<PAGE>   1

                                                                    EXHIBIT 99.3

                             ARTHUR KILL POWER LLC

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE(S)
                                                              -------
<S>                                                           <C>
Report of Independent Accountants...........................     2
Financial Statements:
  Balance Sheet at December 31, 2000 and 1999...............     3
  Statement of Operations for the year ended December 31,
     2000 and the period from June 25, 1999 (inception) to
     December 31, 1999......................................     4
  Statement of Cash Flows for the year ended December 31,
     2000 and the period from June 25, 1999 (inception) to
     December 31, 1999......................................     5
  Statement of Member's Equity for the year ended December
     31, 2000 and the period from June 25, 1999 (inception)
     to December 31, 1999...................................     6
Notes to Financial Statements...............................     7
</TABLE>

                                        1
<PAGE>   2

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Management Committee of
Arthur Kill Power LLC:

     In our opinion, the accompanying balance sheet and the related statement of
operations, of member's equity and of cash flows present fairly, in all material
respects, the financial position of Arthur Kill Power LLC at December 31, 2000
and 1999, and the results of its operations and its cash flows for the year
ended December 31, 2000 and the period from June 25, 1999 (inception) through
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Minneapolis, MN
March 2, 2001

                                        2
<PAGE>   3

                             ARTHUR KILL POWER LLC

                                 BALANCE SHEET
                         AT DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                  2000           1999
                                                                  ----           ----
                                                                (THOUSANDS OF DOLLARS)
<S>                                                             <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................    $      2       $      2
  Accounts receivable, net of allowance for doubtful
     accounts of $722 and $0................................      18,687         23,737
  Accounts receivable, affiliate............................      44,830             --
  Inventory.................................................       7,753          8,584
  Prepaid expenses..........................................       7,811          6,225
                                                                --------       --------
       Total current assets.................................      79,083         38,548
Property, plant and equipment, net..........................     392,253        401,000
Deferred financing costs, net of accumulated amortization of
  $103 and $1,401...........................................       2,909          1,120
                                                                --------       --------
       Total assets.........................................    $474,245       $440,668
                                                                ========       ========
LIABILITIES AND MEMBER'S EQUITY
Liabilities:
  Current liabilities:
     Accounts payable.......................................    $    524       $    194
     Current portion of long-term debt (intercompany note
      payable)..............................................      27,251             --
     Checks in excess of cash...............................         851          5,837
     Accounts payable-affiliates............................          --          8,471
     Accrued interest.......................................         765             --
     Accrued fuel and purchased power expense...............       5,311         10,068
     Other current liabilities..............................      11,943          2,285
                                                                --------       --------
       Total current liabilities............................      46,645         26,855
  Long-term debt (intercompany note payable)................     184,525        249,505
                                                                --------       --------
       Total liabilities....................................     231,170        276,360
Member's equity.............................................     243,075        164,308
                                                                --------       --------
       Total liabilities and member's equity................    $474,245       $440,668
                                                                ========       ========
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                        3
<PAGE>   4

                             ARTHUR KILL POWER LLC

                            STATEMENT OF OPERATIONS
     FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM JUNE 25, 1999
                        (INCEPTION) TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                  2000           1999
                                                                  ----           ----
                                                                (THOUSANDS OF DOLLARS)
<S>                                                             <C>            <C>
Revenues....................................................    $219,509       $ 59,155
Operating costs.............................................     129,858         21,220
                                                                --------       --------
       Operating margin.....................................      89,651         37,935
Depreciation................................................      12,858          6,620
General and administrative expenses.........................       1,328          2,292
                                                                --------       --------
       Income from operations...............................      75,465         29,023
Other income, net...........................................      (1,279)            --
Interest expense............................................      19,616         10,720
                                                                --------       --------
Net income..................................................    $ 54,570       $ 18,303
                                                                ========       ========
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                        4
<PAGE>   5

                             ARTHUR KILL POWER LLC

                            STATEMENT OF CASH FLOWS
     FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM JUNE 25, 1999
                        (INCEPTION) TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                  2000            1999
                                                                  ----            ----
                                                                 (THOUSANDS OF DOLLARS)
<S>                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................    $  54,570       $  18,303
  Adjustments to reconcile net income to net cash provided
     from operating activities:
     Depreciation...........................................       12,858           6,620
     Amortization of deferred financing costs...............        1,314           1,401
     Changes in assets and liabilities:
       Accounts receivable..................................        5,050         (23,737)
       Inventories..........................................          831              69
       Accounts receivable, affiliate.......................      (44,830)             --
       Prepaid expenses.....................................       (1,586)         (5,837)
       Accounts payable.....................................          330             193
       Accounts payable -- affiliates.......................       (9,296)         (6,044)
       Accrued fuel and purchased power expense.............       (4,757)         10,068
       Accrued interest.....................................          765              --
       Other current liabilities............................        9,658             730
       Other assets and liabilities.........................          (91)             --
                                                                ---------       ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................       24,816           1,766
                                                                ---------       ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Business acquisition, net of liabilities assumed..........           --        (395,510)
  Proceeds from disposition of fixed assets.................          728              --
  Capital expenditures......................................       (4,014)         (5,080)
                                                                ---------       ---------
NET CASH USED IN INVESTING ACTIVITIES.......................       (3,286)       (400,590)
                                                                ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments of long-term debt......................     (264,629)             --
  Proceeds from borrowings..................................      226,900         249,505
  Deferred financing costs..................................       (3,012)         (2,521)
  Contributions from member.................................       24,197         146,005
  Checks in excess of cash..................................       (4,986)          5,837
                                                                ---------       ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES.........      (21,530)        398,826
                                                                ---------       ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................           --               2
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............            2              --
                                                                ---------       ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................    $       2       $       2
                                                                =========       =========
Supplemental disclosures of cash flow information:
  Interest paid (net of amount capitalized).................    $  17,537       $  10,201
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                        5
<PAGE>   6

                             ARTHUR KILL POWER LLC

                          STATEMENT OF MEMBER'S EQUITY
     FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE PERIOD FROM JUNE 25, 1999
                        (INCEPTION) TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                (THOUSANDS OF DOLLARS)
                                                                ----------------------
<S>                                                             <C>
Balance, June 25, 1999......................................           $     --
Contributions from member...................................            146,005
Net income..................................................             18,303
                                                                       --------
Balance, December 31, 1999..................................            164,308
Contributions from member...................................             24,197
Net income..................................................             54,570
                                                                       --------
Balance, December 31, 2000..................................           $243,075
                                                                       ========
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                        6
<PAGE>   7

                             ARTHUR KILL POWER LLC

                         NOTES TO FINANCIAL STATEMENTS

     Arthur Kill Power LLC ("the Company"), a wholly-owned subsidiary of NRG
Northeast Generating LLC ("Northeast Gen"), owns and operates the approximately
842 Megawatt ("MW"), three unit, natural gas/oil fired intermediate/peaking
electric generating facility located in Staten Island, New York.

     Northeast Gen, a wholly-owned indirect subsidiary of NRG Energy, Inc.
("NRG"), owns electric power generation plants in the northeastern region of the
United States. Northeast Gen was formed for the purpose of financing, acquiring,
owning, operating and maintaining, through its subsidiaries and affiliates the
electric generating facilities owned by Arthur Kill Power LLC, Astoria Gas
Turbine Power LLC, Connecticut Jet Power LLC, Devon Power LLC, Dunkirk Power
LLC, Huntley Power LLC, Middletown Power LLC, Montville Power LLC, Norwalk
Harbor Power LLC, Oswego Harbor Power LLC and Somerset Power LLC.

     At December 31, 1999, Northeast Gen held a 99% interest in Arthur Kill
Power LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC,
Oswego Harbor Power LLC and Somerset Power LLC. Northeast Generating Holding LLC
and NRG Eastern LLC each held a minority interest of 0.5% in Arthur Kill Power
LLC, Astoria Gas Turbine Power LLC, Dunkirk Power LLC, Huntley Power LLC, Oswego
Harbor Power LLC and Somerset Power LLC.

     NRG Connecticut Generating LLC, a wholly owned subsidiary of NRG, owned
100% of Connecticut Jet Power LLC, Devon Power LLC, Middletown Power LLC,
Montville Power LLC and Norwalk Harbor Power LLC.

     Effective January 1, 2000, the minority ownership interests held by
Northeast Generating Holding LLC and NRG Eastern LLC as well as the ownership
interests held by NRG Connecticut Generating LLC were transferred to Northeast
Gen. Since all assets and operations were under common ownership and control
since April 27, 1999 (Inception of Northeast Gen), the Northeast Gen financial
statements have been presented on a combined basis without minority interest.

     Additional information regarding the Northeast Gen and the Company can be
found in NRG's Form 10-K for the twelve months ended December 31, 2000.

1. BUSINESS DEVELOPMENTS

     In June 1999, the Arthur Kill and Astoria generating facilities were
acquired from the Consolidated Edison Company of New York, Inc. ("ConEd") for
approximately $505 million. These facilities are located in Staten Island and
Queens, New York, and have a combined capacity of 1,456 MW. The Arthur Kill
facilities were acquired for approximately $395.5 million and have a capacity of
842 MW.

     The acquisition was accounted for as the purchase of assets. The aggregate
purchase price was allocated among the assets acquired and liabilities assumed
in the following amounts based on an appraisal completed in October 1999:

<TABLE>
<CAPTION>
                                                                (IN THOUSANDS)
                                                                --------------
<S>                                                             <C>
Assets:
  Inventory.................................................       $  8,654
  Other current assets......................................            388
  Property, plant and equipment.............................        402,539
                                                                   --------
     Total assets...........................................        411,581
Liabilities:
  Accounts payable -- affiliates............................         14,515
  Other current liabilities.................................          1,556
                                                                   --------
     Total liabilities......................................         16,071
                                                                   --------
Net assets acquired.........................................       $395,510
                                                                   ========
</TABLE>

                                        7
<PAGE>   8
                             ARTHUR KILL POWER LLC

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN FINANCIAL STATEMENTS

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities at the date of the financial statements and reported
amounts of revenue and expenses during the reporting period. Actual results may
differ from those estimates.

     In recording transactions and balances resulting from business operations,
the Company uses estimates based on the best information available. Estimates
are used for such items as plant depreciable lives, uncollectible accounts and
actuarially determined benefit costs, among others. As better information
becomes available (or actual amounts are determinable), the recorded estimates
are revised. Consequently, operating results can be affected by revisions to
prior accounting estimates.

CASH AND CASH EQUIVALENTS

     The Company considers cash and cash equivalents to include cash and
short-term investments with original maturities of three months or less.

INVENTORY

     Inventory consists of spare parts and is stated at the lower of weighted
average cost or market (Note 5).

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost. Depreciation is computed
on a straight-line basis over the following estimated useful lives:

<TABLE>
<S>                                                             <C>
Facilities, machinery and equipment.........................    25 to 30 years
Office furnishings and equipment............................     3 to 10 years
</TABLE>

     At December 31, 2000 and 1999, property, plant and equipment consisted of
the following:

<TABLE>
<CAPTION>
                                                               2000        1999
                                                               ----        ----
                                                                (IN THOUSANDS)
<S>                                                          <C>         <C>
Land.....................................................    $ 24,826    $ 25,963
Facilities, machinery and equipment......................     385,183     380,617
Construction in progress.................................       1,527         902
Office furnishings and equipment.........................         195         138
Accumulated depreciation.................................     (19,478)     (6,620)
                                                             --------    --------
Property, plant and equipment, net.......................    $392,253    $401,000
                                                             ========    ========
</TABLE>

DEFERRED FINANCING COSTS

     Deferred financing costs consist of legal and other costs incurred to
obtain debt financing. These costs are being amortized over the terms of the
related debt.

REVENUE RECOGNITION

     Revenues from the sale of electricity are recorded based upon the output
delivered and capacity provided at rates as specified under contract terms or
prevailing market rates. Revenues and related costs under cost reimbursable
contract provisions are recorded as costs are incurred.

                                        8
<PAGE>   9
                             ARTHUR KILL POWER LLC

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

POWER MARKETING ACTIVITIES

     The Company has entered into a contract with a marketing affiliate for the
sale of energy, capacity and ancillary services produced, which enables the
affiliate to engage in forward sales and hedging transactions to manage the
Company's electricity price exposure. Net gains or losses on hedges by the
marketing affiliate, which are physically settled, are recognized in the same
manner as the hedged item. The Company receives the net transaction price on all
contracts that are physically settled by its marketing affiliate.

INCOME TAXES

     The Company has been organized as a LLC. Therefore, federal and state
income taxes are assessed at the member level. Accordingly, no provision has
been made for federal or state income taxes in the accompanying financial
statements.

     At December 31, 2000 and 1999, the accompanying financial statements report
a balance of $392,253 and $401,000, respectively, for net property, plant and
equipment. The tax basis of this property is estimated to be $369,704 and
$394,802, respectively. The primary difference is due to accelerated tax
depreciation.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"), subsequently amended by
SFAS No. 137 and SFAS No. 138. SFAS No. 133 requires Northeast Gen to record all
derivatives on the balance sheet at fair value. Changes in derivative fair
values will either be recognized in earnings as offsets to the changes in fair
value of related hedging assets, liabilities and firm commitments or, for
forecasted transactions, deferred and recorded as a component of other
accumulated comprehensive income until the hedged transactions occur and are
recognized in earnings. The ineffective portion of a hedging derivative's change
in fair value will be immediately recognized in earnings.

     SFAS No. 133 will apply to Northeast Gen's energy and energy related
commodities financial instruments, long-term power sales contracts and long-term
gas purchase contracts used to mitigate variability in earnings due to
fluctuations in spot market prices, hedge fuel requirements at generation
facilities and protect investment in fuel inventories. The Company does not
enter into long-term power sales contracts, long-term gas purchase contracts, or
other derivative instruments. These activities are conducted by an affiliate of
Northeast Gen and are not allocated to the Company.

     Northeast Gen has adopted SFAS No. 133 effective January 1, 2001. The
effect of adopting SFAS No. 133 was as follows:

     - A one-time after-tax unrealized gain of $7.7 million recorded to other
       accumulated comprehensive income related to the initial adoption of SFAS
       No. 133 during the quarter ended March 31, 2001, and

     - Increased volatility in future earnings is possible due to the impact of
       market fluctuations on derivative instruments used by Northeast Gen.

3. SHORT-TERM BORROWINGS

     At December 31, 1999, Northeast Gen had $682.3 million in short-term
borrowings under its credit facility, which had a weighted average interest rate
of 6.86% for the period. The credit facility consists of a $646.6 million term
loan facility and a $35.7 million working capital revolving facility. The
Company borrowed from Northeast Gen approximately $249.5 million of the $646.6
million term loan facility proceeds pursuant to an intercompany loan agreement
to finance a portion of its purchase of its electric generating facilities.
During 1999, approximately $10.7 million of interest expense related to the
credit facility was recognized as part of the Company's results of operations.
                                        9
<PAGE>   10
                             ARTHUR KILL POWER LLC

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

4. LONG-TERM DEBT

     On February 22, 2000, Northeast Gen issued $750 million of senior secured
bonds to refinance short-term project borrowings and for certain other purposes.
The bond offering included three tranches: $320 million with an interest rate of
8.065% due in 2004; $130 million with an interest rate of 8.842% due in 2015;
and $300 million with an interest rate of 9.292% due in 2024. Northeast Gen used
$646.6 million of the proceeds to repay short-term borrowings outstanding at
December 31, 1999; accordingly $646.6 million of short-term debt has been
reclassified as long-term debt based on the refinancing. Each of the
subsidiaries of Northeast Gen, of which the Company is one, jointly and
severally guarantee the bonds. The bonds are secured by a security interest in
Northeast Gen's membership or other ownership interest in its subsidiaries that
guarantee the bonds; Northeast Gen's rights under all intercompany notes between
it and its subsidiaries; the power sales and agency agreements, the operations
and maintenance agreements, the corporate services agreements, the transition
power sales contracts entered into by Northeast Gen and its subsidiaries and the
funds administration agreement; the debt service reserve account; and the
revenues from certain power sales contracts entered into by NRG Power Marketing
associated with existing or future facilities owned by Northeast Gen or its
subsidiaries. At December 31, 2000, the Company's outstanding balance under this
debt agreement was $211.8 million. A portion of the interest expense related to
these bonds will be recognized as part of the Company's results of operations.

5. INVENTORY

     At December 31, 2000 and 1999, inventory, which is stated at the lower of
weighted average cost or market, consisted of:

<TABLE>
<CAPTION>
                                                                 2000      1999
                                                                 ----      ----
                                                                 (IN THOUSANDS)
<S>                                                             <C>       <C>
Spare parts.................................................    $7,753    $8,584
                                                                ======    ======
</TABLE>

6. RELATED PARTY TRANSACTIONS

     On June 25, 1999, the Company entered into a power sales and agency
agreement with NRG Power Marketing Inc., a wholly-owned subsidiary of NRG. The
agreement is effective until December 31, 2030. Under the agreement, NRG Power
Marketing Inc. will (i) have the exclusive right to manage, market and sell all
power not otherwise sold or committed to or by such subsidiaries, (ii) procure
and provide to such subsidiaries all fuel required to operate their respective
facilities and (iii) market, sell and purchase all emission credits owned,
earned or acquired by such subsidiaries. In addition, NRG Power Marketing Inc.
will have the exclusive right and obligation to effect the direction of the
power output from the facilities.

     Under the agreement, NRG Power Marketing Inc. pays to the Company gross
receipts generated through sales, less costs incurred by NRG Power Marketing
Inc. relative to its providing services (e.g. transmission and delivery costs,
fuel cost, taxes, employee labor, contract services, etc.).

     During 2000 and 1999, the Company recorded gross receipts less costs
incurred from NRG Power Marketing Inc. totaling $122.8 million and $49.5
million, respectively.

     On June 25, 1999, the Company entered into an operation and maintenance
agreement with a subsidiary of NRG Operating Services, Inc., a wholly-owned
subsidiary of NRG ("NRG Operating Services"). The agreement is effective for
five years, with options to extend beyond five years. Under the agreement, the
NRG Operating Services company operator operates and maintains its respective
facility, including (i) coordinating fuel delivery, unloading and inventory,
(ii) managing facility spare parts, (iii) meeting external performance standards
for transmission of electricity, (iv) providing operating and maintenance
consulting and

                                        10
<PAGE>   11
                             ARTHUR KILL POWER LLC

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

(v) cooperating with and assisting the Company in performing the Company's
obligations under agreements related to its facilities.

     Under the agreement, the operator will be reimbursed for usual and
customary costs related to providing the services including plant labor and
other operating costs. A demobilization payment will be made if the subsidiary
elects not to renew the agreement. There are also incentive fees and penalties
based on performance under the approved operating budget, the heat rate and
safety.

     During 2000 and 1999, the Company incurred operating and maintenance costs
billed from NRG Operating Services Inc. totaling $20.4 million and $5.6 million,
respectively.

     On June 25, 1999, the Company entered into an agreement with NRG for
corporate support and services. The agreement is perpetual in term, unless
terminated in writing. Under the agreement, NRG will provide services, as
requested, in areas such as human resources, accounting, finance, treasury, tax,
office administration, information technology, engineering, construction
management, environmental, legal and safety. Under the agreement, NRG is paid
for personnel time as well as out-of-pocket costs.

     During 2000 and 1999, the Company paid NRG approximately $0.4 million and
$0.1 million, respectively, for corporate support and services.

7. SALES TO SIGNIFICANT CUSTOMERS

     During 2000, sales to one customer accounted for 54.1% of the Company's
revenues. During 1999, sales to two customers accounted for 80.9% and 18.7% of
the Company's revenues. During 1999, the Company entered into a transition
agreement with the previous owner of the Company's recently acquired electric
generating facility for the sale of energy, capacity and other ancillary
services. The transition agreement accounted for the majority of the Company's
revenues during 1999.

8. COMMITMENTS AND CONTINGENCIES

REGULATORY ISSUE

     On March 30, 2000, Northeast Gen received notification from the New York
Independent System Operator (NYISO) of its petition to the Federal Energy
Regulatory Commission (FERC) to place a $2.52 per megawatt hour market cap on
ancillary service revenues. The NYISO also requested authority to impose this
cap on a retroactive basis to March 1, 2000.

     On May 31, 2000, the FERC approved the NYISO's request to impose price
limitations on one ancillary service, Ten Minute Non-Synchronized Reserves
(TMNSR) on a prospective basis only, effective March 28, 2000. The FERC rejected
the NYISO's request for authority to adjust the market-clearing prices for TMNSR
on a retroactive basis. As a result of the FERC order, (unless the NYISO or
other party successfully appeals the order), Northeast Gen will retain
approximately $8.0 million of revenues collected in February 2000. Northeast Gen
has included in revenues, but has not yet collected for March 2000,
approximately $8.2 million, which has been fully reserved for as of December 31,
2000.

ENVIRONMENTAL

     Environmental laws and/or regulations derived there from generally require
air emissions and water discharges to meet specified limits. They also impose
potential joint and several liability, with regard to fault, on entities
responsible for certain releases of hazardous substances to manage such
materials properly and to clean up property affected by their production and
discharge. Northeast Gen expects to spend approximately $51.2 million for
capital expenditures between 2001 and 2005 for environmental compliance, which
includes the possible installation of Nitrogen oxides (NOx) control technology
at the Somerset facility, resolution of consent orders for remediation at the
Arthur Kill and Astoria facilities, the resolution of a consent order for
                                        11
<PAGE>   12
                             ARTHUR KILL POWER LLC

                   NOTES TO FINANCIAL STATEMENTS -- CONTINUED

water intake at the Arthur Kill facility, and completing remediation-related
requirements under the Connecticut Transfer Act. During the years 2000 and 1999,
Northeast Gen recorded approximately $3.0 million, and $0.1 million of
expenditures related to environmental matters.

     In response to liabilities associated with these activities, accruals have
been established when reasonable estimates are possible. As of December 31,
2000, the Company has established such accruals in the amount of approximately
$1.5 million. Such accruals primarily include estimated costs associated with
remediation. The Company has not used discounting in determining its accrued
liabilities for environmental remediation and no claims for possible recovery
from third party issuers or other parties related to environmental costs have
been recognized in the Company's consolidated financial statements. The Company
adjusts the accruals when new remediation responsibilities are discovered and
probable costs become estimable, or when current remediation estimates are
adjusted to reflect new information.

DISPUTED REVENUES

     At December 31, 2000, Northeast Gen had disputed revenues totaling $13.1
million relating to the interpretation of certain transmission power sales
agreements and to sales to the New York Power Pool and New England Power Pool,
conflicting meter readings, pricing of firm sales and other power pool reporting
issues. Northeast Gen is actively pursuing resolution and/or collection of these
amounts. These amounts have not been recorded in the financial statements and
will not be recognized as income until disputes are resolved and collection is
assured.

                                        12