<PAGE>
                                                                    EXHIBIT 99.1

DUNKIRK POWER LLC
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<PAGE>

DUNKIRK POWER LLC
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                           PAGE(S)
<S>                                                                                                        <C>
Report of Independent Accountants                                                                             1

Financial Statements:

   Balance Sheet at December 31, 2001 and 2000                                                                2

   Statement of Operations for the years ended December 31, 2001 and 2000 and for the period
   from June 11, 1999 (inception) to December 31, 1999                                                        3

   Statement of Cash Flows for the years ended December 31, 2001 and 2000 and for the
   period from June 11, 1999 (inception) to December 31, 1999                                                 4

   Statement of Member's Equity for the years ended December 31, 2001 and 2000 and for the
   period from June 11, 1999 (inception) to December 31, 1999                                                 5

Notes to Financial Statements                                                                               6-12
</TABLE>

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Management Committee of
Dunkirk 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 Dunkirk Power LLC at December 31, 2001 and
2000, and the results of its operations and its cash flows for the year ended
December 31, 2001 and 2000 and the period from June 11, 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

Minneapolis, Minnesota

February 21, 2002

<PAGE>

DUNKIRK POWER LLC
BALANCE SHEET
AT DECEMBER 31, 2001 AND 2000
(Thousands of dollars)

<TABLE>
<CAPTION>
                             ASSETS                                      2001        2000
<S>                                                                    <C>         <C>
Current assets:
    Cash and cash equivalents                                          $      2    $      2
    Accounts receivable, net of allowance for doubtful accounts
        of $0 and $940                                                    8,706      13,892
    Accounts receivable, affiliates                                          --      23,428
    Inventory                                                            15,825       9,685
    Prepaid expenses                                                      6,990       2,187
                                                                       --------    --------
      Total current assets                                               31,523      49,194
Property, plant and equipment, net of accumulated depreciation of
      $16,696 and $10,090                                               180,856     184,515
Deferred financing costs, net of accumulated amortization of
      $113 and $51                                                        1,415       1,447
                                                                       --------    --------
      Total assets                                                     $213,794    $235,156
                                                                       ========    ========

                         LIABILITIES AND MEMBER'S EQUITY
Liabilities:
    Current liabilities:
      Accounts payable                                                 $     --    $    795
      Current portion of long-term debt (intercompany note payable)      16,132      13,574
      Checks in excess of cash                                               --         204
      Accrued interest                                                      315         380
      Accrued fuel and purchased power expense                            3,878       3,723
      Other current liabilities                                           1,639       4,385
                                                                       --------    --------
      Total current liabilities                                          21,964      23,061
    Long-term debt (intercompany note payable)                           75,702      91,806
                                                                       --------    --------
      Total liabilities                                                  97,666     114,867
Member's equity                                                         116,128     120,289
                                                                       --------    --------
      Total liabilities and member's equity                            $213,794    $235,156
                                                                       ========    ========
</TABLE>

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


                                       2
<PAGE>

DUNKIRK POWER LLC
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 and 2000 AND FOR THE PERIOD FROM JUNE 11,
1999 (INCEPTION) TO DECEMBER 31, 1999
(Thousands of dollars)

<TABLE>
<CAPTION>
                                         2001         2000        1999
<S>                                    <C>         <C>           <C>
Revenues                               $142,841    $ 135,370     $57,764
Operating costs                          74,771       78,823      43,021
                                       --------    ---------     -------
      Operating margin                   68,070       56,547      14,743
Depreciation                              6,606        6,470       3,628
General and administrative expenses       1,215        3,239       2,073
                                       --------    ---------     -------
      Income from operations             60,249       46,838       9,042
Other income, net                           139           62          --
Interest expense                          8,859       10,433       5,604
                                       --------    ---------     -------
Net income                             $ 51,529    $  36,467     $ 3,438
                                       ========    =========     =======
</TABLE>

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


                                       3
<PAGE>

DUNKIRK POWER LLC
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD FROM JUNE 11,
1999 (INCEPTION TO DECEMBER 31 ,1999
(Thousands of dollars)

<TABLE>
<CAPTION>
                                                                     2001          2000          1999
<S>                                                                <C>          <C>           <C>
Cash flows from operating activities:
    Net income                                                     $ 51,529     $  36,467     $   3,438
    Adjustments to reconcile net income to net cash provided by
        operating activities:
      Depreciation                                                    6,606         6,470         3,628
      Amortization of deferred financing costs                           62           655           698
      Changes in assets and liabilities:
        Accounts receivable                                           5,186           (88)      (12,240)
        Accounts receivable, affiliates                              23,428       (23,428)           --
        Inventories                                                  (6,140)       (1,042)        2,086
        Prepaid expenses                                             (4,803)         (171)       (2,017)
        Accounts payable                                               (795)         (151)          946
        Accounts payable - affiliates                                    --        (9,826)        6,345
        Accrued fuel and purchased power expense                        155         1,329         2,394
        Accrued taxes                                                    --            --           409
        Accrued interest                                                (65)          380            --
        Other current liabilities                                    (2,746)        2,946         1,030
        Cash used by changes in other assets and liabilities             --           (47)           --
                                                                   --------     ---------     ---------
      Net cash provided by operating activities                      72,417        13,494         6,717
                                                                   --------     ---------     ---------
Cash flows from investing activities:
    Business acquisition, net of liabilities assumed                     --            --      (193,285)
    Capital expenditures                                             (2,947)       (4,164)       (5,976)
                                                                   --------     ---------     ---------
      Net cash used in investing activities                          (2,947)       (4,164)     (199,261)
                                                                   --------     ---------     ---------
Cash flows from financing activities:
    Principal payments on long term debt                            (13,546)     (131,642)           --
    Proceeds from borrowings                                             --       112,904       124,118
    Deferred financing costs                                            (30)       (1,498)       (1,254)
    (Distributions to)/contributions by member                      (55,690)       11,217        69,167
    Checks in excess of cash                                           (204)         (311)          515
                                                                   --------     ---------     ---------
      Net cash (used in) provided by financing activities           (69,470)       (9,330)      192,546
                                                                   --------     ---------     ---------
Net increase in cash and cash equivalents                                --            --             2
Cash and cash equivalents at beginning of year                            2             2            --
                                                                   --------     ---------     ---------
Cash and cash equivalents at end of year                           $      2     $       2     $       2
                                                                   ========     =========     =========
Supplemental disclosures of cash flow information:
    Interest paid (net of amount capitalized)                      $  8,815     $   8,744     $   5,195
                                                                   ========     =========     =========
</TABLE>

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


                                       4
<PAGE>

DUNKIRK POWER LLC
STATEMENT OF MEMBER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD FROM JUNE 11,
1999 (INCEPTION) TO DECEMBER 31, 1999
(Thousands of dollars)

<TABLE>
<CAPTION>
                                                               Total
                                                             Member's
                                                              Equity
<S>                                                          <C>
Balance, June 11, 1999                                       $     --
                                                             ========
Net income                                                      3,438
Contributions from member                                      69,167
                                                             --------
Balance, December 31, 1999                                   $ 72,605
                                                             ========
Net income                                                     36,467
Contributions from member                                      11,217
                                                             --------
Balance, December 31, 2000                                   $120,289
                                                             ========
Net income                                                     51,529

Member distributions, net                                     (55,690)
                                                             --------
Balance, December 31, 2001                                   $116,128
                                                             ========
</TABLE>

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


                                       5
<PAGE>

DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS

Dunkirk Power LLC ("the Company"), a wholly-owned subsidiary of NRG Northeast
Generating LLC ("Northeast Gen"), owns and operates the approximately 600
Megawatt ("MW"), four unit, coal-fired base-load electric generating facility
located in Dunkirk, 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. Northeast Generating Holding LLC and
NRG Eastern LLC are wholly-owned subsidiaries of NRG Energy, Inc.

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 Northeast Gen and the Company can be found in
NRG's Form 10-K for the twelve months ended December 31, 2001.

1.    BUSINESS DEVELOPMENTS

      In June 1999, the Huntley and Dunkirk facilities were acquired from
      Niagara Mohawk Power Corporation ("NiMo") for approximately $355 million.
      The acquisition was accounted for as the purchase of assets. The two
      coal-fired facilities are located near Buffalo, New York, and have a
      combined capacity of 1,360 MW. The Dunkirk facilities were acquired for
      approximately $193.3 million and have a capacity of 600 MW.


                                       6
<PAGE>

DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS

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, coal and fuel oil and is stated at the
      lower of weighted average cost or market.

      At December 31, 2001 and 2000, inventory, which is stated at the lower of
      weighted average cost or market, consisted of:

<TABLE>
<CAPTION>
      (In thousands)     2001      2000

<S>                     <C>        <C>
      Fuel oil          $    26    $2,669
      Spare parts         7,167     6,594
      Coal                8,632       422
                        -------    ------
            Total       $15,825    $9,685
                        =======    ======
</TABLE>

      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, 2001 and 2000, property, plant and equipment consisted of
      the following:

<TABLE>
<CAPTION>
      (In thousands)                            2001          2000
<S>                                          <C>           <C>
      Land                                   $   1,879     $   1,879
      Facilities, machinery and equipment      194,078       192,437
      Construction in progress                   1,478           168
      Office furnishings and equipment             117           121
      Accumulated depreciation                 (16,696)      (10,090)
                                             ---------     ---------
      Property, plant and equipment, net     $ 180,856     $ 184,515
                                             =========     =========
</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 and steam are recorded based upon
      the output delivered and


                                       7
<PAGE>

DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS

      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.

      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 Limited Liability Company (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, 2001 and 2000, the accompanying financial statements
      report a balance of $180.9 million and $184.5 million, respectively, for
      net property, plant and equipment. The tax basis of this property is
      estimated to be $165.3 million and $171.7 million, respectively. The
      primary difference is due to accelerated tax depreciation.

      NEW ACCOUNTING PRONOUNCEMENTS

            In June 2001, the Financial Accounting Standards Board (the FASB)
      issued Statement of Financial Accounting Standards No. 142, Goodwill and
      Other Intangible Assets (SFAS No. 142). SFAS No. 142 requires that
      goodwill and intangible assets with indefinite useful lives no longer be
      amortized but instead be tested for impairment in accordance with SFAS No.
      121, Accounting for the Impairment of Long-lived Assets and for Long-lived
      Assets to Be Disposed Of (SFAS No. 121). Goodwill will no longer be
      amortized to comply with the provisions of SFAS No. 142. Instead, goodwill
      and intangible assets that will not be amortized should be tested for
      impairment annually and on an interim basis if an event occurs or a
      circumstance changes between annual tests that may reduce the fair value
      of a reporting unit below its carrying value. An impairment test is
      required to be performed within six months of the date of adoption, and
      the first annual impairment test must be performed in the year the
      statement is initially adopted.

            Dunkirk Power LLC as required is adopting SFAS No. 142 on January 1,
      2002. All intangible assets and goodwill acquired in the future will be
      accounted for under the new accounting standard. Dunkirk Power does not
      expect to recognize any asset impairments as a result of adopting SFAS No.
      142 in the first quarter of 2002.

            In June 2001, FASB issued SFAS No. 143, Accounting for Asset
      Retirement Obligations (SFAS No. 143). This statement addresses financial
      accounting and reporting for obligations associated with the retirement of
      tangible long-lived assets and the associated asset retirement costs. SFAS
      No. 143 requires an entity to recognize the fair value of a liability for
      an asset retirement obligation in the period in which it is incurred. Upon
      initial recognition of a liability for an asset retirement obligation, an
      entity shall capitalize an asset retirement cost by increasing the
      carrying amount of the related long-lived asset by the same amount as the
      liability. SFAS No. 143 is effective for financial statements issued for
      fiscal years beginning after June 15, 2002. Dunkirk Power has not
      completed its analysis of SFAS No. 143.


                                       8
<PAGE>

DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS

            In October 2001, the FASB issued SFAS No. 144, Accounting for the
      Impairment or Disposal of Long-Lived Assets (SFAS No. 144). This statement
      addresses financial accounting and reporting for the impairment or
      disposal of long-lived assets. SFAS No. 144 retains and expands upon the
      fundamental provisions of existing guidance related to the recognition and
      measurement of the impairment of long-lived assets to be held and used and
      the measurement of long-lived assets to be disposed of by sale. Generally,
      the provisions of SFAS No. 144 are effective for financial statements
      issued for fiscal years beginning after December 15, 2001. Dunkirk Power
      does not expect to recognize any asset impairments as a result of adopting
      SFAS No. 144 in the first quarter of 2002.

3.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

      On January 1, 2001, the Company adopted Statement of Financial Accounting
      Standards No. 133, Accounting for Derivative Instruments and Hedging
      Activities (SFAS No. 133), as amended by SFAS No. 137 and SFAS No. 138.
      SFAS No. 133 requires the Company to record all derivatives on the balance
      sheet at fair value.

      SFAS No. 133 applies 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.

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. 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, 2001 and 2000, the Company's
      outstanding balance under this debt agreement was $91.8 million and $105.4
      million, respectively. A portion of


                                       9
<PAGE>

DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS

      the interest expense related to these bonds is recognized as part of the
      Company's results of operations.

5.    RELATED PARTY TRANSACTIONS

      On June 11, 1999, 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 the Company,
      (ii) procure and provide to the Company all fuel required to operate its
      respective facilities and (iii) market, sell and purchase all emission
      credits owned, earned or acquired by the Company. 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.). The Company incurs no fees related to these power sales and agency
      agreements with NRG Power Marketing.

       The Company has no employees and has 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 (v)
      cooperating with and assisting the Company in performing the Company's
      obligations under agreements related to its facilities.

      Under the agreement, the operator charges an annual fee, and in addition
      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


                                       10
<PAGE>

DUNKIRK POWER LLC
NOTES TO FINANCIAL STATEMENTS

      penalties based on performance under the approved operating budget, the
      heat rate and safety.

      During 2001, 2000 and 1999, the Company incurred annual operating and
      maintenance costs billed from NRG Operating Services Inc. totaling $0.4
      million. In addition, the Company incurred $21.4 million, $24.2 million
      and $11.7 million, respectively, for usual and customary costs related to
      providing the services including plant labor and other operating costs.

      On June 11, 1999, 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 2001, 2000 and 1999, the Company paid NRG approximately $0.4
      million, $0.4 million and $0.3 million, respectively, for corporate
      support and services.

6.    SALES TO SIGNIFICANT CUSTOMERS

      During 2001, sales to two customers accounted for 48.3% and 43.9% of the
      Company's revenues. During 2000, sales to two customers accounted for
      52.2% and 49.7% of the Company's revenues. During 1999, sales to one
      customer accounted for 86.0% 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 facilities for the sale of
      energy, capacity and other ancillary services. This transition agreement
      accounted for a majority of the Company's revenues during 1999 (Note 7).

7.    COMMITMENTS AND CONTINGENCIES

      ENVIRONMENTAL

      The total forecasted capital expenditures during the first 5 years of the
      ConEd, NiMo, Somerset and CL&P assets acquired by NRG Energy were in the
      range of $60 million dollars. Currently, the Company is estimating that
      costs approximating $7.5 million will be required to close out the
      remaining issues associated with remedial investigations/clean-ups at
      Somerset, Arthur Kill, Astoria, Middletown, Norwalk Harbor, Devon, and
      Montville.

      CONTRACTUAL COMMITMENTS

      During 1999, NRG Energy acquired the Huntley and Dunkirk generating
      facilities from Niagara Mohawk Power Corporation ("NiMo"). In connection
      with this acquisition, NRG Energy entered into a four-year agreement with
      NiMo that requires NRG Energy to provide to NiMo pursuant to a
      predetermined schedule fixed quantities of energy and capacity at a fixed
      price.

      LEGAL PROCEEDINGS

      NEW YORK CLEAN AIR ACT ENFORCEMENT ACTION

      In January 2002 the New York Attorney General and the New York Department
      of Environmental Control (NYDEC) filed suit in the western district of New
      York against NRG Energy and NiMo, the prior owner of the Huntley and
      Dunkirk facilities in New York. The lawsuit relates to physical changes
      made at those facilities prior to NRG Energy's assumption of ownership.
      The complaint alleges that these changes represent major modifications
      undertaken without the required permits having been obtained. Although NRG
      Energy has a right to indemnification by the previous owner for fines,
      penalties, assessments and related losses resulting from the previous
      owner's failure to comply with environmental laws and regulations, NRG
      Energy could be enjoined from operating the facilities if the facilities
      are found not to comply with applicable permit requirements.

      NRG Energy expects to respond to the State of New York's complaint on or
      about March 31, 2002 and intends to vigorously defend against the
      imposition of any liability for the alleged conduct.

      NIAGARA MOHAWK INDEMNITY LITIGATION

      In July 2001, NiMo filed a declaratory judgment action in the Supreme
      Court for the State of New York, County of Onondaga, against NRG Energy
      and its wholly-owned subsidiaries, Huntley Power LLC and Dunkirk Power
      LLC. NiMo requests a declaration by the Court that, pursuant to the terms
      of the Assets Sales Agreement under which NRG Energy purchased the Huntley
      and Dunkirk generating facilities from Niagara Mohawk (the ASA),
      defendants have assumed liability for any costs for the installation of
      emissions controls or other modifications to or related to the Huntley or
      Dunkirk plants imposed as a result of violations or alleged violations of
      environmental law. NiMo also requests a declaration by the Court that,
      pursuant to the ASA, defendants have assumed all liabilities, including
      liabilities for natural resource damages, arising from emissions or
      releases of pollutants from the Huntley and Dunkirk plants, without regard
      to whether such emissions or releases occurred before, on or after the
      closing date for the purchase of the Huntley and Dunkirk plants. NRG
      Energy has counterclaimed against Niagara Mohawk, and the parties have
      exchanged discovery requests.

      STATION USE POWER

      On September 21, 2000, Dunkirk Power LLC (Dunkirk), Huntley Power LLC
      (Huntley) and Oswego Harbor Power LLC (Oswego) filed an action before the
      FERC seeking its declaration that they are entitled to pay NiMo wholesale
      prices for the power consumed at their respective generating facilities,
      rather than paying for such station power at retail rates, as NiMo alleges
      is required. On September 28, 2000, NiMo filed separate actions against
      Dunkirk, Huntley and Oswego in the State Supreme Court of New York,
      seeking payment of approximately $8.0 million, which NiMo asserted is due
      under such retail tariff. NiMo asserts that the amount now owed it exceeds
      $20 million. The Company currently expects that discovery will be
      completed in the second quarter of 2002. The FERC rendered a decision on
      March 14, 2001, determining that certain types of station use power are
      not subject to retail tariffs and granting some relief sought by Dunkirk,
      Huntley and Oswego. Legal counsel is evaluating the impact of the ruling
      on the merits of the NiMo litigation. The parties in the state court
      actions have exchanged written discovery and are engaged in depositions.

      NYDEC OPACITY NOTICE OF VIOLATION

      NRG Energy became part of an opacity consent order as a result of
      acquiring NiMo assets. At the time of financial close, the consent order
      was being negotiated between NiMo and the NYDEC; it required NiMo to pay a
      stipulated penalty for each opacity event. On January 14, 2002, the NYDEC
      issued NRG Energy Notice of Violations (NOV) for opacity events which had
      occurred since the time the NRG Energy assumed ownership of the Huntley,
      Dunkirk and Oswego Generating Stations. The NOVs alleged that a total of
      7,231 events had occurred where the average opacity during a six-minute
      block of time had exceeded 20%. The NYDEC set the penalty associated with
      the NOVs at $900,000.


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