of reorganization (the
NEG Plan). The NEG Plan anticipates that PG&E Corporation will have no
equity interest in NEG, Inc. or any of its subsidiaries after the NEG Plan is
confirmed by the Bankruptcy Court and implemented. On July 7, 2003, the
officers of PG&E Corporation who were serving on the Board of Directors of NEG,
Inc. resigned their positions. On July 7 and July 8, 2003, the NEG Board
elected replacement directors who are not affiliated with PG&E Corporation.
While continuing to maintain legal ownership, effective with this change in
control of the Board and the NEG Bankruptcy, PG&E Corporation no longer retains
significant influence over the ongoing operations of NEG, Inc.

Neither the Partnership nor any of its NEG, Inc. affiliates, including Toyan,
IPILP, NEG and PG&E OSC, are parties to the filings by NEG, Inc. or other
affiliates for protection under the NEG Bankruptcy. The Partnership believes
that the NEG Bankruptcy will not have a material adverse impact on its
operations.

NEG, Inc. owns an indirect interest in the Partnership, and through its wholly
owned subsidiaries NEG and PG&E OSC manages and operates the Project.
Management believes that the Partnership or its subsidiary will not be
substantively consolidated with NEG, Inc. in any bankruptcy proceeding
involving NEG, Inc. The NEG Bankruptcy does not result in an event of default
under the principal project contracts or the principal financing documents of
the Project.

As result of the sustained downturn in the power industry, NEG, Inc. and
certain of its consolidated affiliates have experienced a financial downturn
which caused the major credit rating agencies to downgrade NEG, Inc. and
certain of its consolidated affiliates credit ratings to below investment
grade. The credit rating agency action has had no material impact on the
financial condition or results of operations of the Partnership.

As previously reported on June 13, 2003, Moodys Investors Service (Moodys)
announced its decision to downgrade the senior secured debt rating of
Indiantown Cogeneration, L.P. (the Partnership) to Ba1 from Baa3. The rating
action concludes the review for possible downgrade that was initiated on
October 8, 2002. The rating outlook is negative. Moodys stated that this
rating action reflects the projects weakened financial profile, particularly
due to problems with operating performance, including outages during 2001 and
2002. Moodys further stated that while Indiantown anticipates financial
improvement in the next few years, prospective coverage ratios are anticipated
to be in the 1.30x to 1.40x range, below the level that would be consistent
with a Baa3 rating for a coal-fired project. The rating action also
incorporates some uncertainty relating to the price redetermination of a coal
purchase contract, and further considers that the Partnership will be required
to use any excess cash to fund or repay third party obligations over the next
several years relating to three letters of credit, the largest of which is used
to support the projects six-month debt reserve of approximately $29 million.
The negative outlook incorporates the involvement of NEG, Inc., as operator and
as a partial owner.

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As previously reported on July 8, 2003, Standard and Poors (S&P) issued a
press release announcing that it had lowered its corporate credit ratings on
two of NEG Inc.s subsidiaries. S&P stated these ratings actions follow the NEG
Bankruptcy. S&P further stated that the rating on Indiantown Cogeneration
Funding Corporation is not affected by the ratings action on NEG, Inc. because
this project financing is structured as a bankruptcy-remote entity and is not
100% owned by NEG, Inc. Therefore, S&P concluded the incentive to consolidate
it in a bankruptcy of NEG, Inc. is low. S&Ps rating of the Partnerships debt
remains at BBB- with a negative outlook.

The downgrade by Moodys does not trigger any requirements under the
Partnerships financing documents.

3.SIGNIFICANT ACCOUNTING POLICIES:

Except as disclosed, the Partnership is following the same accounting
principles discussed in the Partnerships December 31, 2002 Annual Report on
Form 10-K.

Adoption of New Accounting Pronouncements

On January 1, 2003, the Partnership adopted Statement of Financial Accounting
Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. SFAS
No. 143 provides accounting requirements for costs associated with legal
obligations to retire tangible, long-lived assets. The statement requires that
an asset retirement obligation be recorded at fair value in the period in which
it is incurred, if a reasonable estimate of fair value can be made. In the
same period, the associated asset retirement costs are capitalized as part of
the carrying amount of the related long-lived asset. In each subsequent
period, the liability is accreted to its present value and the capitalized cost
is depreciated over the useful life of the long-lived asset.

The Partnership has a legal obligation to perform certain clean-up and security
procedures. As such the Partnership has assessed the probability of when this
will occur and the related cost. Upon implementation of this statement, the
Partnership recorded $44,000 of property, plant and equipment to reflect the
fair value of the asset retirement costs as of the date the obligation was
incurred, $9,000 of accumulated depreciation through December 31, 2002 and an
asset retirement obligation of $84,000. The cumulative effect of the change in
accounting principle as a result of adopting this statement was a loss of
$49,000.

If this statement had been adopted on January 1, 2002, the pro forma effects on
earnings of the accounting change for the six months ended June 30, 2003 would
not have been material.

In June 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
which is effective for exit and disposal activities initiated after December
31, 2002. In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This Interpretation establishes new
disclosure requirements for all guarantees, but the measurement criteria
are applicable to guarantees

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issued and modified after December 31, 2002. Both SFAS No. 146 and
Interpretation No. 45 were adopted on January 1, 2003 and did not have an
impact on the Partnerships consolidated financial statements.

4.     RELATED PARTY TRANSACTIONS:

The Partnership has a Management Services Agreement with NEG for the day-to-day
management and administration of the Partnerships business relating to the
Facility. The agreement commenced on September 30, 1992 and will continue
through August 31, 2026. The cost of services is included in general and
administrative expenses in the accompanying consolidated statements of
operations. The total amount due to NEG for these services for the six months
ended June 30, 2003 is $389,000, all of which is subordinated pursuant to the
Disbursement Agreement.

The Partnership has an Operation and Maintenance Agreement with PG&E OSC, for
the operations and maintenance of the Facility for a period of 30 years
(starting September 30, 1992). Compensation to PG&E OSC under the agreement
includes an annual base fee of which a portion is subordinate to debt service
and certain other costs. The base fee is included in operating and maintenance
expenses in the accompanying consolidated statements of operations. The total
amount due to PG&E OSC for these services for the six months ended June 30,
2003 is $904,000, of which $151,000 is subordinated pursuant to the
Disbursement Agreement.

5.     LETTERS OF CREDIT:

The Partnership, pursuant to certain of the contracts, is required to post
letters of credit, which, in the aggregate, had a face amount of no more than
$65 million. Certain of these letters of credit had been issued pursuant to a
Letter of Credit and Reimbursement Agreement with Credit Suisse/First Boston.
Prior to their expiration, the letters of credit were drawn by LDC on November
14, 2002 and by FPL on December 16, 2002 for $10.0 million and $1.7 million,
respectively. The principal amount of these seven year term loans is payable
in fourteen semi-annual installments with a prepayment provision of any
outstanding loan amount before cash would be available for distribution to the
Partners. On July 25, 2003 FPL returned to the Partnership the $1.7 million
cash drawn on the letter of credit, since the obligation to maintain this
security under the Power Purchase Agreement (PPA) has expired. The $1.7
million was deposited into the Revenue Account as required by the Disbursement
Agreement. The Partnership intends to repay the FPL term loan as specified in
the Disbursement Agreement.

The Partnership entered into a debt service reserve letter of credit and
reimbursement agreement, dated as of November 1, 1994, with BNP Paribas
(formerly known as Banque Nationale de Paris). Pursuant to the terms of the
Disbursement Agreement, since the debt service reserve letter of credit will
expire on November 22, 2005, available cash flows are required to be deposited
on a monthly basis beginning on May 22, 2002 into the Debt Service Reserve
Account or the Tax Exempt Debt Service Reserve Account, as the case may be,
until the
required Debt Service Reserve Account Maximum Balance is achieved, which is
$29.9 million.

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The Partnership made deposits totaling $6.0 million through
July 31, 2003 and expects to have the required balance fully funded by the end
of the first quarter of 2005.

6.     NEW COAL PURCHASE, RAIL TRANSPORTATION AND ASH DISPOSAL AGREEMENTS:

A Back-up Coal Purchase Agreement was executed on February 5, 2003 between the
Partnership and Massey Coal Sales, Inc. (Massey) and became effective on
April 1, 2003. Under the Back-up Coal Agreement, Massey will provide coal
under substantially similar terms to the Coal Supply Agreement, which the
Partnership had with Lodestar Energy, Inc. prior to the termination of the
agreement on March 31, 2003. The base coal price is $33.75 per ton with a
market price reopener provision beginning in October 2003.

On July 28, 2003 the Partnership and Massey agreed in principal to amend the
Back-up Coal Agreement effective August 1, 2003. The principal change effected
in the Back-up Coal Agreement is a decrease from $33.75 to $33.00 per ton in
the base coal price with a market price reopener provision beginning the
earlier of ninety days after the Partnership successfully negotiates a new fuel
index under the PPA or October 1, 2005. Currently, the fuel index used to
determine the coal cost component of the monthly energy payment from FPL under
the PPA is no longer in effect. Within ninety days after the Partnership
successfully negotiates a new fuel index under the PPA, the Partnership and
Massey will utilize commercially reasonable best efforts to develop a coal
price tied to a fuel index agreeable to both parties. The Partnership is
working on satisfying the applicable conditions precedent set forth in the
financing documents relating to the amendment and expects this to be completed
in the third quarter of 2003.

The Partnership and CSX Transportation (CSX) entered into a Coal
Transportation Agreement dated August 6, 2003, which CSX will deliver coal to
the Facility through December 31, 2025. In addition, CSX will transport a
minimum of 500 carloads of ash to an acceptable disposal firm on the CSX rail
system. For additional information, see Part II, Item 5, Replacement of Coal
Supplier below.

7.     CONCENTRATIONS OF CREDIT RISK:

Credit risk is the risk of loss the Partnership would incur if counterparties
fail to perform their contractual obligations (accounts receivable). The
Partnerships credit risk is primarily concentrated with FPL, who provides more
than 99% of the Partnership revenues and is considered to be of investment
grade.

Item 2MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated financial
statements of the Partnership and
the notes to the consolidated financial statements included herein. Further,
this Quarterly

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Report on Form 10-Q should be read in conjunction with the
Partnerships 2002 Annual Report on Form 10-K.

Cautionary Statement Regarding Forward-Looking Statements

The information in this Quarterly Report on Form 10-Q includes forward-looking
statements about the future that are necessarily subject to various risks and
uncertainties. Use of words like anticipate, estimate, intend,
project, plan, expect, will, believe, could, and similar
expressions help identify forward-looking statements. These statements are
based on current expectations and assumptions which the Partnership believes
are reasonable and on information currently available to the Partnership.
Actual results could differ materially from those contemplated by the
forward-looking statements. Although the Partnership believes that the
expectations reflected in the forward-looking statements are reasonable, future
results, events, levels of activity, performance or achievements cannot be
guaranteed. Although the Partnership is not able to predict all the factors
that may affect future results, some of the factors that could cause future
results to differ materially from those expressed or implied by the
forward-looking statements include:

Operational Risks

The Partnerships future results of operations and financial condition will be
affected by the performance of equipment, levels of dispatch, the receipt of
certain capacity and other fixed payments, electricity prices and fuel
deliveries and prices.

Actions of Florida Power & Light and Other Counterparties

The Partnerships future results of operations and financial condition may be
affected by the extent to which counterparties require additional assurances in
the form of letters of credit or cash collateral and the potential future
failure of the Partnership to maintain the qualifying facility status, which
failure could cause a default under the Power Purchase Agreement (PPA).

Accounting and Risk Management

The Partnerships future results of operations and financial condition may be
affected by the effect of new accounting pronouncements, changes in critical
accounting policies or estimates, the effectiveness of the Partnerships risk
management policies and procedures, the ability of the Partnerships
counterparties to satisfy their financial commitments to the Partnership and
the impact of counterparties nonperformance on the Partnerships liquidity
position and heightened rating agency criteria and the impact of changes in the
Partnerships credit ratings.

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Legislative and Regulatory Matters

The Partnerships business may be affected by legislative or regulatory changes
affecting the electric and natural gas industries in the United States,
including the pace and extent of efforts to restructure the electric and
natural gas industries; heightened regulatory and enforcement agency focus on
the energy business with the potential for changes in industry regulations and
in the treatment of the Partnership by state and federal agencies; and changes
in or application of federal, state, and local laws and regulations to which
the Partnership is subject.

Litigation and Environmental Matters

The Partnerships future results of operations and financial condition may be
affected by compliance with existing and future environmental and safety laws,
regulations, and policies, the cost of which could be significant, and the
outcome of any potential future litigation and environmental matters.

Overview

The Partnership is primarily engaged in the ownership and operation of a
non-utility electric generating facility. From its inception and until December
21, 1995, the Partnership was in the development stage and had no operating
revenues or expenses. On December 22, 1995 the Facility commenced commercial
operation. Revenues are derived primarily from capacity and bonus payments,
measured by the Capacity Billing Factor (CBF), and sales of electricity. The
Facility is dispatched for electric energy by FPL on an economic basis. In the
2003 agreement year the Facility is entitled to four weeks of outages to
perform scheduled maintenance. Differences in the timing and scope of
scheduled maintenance can have a significant impact on the revenues and
operational costs.

The Partnership replaced its fuel supplier effective April 1, 2003. Please see
Part II, Item 5, Other Information, for a description of the Partnerships
actions with respect to the replacement of the coal supplier.

The Partnership has obtained all material environmental permits and approvals
required as of June 30, 2003, in order to continue the operation of the
Facility. Certain of these permits and approvals are subject to periodic
renewal. Certain additional permits and approvals will be required in the
future for the continued operation of the Facility. The Partnership is not
aware of any technical circumstances that would prevent the issuance of such
permits and approvals or the renewal of currently existing permits.

Relationship with NEG, Inc.

On July 8, 2003, NEG, Inc. and certain subsidiaries voluntarily filed petitions
for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code
(collectively, the NEG Bankruptcy) in

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the Greenbelt Division of the United
States Bankruptcy Court for the District of Maryland (the Bankruptcy Court).

Additionally, on July 8, 2003, NEG, Inc. filed its plan of reorganization (the
NEG Plan). The NEG Plan anticipates that PG&E Corporation will have no equity
interest in NEG, Inc. or any of its subsidiaries after the NEG Plan is
confirmed by the court and implemented. On July 7, 2003, the officers of PG&E
Corporation who were serving on the Board of Directors of NEG, Inc. resigned
their positions. On July 7 and July 8, 2003, the NEG Board elected replacement
directors who are not affiliated with PG&E Corporation. While continuing to
maintain legal ownership, effective with this change in control of the Board
and the NEG Bankruptcy, PG&E Corporation no longer retains significant
influence over the ongoing operations of NEG, Inc.

Neither the Partnership nor any of its NEG, Inc. affiliates, including Toyan,
IPILP, NEG and PG&E OSC, are parties to the filings by NEG, Inc. or other
affiliates for protection under the NEG Bankruptcy. The Partnership believes
that the NEG Bankruptcy will not have a material adverse impact on its
operations. The NEG Bankruptcy does not result in an event of default under
the principal project contracts or the principal financing documents of the
Project.

NEG, Inc. owns an indirect interest in the Partnership, and through its wholly
owned subsidiaries NEG and PG&E OSC manages and operates the Project.
Management believes that the Partnership or its subsidiary will not be
substantively consolidated with NEG, Inc. in any bankruptcy proceeding
involving NEG, Inc.

Results of Operations

The following table sets forth operating revenue and related data for the three
and six months ended June 30, 2003 and 2002 (dollars and volumes in millions).

|                                |                    |        |                                     |         |         |        |        |         |         |  |       |       |  |   |      |      | 
|------------------------------- | ------------------ | ------ | ----------------------------------- | ------- | ------- | ------ | ------ | ------- | ------- |  | ----- | ----- |  | - | ---- | ---- | 
|                                |                    |        | For the three months ended June 30,
|                                |                    |        |                                    
|                                |                    |        | 2003                                |         | 2002   
|                                |                    |        |                                     |         |        
|                                |                    |        | Factor                              |         | Dollars |        | Factor |         | Dollars
|                                |                    |        |                                     |         |         |        |        |         |        
|Average Capacity Billing Factor |                    |        | 97.06                               | %       |         |        |        |         |         |  | 89.74 | %     |  |   |      |     
|Average Dispatch Rate           |                    |        | 93.01                               | %       |         |        |        |         |         |  | 86.90 | %     |  |   |      |     
|                               
|Operating Revenues:             |                    | Volume |                                     | Dollars |         | Volume |        | Dollars
|                                |                    |        |                                     |         |         |        |        |        
|                                | Capacity and bonus |        |                                     |         |         |        | $      | 31.3    |         |  |       |       |  |   | $    | 28.3 | 
|                                | Electric (Kwh)     |        |                                     | 567.2   |         |        |        | 13.4    |         |  |       | 529.9 |  |   |      | 11.6 | 
|                                | Steam (lbs)        |        |                                     | 224.6   |         |        |        | 0.1     |         |  |       | 190.4 |  |   |      | 0.1  | 
|                                |                    |        |                                     |         |         |        |        |         |         |  |       |       |  |   |      |     
|Total operating revenues        |                    |        |                                     |         |         | $      | 44.8   |         |         |  |       |       |  | $ | 40.0 |     
|                                |                    |        |                                     |         |         |        |        |         |         |  |       |       |  |   |      |     

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|                                |                    |        |                                   |         |         |        |        |         |         |  |       |         |  |   |      |      | 
|------------------------------- | ------------------ | ------ | --------------------------------- | ------- | ------- | ------ | ------ | ------- | ------- |  | ----- | ------- |  | - | ---- | ---- | 
|                                |                    |        | For the six months ended June 30,
|                                |                    |        |                                  
|                                |                    |        | 2003                              |         | 2002   
|                                |                    |        |                                   |         |        
|                                |                    |        | Factor                            |         | Dollars |        | Factor |         | Dollars
|                                |                    |        |                                   |         |         |        |        |         |        
|Average Capacity Billing Factor |                    |        | 96.54                             | %       |         |        |        |         |         |  | 89.79 | %       |  |   |      |     
|Average Dispatch Rate           |                    |        | 87.48                             | %       |         |        |        |         |         |  | 87.65 | %       |  |   |      |     
|                               
|Operating Revenues:             |                    | Volume |                                   | Dollars |         | Volume |        | Dollars
|                                |                    |        |                                   |         |         |        |        |        
|                                | Capacity and bonus |        |                                   |         |         |        | $      | 62.5    |         |  |       |         |  |   | $    | 56.7 | 
|                                | Electric (Kwh)     |        |                                   | 1,157.8 |         |        |        | 27.0    |         |  |       | 1,159.3 |  |   |      | 25.5 | 
|                                | Steam (lbs)        |        |                                   | 455.9   |         |        |        | 0.1     |         |  |       | 430.4   |  |   |      | 0.1  | 
|                                |                    |        |                                   |         |         |        |        |         |         |  |       |         |  |   |      |     
|Total operating revenues        |                    |        |                                   |         |         | $      | 89.6   |         |         |  |       |         |  | $ | 82.3 |     
|                                |                    |        |                                   |         |         |        |        |         |         |  |       |         |  |   |      |     

The Average Capacity Billing Factor (CBF) measures the overall
availability of the Facility, but gives a heavier weighting to on-peak
availability.

The Average Dispatch Rate is the amount of electric energy produced in a
given period expressed as a percentage of the total contract capability amount
of potential electric energy production in that time period.

Three Months Ended June 30, 2003 Compared to the Three Months Ended June 30,
2002

Overall Results

Net loss for the three months ended June 30, 2003, was approximately $1.0
million compared to the net income of approximately $0.5 million for the
corresponding period in the prior year. The $1.5 million decrease is primarily
attributable to an increase in operating and maintenance costs in 2003 of $2.1
million primarily due to increased costs for maintenance repairs and costs
associated with the termination and replacement of the Coal Purchase and
Transportation Agreement (see Part II, Item 5, Replacement of Coal Supplier),
offset by the receipt of monthly capacity bonus payments in 2003 as compared to
no receipt of bonus payments in 2002.

Operating Revenues

For the three months ended June 30, 2003, the Partnership had total operating
revenues of approximately $44.8 million as compared to $40.0 million for the
corresponding period in the prior year. The $4.8 million increase in operating
revenue is primarily due to increased capacity bonus payments of $3.0 million
due to the higher CBF, and an increase in electric energy revenue of $1.8
million resulting from the increase in the unit energy cost paid by FPL.

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Cost of Sales

Costs of sales for the three months ended June 30, 2003, were approximately
$29.4 million as compared to $23.6 million for the corresponding period in the
prior year. The overall cost of fuel and ash increased $3.6 million resulting
from the termination of the coal purchase agreement and the increase in coal
transportation costs paid under the CSX tariff rail rates (see Item 5 below).
There was also an increase in operating and maintenance costs in 2003 of $2.2
million primarily due to repairs for tube leaks in the main boiler, as well as
repairs to the auxiliary boiler and to the pulverizers.

Non-Operating Income (Expense)

Net interest expense for the three months ended June 30, 2003 and 2002 was
approximately $13.6 million and $13.4 million, respectively. June 2002 and
December 2002 principal payments of Series A-9 of the first mortgage bonds
decreased interest expense by approximately $0.3 million. This was offset by
an increase in interest expense of $0.1 million due to the conversion of the
FPL Termination Fee and the LDC letters of credit into term loans and an
increase of $0.4 million related to the amortization of deferred financing
costs.

Six Months Ended June 30, 2003 Compared to the Six Months Ended June 30, 2002

Overall Results

Net income for the six months ended June 30, 2003, was approximately $3.6
million compared to the net income of approximately $2.3 million for the
corresponding period in the prior year. The $1.3 million increase is primarily
attributable to the receipt of monthly capacity bonus payments in 2003 as
compared to no receipt of bonus payments in 2002, offset by costs associated
with the termination and replacement of the Coal Purchase and Transportation
Agreement (see Part II, Item 5, Replacement of Coal Supplier).

Operating Revenues

For the six months ended June 30, 2003, the Partnership had total operating
revenues of approximately $89.6 million as compared to $82.3 million for the
corresponding period in the prior year. The $7.3 million increase in operating
revenue is primarily due to increased capacity bonus payments of $5.6 million
due to the higher CBF, and an increase in electric energy revenue of $1.5
million resulting from the increase in the unit energy cost paid by FPL.

Cost of Sales

Costs of sales for the six months ended June 30, 2003, were approximately $53.7
million as compared to $48.1 million for the corresponding period in the prior
year. The overall cost of fuel and ash increased $3.5 million resulting from
the termination of the coal purchase agreement and the increase in coal
transportation costs paid under the CSX tariff rail rates (see

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Item 5 below).
There was also an increase in operating and maintenance costs in 2003 of $2.1
million primarily due to repairs for tube leaks in the main boiler, as well as
repairs to the auxiliary boiler and to the pulverizers.

Non-Operating Income (Expense)

Net interest expense for the six months ended June 30, 2003 and 2002 was
approximately $26.8 million. June 2002 and December 2002 principal payments of
Series A-9 of the first mortgage bonds decreased interest expense by
approximately $0.5 million. This was offset by an increase in interest expense
of $0.1 million due to the conversion of the FPL Termination Fee and the LDC
letters of credit into term loans and an increase of $0.4 million related to
the amortization of deferred financing costs.

Liquidity and Capital Resources

Net cash provided by operating activities for the six months ended June 30,
2003 was approximately $11.1 million as compared to $5.5 million for the
corresponding period in 2002. Net cash provided by operating activities
represents net income, adjusted by non-cash expenses and income, which
primarily consist of approximately $8.5 million of depreciation, amortization
and accretion, plus the net effect of changes within the Partnerships
operating assets and liability accounts.

Net cash used in investing activities for the six months ended June 30, 2003
was approximately $2.8 million as compared to net cash provided by investing
activities of $0.4 million for the six months ended June 30, 2002. Net cash
used in investing activities increased due to an increase in investments held
by the trustee.

Net cash used in financing activities for the six months ended June 30, 2003
was $8.1 million as compared to $5.9 million for the corresponding period in
2002. This increase is due to repayments of loans under the letter of credit
agreement for $0.7 million and the increase of $1.5 million in the installment
payment for the First Mortgage Bonds.

Credit Ratings

As previously reported on June 13, 2003, Moodys Investors Service (Moodys)
announced its decision to downgrade the senior secured debt rating of
Indiantown Cogeneration, L.P. (the Partnership) to Ba1 from Baa3. The rating
action concludes the review for possible downgrade that was initiated on
October 8, 2002. The rating outlook is negative. Moodys
stated that this rating action reflects the projects weakened financial
profile, particularly due to problems with operating performance, including
outages during 2001 and 2002. Moodys further stated that while Indiantown
anticipates financial improvement in the next few years, prospective coverage
ratios are anticipated to be in the 1.30x to 1.40x range, below the level that
would be consistent with a Baa3 rating for a coal-fired project. The rating
action also incorporates some uncertainty relating to the price redetermination
of a coal purchase contract,

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and further considers that the Partnership will be
required to use any excess cash to fund or repay third party obligations over
the next several years relating to three letters of credit, the largest of
which is used to support the projects six-month debt reserve of approximately
$29 million. The negative outlook incorporates the involvement of NEG, Inc.,
as operator and as a partial owner.

As previously reported on July 8, 2003, Standard and Poors (S&P) issued a
press release announcing that it had lowered its corporate credit ratings on
two of NEG Inc.s subsidiaries. S&P stated these ratings actions follow the NEG
Bankruptcy. S&P further stated that the rating on Indiantown Cogeneration
Funding Corporation is not affected by the ratings action on NEG, Inc. because
this project financing is structured as a bankruptcy-remote entity and is not
100% owned by NEG, Inc. Therefore, S&P concluded the incentive to consolidate
it in a bankruptcy of NEG, Inc. is low. S&Ps rating of the Partnerships debt
remains at BBB- with a negative outlook.

The downgrade by Moodys does not trigger any requirements under the
Partnerships financing documents.

Bonds

The Partnerships total borrowings from inception through June 30, 2003 were
$769 million. An equity loan of $139 million was repaid on December 26, 1995.
As of June 30, 2003, the borrowings included $125 million from the 1994 Tax
Exempt Bonds and all of the available First Mortgage Bond proceeds.

The weighted average interest rate paid by the Partnership on its debt for the
six months ended June 30, 2003 and 2002 was 9.201% and 9.202%, respectively.

Credit Agreements

The Partnership, pursuant to certain of the contracts, is required to post
letters of credit, which, in the aggregate, had a face amount of no more than
$65 million. Certain of these letters of credit had been issued pursuant to a
Letter of Credit and Reimbursement Agreement with Credit Suisse/First Boston.
Prior to their expiration, the letters of credit were drawn by LDC on November
14, 2002 and by FPL on December 16, 2002 for $10.0 million and $1.7 million,
respectively. The principal amount of these seven year term loans is payable
in fourteen semi-annual installments with a prepayment provision of any
outstanding loan amount before cash would be available for distribution to the
Partners. On July 25, 2003 FPL returned to the
Partnership the $1.7 million cash drawn on the letter of credit, since the
obligation to maintain this security under the Power Purchase Agreement (PPA)
has expired. The $1.7 million was deposited into the Revenue Account as
required by the Disbursement Agreement. The Partnership intends to repay the
FPL term loan as specified in the Disbursement Agreement.

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The Partnership entered into a debt service reserve letter of credit and
reimbursement agreement, dated as of November 1, 1994, with BNP Paribas
(formerly known as Banque Nationale de Paris). Pursuant to the terms of the
Disbursement Agreement, since the debt service reserve letter of credit will
expire on November 22, 2005, available cash flows are required to be deposited
on a monthly basis beginning on May 22, 2002 into the Debt Service Reserve
Account or the Tax Exempt Debt Service Reserve Account, as the case may be,
until the required Debt Service Reserve Account Maximum Balance is achieved,
which is $29.9 million. The Partnership made deposits totaling $6.0 million
through July 31, 2003 and expects to have the required balance fully funded by
the end of the first quarter of 2005.

In order to provide for the Partnerships working capital needs, the
Partnership entered into a Revolving Credit Agreement with Credit Suisse dated
as of November 1, 1994. In September 2001, Credit Suisse notified the
Partnership of its intention not to extend the term of the agreement, which
expired on November 22, 2001.

The Partnership is actively engaging in discussions with financial institutions
to obtain replacement letters of credit and a working capital facility;
however, the Partnership cannot give assurances that it will be successful in
obtaining replacement letters of credit and a working capital facility.

The Partnership believes that it will have adequate cash flows from operations
in 2003 to timely fund all future working capital, capital expenditures, major
maintenance requirements and cover debt repayment obligations.

Market Risk

Market risk is the risk that changes in market conditions will adversely affect
earnings or cash flow. The Partnership categorizes its market risks as
interest rate risk and energy commodity price risk. Immediately below are
detailed descriptions of the market risks and explanations as to how each of
these risks is managed.

Interest Rate Risk

Interest rate risk is the risk that changes in interest rates could adversely
affect earnings or cash flows. The Partnerships cash and restricted cash are
sensitive to changes in interest rates. Interest rate changes would result in
a change in interest income due to the difference between the current interest
rates on cash and restricted cash and the variable rate that these financial
instruments may adjust to in the future. Interest rate risk sensitivity
analysis is used to measure interest rate risk by computing estimated changes
in cash flows as a result of assumed changes
in market interest rates. As of June 30, 2003, a 10% decrease in interest
rates would be immaterial to the Partnerships consolidated financial
statements.

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The Partnerships Bonds have fixed interest rates. Changes in the current
market rates for the Bonds would not result in a change in interest expense due
to the fixed coupon rate of the Bonds.

Energy Commodity Price Risk

The Partnership seeks to reduce its exposure to market risk associated with
energy commodities such as electric power and coal fuel through the use of
long-term purchase and sale contracts. Currently, the energy price paid by FPL
for the coal cost component of the energy payment is not matched to the price
of base coal in the amended coal purchase agreement. A provision in the PPA
allows FPL and the Partnership to meet and adjust annually the energy payment
with the objective of minimizing the difference in the actual energy costs and
the energy payments, if the difference is more than 4%. FPL is in the process
of conducting its audit of the 2002 documentation provided by the Partnership
of actual energy costs to determine if the difference is more than 4%. In
addition, the fuel index used to determine the coal cost component of the
monthly energy payment under the PPA is no longer in effect due to an
interruption of Central Appalachian coal deliveries to the St. Johns River
Power Park, which was the basis for the index. The Partnership and FPL, within
one year, shall agree upon a comparable replacement index.

Significant Commitments

There have been no new significant contractual obligations or commercial
commitments since December 31, 2002 other than the coal, rail and ash
agreements disclosed in Part II, Item 5, Replacement of Coal Supplier below.

Critical Accounting Policies

The Partnership is following the same accounting principles discussed in
the Partnerships December 31, 2002 Annual Report on Form 10-K.

Accounting Principles Issued But Not Yet Adopted

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46),
which expands upon existing accounting guidance addressing when a company
should include in its financial statements the assets, liabilities, and
activities of another entity or arrangement it is involved. A variable
interest entity is an entity that does not have sufficient equity investment
at risk to permit the entity to finance its activities without additional
subordinated financial support from other parties or an entity where equity
investors lack the essential characteristics of a controlling financial
interest.

Until the issuance of FIN 46, a company generally included another entity
in its consolidated financial statements only if it controlled the entity
through voting interests. FIN 46 changes that by requiring a variable interest
entity to be consolidated by a company if that company is

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subject to a majority
of the risk of loss from the variable interest entitys activities or entitled
to receive a majority of the entitys residual returns, or both. A company that
consolidates a variable interest entity is now referred to as the primary
beneficiary of that entity.

FIN 46 requires disclosures of variable interest entities that the company
is not required to consolidate but in which it has a significant variable
interest.

The consolidation requirements of FIN 46 apply immediately to variable
interest entities created after January 31, 2003. There were no new variable
interest entities created by the Partnership between February 1, 2003 and June
30, 2003. The consolidation requirements are applicable to the Partnership in
the third quarter 2003. The Partnership is currently evaluating the impacts of
Interpretation No. 46s initial recognition, measurement, and disclosure
provisions on its Consolidated Financial Statements, and is currently unable to
estimate variable interest entities that will be consolidated or disclosed when
FIN 46 becomes effective.

Legal Matters

The Partnership is currently not involved in any legal proceedings.

Regulations and Environmental Matters

The Partnership has obtained all material environmental permits and approvals
required, as of June 30, 2003, in order to continue commercial operation of the
Facility. Certain of these permits and approvals are subject to periodic
renewal. The Partnership is not aware of any technical circumstances that
would prevent the issuance of such permits and approvals or the renewal of
currently issued permits.

Item 3QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership is exposed to market risk from changes in interest rates
and energy commodity prices which could affect its future results of operations
and financial condition. The Partnership manages its exposure to these risks
through its regular operating and financing activities. (See Market Risk,
included in Item 2, Managements Discussion and Analysis of Financial Condition
and Results of Operations above).

Item 4CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on an evaluation of the Partnerships disclosure controls and
procedures conducted on July 16, 2003, the Partnerships principal executive
officer and principal financial officer of Indiantown Cogeneration, L.P. and
Indiantown Cogeneration Funding Corporation have concluded that such controls
and procedures effectively ensure that information required to be

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disclosed by the Partnership in reports the Partnership files or submits
under the Securities and Exchange Act of 1934 is recorded, processed,
summarized, and reported, within the time periods specified in the Securities
and Exchange Commission (SEC) rules and forms.

Changes in Internal Controls

There were no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.

PART II
OTHER INFORMATION

Item 5OTHER INFORMATION

Replacement of Coal Supplier

The Partnership had a coal purchase agreement (the Coal Purchase Agreement)
with Lodestar Energy, Inc. (LEI) pursuant to which LEI supplied all of the coal
for the facility. On April 27, 2001, an order for relief was entered in the
Involuntary Petition under Chapter 11 of the United States Bankruptcy Code with
respect to LEI and its parent, Lodestar Holdings Inc. (LHI), in the U.S.
Bankruptcy Court in Lexington, Kentucky. Since that time, LHI and LEI have
been operating their business as debtors in possession.

A new Ash Disposal Agreement was executed on February 1, 2003 between the
Partnership and VFL Technology Corp. (VFL) and has a term of four years with
an option for an additional two years. The agreement calls for the nominal
removal of 1,000 to 1,500 tons of dry fly ash per week, which is approximately
50% of the fly ash produced each week, and allows for the removal of up to 100%
of the fly ash produced by the Facility. The disposal fee is $21.85 per ton
and is adjusted quarterly beginning on May 1, 2003 in accordance with a
Producer Price Index, which includes labor to load trucks, the transportation
vehicles, transportation costs and disposal fee. This agreement, combined with
other current ash disposal agreements, allows the Partnership to dispose of all
of the Partnerships ash without relying on Lodestar. The Partnership has
satisfied the applicable conditions precedent set forth in the Partnerships
financing documents relating to the entering into of the Ash Disposal
Agreement.

A Back-up Coal Agreement was executed on February 5, 2003 between the
Partnership and Massey Coal Sales, Inc. (Massey). Under the Back-up Coal
Agreement, Massey provides coal under substantially similar terms to the Coal
Supply Agreement should the Coal Supply Agreement with Lodestar be terminated.
The base coal price is $33.75 per ton with a market price reopener provision
beginning in October 2003.

On March 20, 2003, the Partnership and a bankruptcy court appointed trustee
negotiated a settlement which effectively terminated the Coal Purchase
Agreement as of March 31, 2003. A
motion for an order approving the settlement was filed in the U.S. Bankruptcy
Court on March 21, 2003. An order approving the settlement was entered by the
Bankruptcy Court on April 4,

20



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2003. At closing, the Partnership made a settlement payment to the court
appointed trustee, on behalf of LEI, in the amount of $805,000 and general
releases in form and substance mutually acceptable were exchanged between the
Partnership and LEI. One outstanding release has not yet been exchanged
regarding the Transportation Agreement and monies owed to the rail transporter,
CSX from LEI. Until such a release is obtained, $195,000 will be placed into
an escrow account. Once the order approving the settlement was entered, the
Back-up Coal Agreement became effective retroactively to the date of
termination of the Coal Purchase Agreement specified in the settlement. Upon
the receipt of the release, the Transportation Agreement will revert to the
Partnership. The Partnership has satisfied the applicable conditions precedent
set forth in the Partnerships financing documents relating to the entering
into of this settlement.

The Partnership and CSX have had discussions related to the Transportation
Agreement and CSX has taken a position that approximately $1.1 million in
pre-petition and gap debt owed to CSX from LEI must be paid by the Partnership
before the Transportation Agreement can be implemented. The Partnership and
CSX entered into a Coal Transportation Agreement dated August 6, 2003, which
CSX will deliver coal to the Facility through December 31, 2025 at the system
car rate of $23.09, which is approximately 30% less than the current tariff
rates for delivered coal. This system car rate is adjusted quarterly using the
same index that adjusts the remaining costs component of the energy payment
from FPL. CSX will also transport a minimum of 500 carloads of ash to an
acceptable disposal firm on the CSX rail system. In addition, CSX will rebate
the Partnership the difference between the tariff rates and system car rates
for all coal shipments for the period from April 1, 2003 through the effective
date of the Coal Transportation Agreement, less the $1.1 million in
pre-petition and gap debt owed to CSX from LEI. Upon payment of the rebate,
CSX will assign to the Partnership their claim to the $1.1 million due from LEI
under the Transportation Agreement. The Partnership is working on satisfying
the applicable conditions precedent set forth in the financing documents
relating to the Coal Transportation Agreement and expects this to be completed
in the third quarter of 2003.

On July 28, 2003 the Partnership and Massey agreed in principal to amend the
Back-up Coal Agreement effective August 1, 2003. The principal change effected
in the Back-up Coal Agreement is a decrease from $33.75 to $33.00 per ton in
the base coal price with a market price reopener provision beginning the
earlier of ninety days after the Partnership successfully negotiates a new fuel
index under the PPA or October 1, 2005. Currently, the fuel index used to
determine the coal cost component of the monthly energy payment from FPL under
the PPA is no longer in effect. Within ninety days after the Partnership
successfully negotiates a new fuel index under the PPA, the Partnership and
Massey will utilize commercially reasonable best efforts to develop a coal
price tied to a fuel index agreeable to both parties. The Partnership is
working on satisfying the applicable conditions precedent set forth in the
financing documents relating to the amendment and expects this to be completed
in the third quarter of 2003.

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Item 6EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits:

|        |  |                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                               
|No.     |  | Description                                                                                                                                                                   
|        |  |                                                                                                                                                                               
|10.2    |  | Coal Rail Transportation Agreement between Indiantown
Cogeneration, L.P. and CSX Transportation dated August 6, 2003                                                          
|        |  |                                                                                                                                                                               
|31.1    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|31.2    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|31.3    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003
|        |  |                                                                                                                                                                               
|31.4    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003
|        |  |                                                                                                                                                                               
|32.1    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|32.2    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003
|        |  |                                                                                                                                                                               
|32.3    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|32.4    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003

22



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b) Reports on Form 8-K:

The Partnership filed a current report on Form 8-K dated June 17,
2003 announcing the decision of Moodys Investors Service to
downgrade the senior secured debt rating of Indiantown Cogeneration,
L.P.

The Partnership filed a current report on Form 8-K dated July 8, 2003
announcing the Chapter 11 bankruptcy filing of PG&E National Energy
Group, Inc.

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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

|                      |  |                                                
|--------------------- |  | -----------------------------------------------
|                      |  | INDIANTOWN COGENERATION, L.P.                  
|                      |  | (Co-Registrant)                                
|                      |  |                                                
|Date: August 13, 2003 |  | /s/ THOMAS E. LEGRO                            
|                      |  |                                                
|                      |  | Thomas E. Legro                                
|                      |  | Vice President, Controller and Chief Accounting
|                      |  | Officer                                        
|                      |  |                                                
|                      |  | INDIANTOWN COGENERATION FUNDING                
|                      |  | CORPORATION                                    
|                      |  | (Co-Registrant)                                
|                      |  |                                                
|Date: August 13, 2003 |  | /s/ THOMAS E. LEGRO                            
|                      |  |                                                
|                      |  | Thomas E. Legro                                
|                      |  | Vice President, Controller, and Chief          
|                      |  | Accounting Officer                             

24



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EXHIBIT INDEX

|        |  |                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                               
|No.     |  | Description                                                                                                                                                                   
|        |  |                                                                                                                                                                               
|10.2    |  | Coal Rail Transportation Agreement between Indiantown
Cogeneration, L.P. and CSX Transportation dated August 6, 2003                                                          
|        |  |                                                                                                                                                                               
|31.1    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|31.2    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|31.3    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003
|        |  |                                                                                                                                                                               
|31.4    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003
|        |  |                                                                                                                                                                               
|32.1    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|32.2    |  | Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003
|        |  |                                                                                                                                                                               
|32.3    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes - Oxley
Act of 2002 dated August 13, 2003              
|        |  |                                                                                                                                                                               
|32.4    |  | Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes - Oxley Act of 2002 dated August 13, 2003