SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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

For the fiscal year ended December 31, 2000

OR

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

| | For the transition period from __________ to ___________
| | --------------------------------------------------------

Commission file number: 1-16077

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ORION POWER HOLDINGS, INC.
(Exact name of the Registrant as specified in its charter)

|Delaware
(State or other jurisdiction of 
incorporation or organization) | 52-2087649
(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------ | -----------------------------------------------

7 East Redwood Street, 10th Floor
Baltimore, MD 21202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 230-3500
Securities registered pursuant to Section 12(b) of the Act:

| |  | 
| |  | 

| | Title of each class:Common Stock, $.01 par value | Name of each exchangeon which registered:New York Stock Exchange
| | ------------------------------------------------ | ----------------------------------------------------------------

Securities registered pursuant to Section 12(g)
of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

At
March 1, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $676,500,000, based upon the
closing sale price of the Common Stock on the New York Stock Exchange on that
date. At March 1, 2001, the Registrant had outstanding 93,095,926 shares of
Common Stock.

Documents Incorporated by Reference

Portions of the Registrant's definitive Proxy Statement
related to its 2001 Annual Meeting of Stockholders are incorporated by reference
into Part III hereof.

Orion Power Holdings, Inc.

TABLE OF CONTENTS

PART I

| | Item 1.    Business | 2
| | ------------------- | -

| | Item 2.    Properties | 23
| | --------------------- | --

| | Item 3.    Legal Proceedings | 24
| | ---------------------------- | --

| | Item 4.    Submission of Matters to a Vote of Security Holders. | 24
| | --------------------------------------------------------------- | --

PART II

| | Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters | 25
| | -------------------------------------------------------------------------------- | --

| | Item 6.    Selected Financial Data | 27
| | ---------------------------------- | --

| | Item 7.    Management's Discussion and
Analysis of Financial Condition and Results of Operations | 29
| | ------------------------------------------------------------------------------------------------ | --

| | Item 7A.    Quantitative and Qualitative
Disclosures About Market Risk | 36
| | ---------------------------------------------------------------------- | --

| | Item 8.    Financial Statements and Supplementary Data | 37
| | ------------------------------------------------------ | --

| | Item 9.    Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure | 37
| | ----------------------------------------------------------------------------------------------- | --

PART III

| | Item 10.    Directors and Executive Officers of the Registrant | 38
| | -------------------------------------------------------------- | --

| | Item 11.    Executive Compensation | 38
| | ---------------------------------- | --

| | Item 12.    Security Ownership of Certain
Beneficial Owners and Management | 38
| | -------------------------------------------------------------------------- | --

| | Item 13.    Certain Relationships and Related Transactions | 38
| | ---------------------------------------------------------- | --

PART IV

| | Item 14.    Exhibits, Financial Statement
Schedules and Reports on Form 8-K | 38
| | --------------------------------------------------------------------------- | --

| | Consolidated Financial Statements | F-1
| | --------------------------------- | ---

PART I

Cautionary Statement Regarding Forward-Looking Statements

We
have made, and may continue to make, various forward-looking statements with
respect to our financial position, business strategy, projected costs, projected
savings, and plans and objectives of management. Such forward-looking statements
are identified by the use of forward-looking words or phrases such as
"anticipates," "intends," "expects," "plans," "believes," "estimates," or words
or phrases of similar import. These forward-looking statements are subject to
numerous assumptions, risks, and uncertainties, and the statements looking
forward beyond 2001 are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Actual results
could differ materially from those anticipated by the forward-looking
statements.

Factors that could cause actual results to differ materially include, but are
not limited to, those described below:

| |  | political, legal and economic conditions and developments in the United States;
| | - | -------------------------------------------------------------------------------

| |  | state, federal and other legislative and regulatory initiatives affecting the
electric utility industry, including rate regulation, deregulation and
restructuring initiatives;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes in the environmental and other laws and regulations to which we are
subject, or the application thereof;
| | - | ----------------------------------------------------------------------------------------------------------------

| |  | the extent and timing of the entry of additional competition in our markets;
| | - | ----------------------------------------------------------------------------

| |  | the performance of projects undertaken;
| | - | ---------------------------------------

| |  | our ability to execute our strategy of acquiring or developing
additional power generating facilities;
| | - | ------------------------------------------------------------------------------------------------------

| |  | our ability to obtain the significant future financing our growth strategy will
likely require, whether through equity issuances or borrowings;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | fluctuations in the prices for electric products and services; and
| | - | ------------------------------------------------------------------

| |  | financial market conditions, changes in commodity prices and interest rates, and
weather and other natural phenomena.
| | - | ---------------------------------------------------------------------------------------------------------------------

In
addition to factors previously disclosed by us and factors identified elsewhere
herein, certain other factors could cause actual results to differ materially
from such forward-looking statements. All subsequent written and oral
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by reference to such
factors.

Our
forward-looking statements represent our judgment only on the dates such
statements are made. By making any forward-looking statements, we assume no duty
to update them to reflect new, changed, or unanticipated events or
circumstances.

Item 1.  Business.

Overview

We
are a fast-growing electric power generating company committed to delivering a
broad range of wholesale energy and related products and services to independent
system operators, utilities, municipalities, cooperatives and retail
aggregators. We are growing our business by strategically acquiring, developing
and modernizing non-nuclear electric generating facilities located in critical
locations in regions across the United States and Canada that are deregulating
the electric power industry. We approach our business with financial discipline,
applying a rigorous and multi-faceted approach to valuing acquisitions and
development opportunities, including the strict application of rate of return
targets on invested capital. We currently own 80 plants with an aggregate
capacity of 5,396 megawatts. We also have three projects under construction with
a total capacity of 1,208 megawatts, with announced plans to develop additional
projects with a total capacity of 4,385 megawatts. If we complete all of our
announced projects, we will have an aggregate capacity of almost 11,000
megawatts in operation.

Our
facilities in operation are diversified by fuel type and geographically. The
tables below set forth the assets owned by our regional operating
companies:

`Orion Power New York, L.P. Facilities Summary

                                            Capacity       Primary
Asset                                        (MW)         Fuel Type               Location Served
-----                                        -----        ---------               ---------------
Hydroelectric assets....................       650          Water            Central and Northern New
                                                                                    York State

Assets Located in New York City:
    Astoria Generating Station..........     1,265        Natural Gas/Oil    New York City - Queens
    Gowanus Generating Station..........       494           Oil             New York City - Brooklyn
    Narrows Generating Station..........       271        Natural Gas        New York City - Brooklyn

Carr Street Generating Station..........       102        Natural Gas        East Syracuse, NY
                                               ---

             Total......................     2,782
                                             =====

                                   Orion Power MidWest, L.P. Facilities Summary

                                            Capacity     Primary
Asset                                        (MW)       Fuel Type         Location Served
-----                                        -----      ---------         ---------------
Avon Lake Generating Station............      739          Coal           Cleveland, OH
Brunot Island Generating Station........      234           Oil           Pittsburgh, PA
Cheswick Generating Station.............      570          Coal           Pittsburgh, PA
Elrama Generating Station...............      487          Coal           Pittsburgh, PA
New Castle Generating Station...........      338          Coal           West Pittsburg, PA
Niles Generating Station................      246          Coal           Youngstown, OH
                                              ---

         Total..........................        2,614
                                                =====`

In
order to provide a broad range of energy products and services and to better
manage electric and fuel commodity risk, we seek to diversify the fuel types of
our facilities as set forth in the table below:

`Fuel Type Summary
                                         -----------------
                                                       Capacity
   Primary Fuel                                       (Megawatts)     Percentage
   ------------                                       -----------     ----------
   Coal............................................     2,290            42%
   Natural Gas / Oil (Dual fuel capability)........     1,462            27%
   Natural Gas.....................................       201             4%
   Fuel Oil........................................       793            15%
   Water...........................................       650            12%
                                                          ---            ---

            Total..................................     5,396           100%`

In
addition, we manage electric and fuel commodity price risk by attempting to sell
a majority of our output forward through long term and short term contracts and
purchase in advance the associated fuel to match the term of those sales. We
target to sell forward approximately 60-75% of our forecasted electric energy
output in advance.

On
November 17, 2000, we completed an initial public offering of 27,500,000 shares
of common stock at an offering price of $20.00 per share. We sold 24,279,032
shares and the selling stockholders, Constellation Enterprises, Inc. and its
affiliates, sold an additional 3,220,968 shares. The net proceeds to us from the
offering, after deducting underwriting discounts and commissions and other
expenses, were $443.5 million, $209 million of which was used to acquire
Columbia Electric Corporation. The remaining $243.5 million is being used for
development projects and for general corporate and working capital purposes and
may be used for additional acquisitions. Of the $243.5 million, $100.0 million
was used to fund construction of the Ceredo Generating Station, $23.5 million
was used for general corporate operating expenses, and $120.0 million remained
available as cash at December 31, 2000.

Industry Overview

Deregulation and Opportunity

The
United States electric power industry, including companies generating,
transmitting, distributing and retailing power, is undergoing significant change
driven in large part by the shift towards deregulation. This industry
historically has been characterized by vertically integrated electric utility
monopolies with the ability to sell electricity to a captive customer base.
Deregulation, however, has created the opportunity for consumer choice and a
substantial increase in competition. This competition has been implemented to
varying degrees on the wholesale level in the sale of electricity by generators,
marketers and others to utilities and other electric distributors, as well as on
the retail level in the sale of electricity to consumers.

The
passage of the Energy Policy Act in 1992 significantly expanded the
opportunities available to exempt wholesale power generators like us. Under this
law, the Federal Energy Regulatory Commission, or FERC, has required owners and
operators of electric transmission facilities to give wholesale generators and
other wholesale market participants access to transmission lines on a
non-discriminatory basis. This right enables us, as well as other wholesale
generators, to sell the energy that we produce into competitive markets for
wholesale energy. The Energy Policy Act also created a new class of generators--
exempt wholesale power generators-- that are not subject to portions of the
regulatory structure otherwise generally applicable to electric utilities and
their holding companies. FERC adopted, and the U.S. Court of Appeals upheld,
Order Nos. 888 and 889, providing for nondiscriminatory open-access electric
transmission services by public utilities, separate from wholesale sales of
electricity. This development has opened wholesale power sales to additional
competition. Certain aspects of Order No. 888 are being reviewed by the Supreme
Court of the United States and any reversal of that order could make it more
difficult or expensive to gain access to certain markets. In December 1999, FERC
issued Order No. 2000 encouraging transmission owners to participate in Regional
Transmission Organizations, or RTOs. FERC's goal in encouraging participation in
these organizations is to enhance wholesale competition by addressing
inefficiencies existing in the current administration of the transmission grid.
The proposed RTOs throughout the country are at various stages of development.
As of early 2001, new regulatory initiatives to increase competition in the
domestic power generation industry had been adopted or were being considered at
the federal level and by many states.

Certain states have adopted deregulation initiatives for the electric power
industry. As of March 2001, 25 states, including where we own or are
constructing generation facilities, such as Maryland, New York, Ohio,
Pennsylvania and West Virginia, have enacted some form of legislation or issued
comprehensive regulatory orders to restructure their electric power industries
in order to promote competition in the wholesale and/or retail sale of electric
power. Similar restructuring is being considered or studied in virtually every
other state.

While we do not own any generating assets in California, recent developments in
the California electric industry may have a significant impact on the pace and
direction of deregulation in other states. California implemented deregulation
in a manner that, combined with numerous other factors, resulted in high price
spikes and the failure of the California Power Exchange spot market. As a
result, two of the major investor-owned utilities are at risk of insolvency. In
recent months, the Department of Energy has required generators to supply power
to California utilities, although it has ended that requirement. In light of
these developments, the federal government and many states are reevaluating
existing deregulation initiatives and may be slowing consideration of pending
initiatives.

Consumer demand for reliable power throughout the United States has been
increasing. The growing population in urban and developing areas of the country
requires additional power, as evidenced by electricity shortages, brownouts and
blackouts in portions of the country and very high peak prices for electricity
in the wholesale electric market. Additionally, many old power plants will need
to be replaced by environmentally cleaner, cheaper and more efficient sources of
power.

As a
result of anticipated utility divestitures of generating facilities associated
with deregulation initiatives and the need to replace inefficient generating
facilities, we believe there exists a significant opportunity for investment in
the power generation industry. We are one of many companies actively pursuing
the opportunities created by this evolving industry. In our case, we are doing
so by seeking to acquire and develop a portfolio of generating facilities in
order to operate as a competitive electric generating and wholesale supply
company in a deregulated marketplace.

Market Fundamentals

Generally, electric generating facilities can be categorized into three
categories (baseload, intermediate and peaking) based on their operating
characteristics in the production of energy for the region they serve. The
various tiers of baseload, intermediate and peaking facilities serving a
particular area or region are often referred to as the "generation stack" for
that area or region. Our current facilities are weighted towards baseload and
intermediate units, though our assets include several peaking units near the top
of the generation dispatch stack in the New York City, Ohio and Pennsylvania
markets. The operating assets located in Ohio and Pennsylvania are predominately
baseload facilities.

In
many areas, especially in large cities, the demand for electricity is greater
than the capacity of electric transmission lines to supply electricity from
outside regions. This creates a need for a power plant to be located within the
area, known as a load pocket. Load pockets that cover large regions may
themselves contain smaller load pockets. The existence of a load pocket may
require selected generating units inside the load pocket to produce electricity,
even though less costly sources of electricity may exist outside of the load
pocket. The construction of additional electric transmission facilities can
reduce or eliminate load pockets by increasing transmission capacity.
Additionally, the construction of generating units within a load pocket may
increase competition and may reduce market prices. Our assets currently serve
load pockets in Cleveland, New York City and Pittsburgh.

We
look to acquire or develop generating facilities that are located in load
pockets because we believe these facilities will have a more stable revenue
stream, which reduces the seasonality of our business. The elimination of a load
pocket in which we own a generating facility through either the construction of
additional transmission or generating capacity could negatively impact our
business. In addition, restrictive rules governing market prices within a load
pocket could negatively impact our business.

Business Strategy

Our
strategy is to acquire and develop a portfolio of premier non-nuclear generating
facilities in deregulating markets in the United States and Canada that provide
electricity and related products for the regions in which they are located,
while seeking to maximize value for our stockholders. We believe that by
operating a carefully assembled portfolio of generating assets in a
cost-efficient manner and marketing our output to our customers with a limited
amount of commodity price risk, we will be able to compete effectively in the
newly deregulated market for wholesale electric power. We approach our business
with financial discipline, applying a rigorous and multi-faceted approach to
valuing investment opportunities. We also place a high priority on integrating
acquired and newly developed assets and related employees into our
operations.

Based on the opportunities for investment in our industry, we believe we will be
able to grow our business rapidly and become one of the ten largest power
generators in the U.S. while maintaining strict financial control. We attempt to
have a significant market share in each region in which we choose to compete,
and believe we will become a prominent power generator in each of those regions.
Our strategy to build and operate this business includes the following key
elements:

Attract and Retain Talented, Entrepreneurial Employees. We believe that the
quality of our employees will be the most critical factor in our success. We
hire high quality employees from a variety of different backgrounds, including
in the wholesale and unregulated power industry, utility operations, financial
services and commodity trading, and offer them superior tools and training,
which we couple with substantial authority and responsibility. We are committed
to a flat, non-hierarchical organization that offers our employees internal
growth opportunities. To achieve our growth targets, our employees must be
motivated to work together and focused on expanding our business. Meaningful
amounts of their expected compensation are tied to increasing stockholder value,
including incentive cash compensation and stock option plans. A substantial
number of our employees participate in our stock option program, and our
executive officers and employees own, either directly or indirectly through
stock options, over 5% of the company on a fully diluted basis.

Assemble and Maintain a Competitive Portfolio of U.S. and Canadian Generating
Facilities. We employ a rigorous, multifaceted approach to our investment
opportunities. We believe that access to the complementary skill sets of our key
management members provides us with a significant competitive advantage in
successfully completing acquisition opportunities. As we grow our asset base to
meet the market opportunity, we will continue to focus on the following:

| |  | High Quality Facilities. In determining which generating facilities or
development projects to pursue, we focus on those properties or portfolios that
have a proven and successful operating history, have been well-maintained, and
have a long remaining anticipated useful life.;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Critical Locations.We target power generating facilities that are
critical to the functioning of the electric grid for the region that they serve,
such as our facilities serving capacity constrained areas in New York City,
Pittsburgh and certain parts of Ohio. These types of generating facilities
typically are located in or near large metropolitan areas or in very rural
areas.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Low Cost Producers.We are interested in facilities that have relatively
low marginal costs of producing energy and related products and services. These
facilities are more likely to produce energy for economic reasons, whether they
operate in a bid-based market or a cost-based dispatch pool, and, consequently,
provide some protection against fluctuating wholesale prices of energy. Low
marginal production costs can result from a variety of factors, including low
cost fuel, efficiency in converting fuel into energy, and low per unit operation
and maintenance costs. Our hydroelectric assets and our assets located in Ohio
and Pennsylvania are examples of this latter type of generating facility.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fuel Diversity.We intend to continue assembling a portfolio of
facilities using a variety of fuel types in order to create a natural hedge
against some of the risks of fluctuating fuel prices. Our current facilities
illustrate this diversity, as they use fuel oil, natural gas, coal and water to
generate power. We do not expect to acquire nuclear-powered generating
facilities.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Geographic Diversity.We intend to continue to target facilities serving
a variety of markets throughout North America. We evaluate acquisition
opportunities in a number of states. We compete in two different large markets
and serve multiple submarkets like New York City, eastern New York, western New
York, Pittsburgh and northern Ohio. Additionally, we are currently constructing
facilities in Philadelphia and West Virginia. Our goal is to continue to
diversify into additional markets in the future.;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Optimize Performance of Facilities. We are committed to optimizing the
performance of our facilities to meet the demands of a competitive market. We
will do so by improving the operating efficiency of our facilities, which
historically have been operated in a regulated environment that often did not
encourage cost efficiency. We increase our employees' authority and
responsibility by eliminating layers of management. We believe that this allows
us to increase productivity and operating efficiency to maximize profitability.
We also have opportunities to improve fuel procurement practices to lower
overall fuel costs and increase fuel quality.

Grow Through Redevelopment of Existing Facilities and Development of New
Facilities. We are focused on growing our business through the development
and construction of power generating facilities. We believe that there is
significant need for additional generating capacity throughout North America to
replace aging and inefficient facilities, as well as to satisfy increasing
demand. These new facilities may be created through the redevelopment of
existing assets or through development at new sites.

We
are capitalizing on the existing infrastructure at our current plants by
expanding and modernizing certain generating units. The existing assets at these
sites allow us to build additional generating capacity at critical sites and for
anticipated capital costs that other developers are unlikely to be able to
reproduce. New power generation facilities are currently under construction at
two sites and under development at two additional sites. We expect to commence
the construction, siting and permitting of new power plants to meet the need to
provide efficient, low-cost energy and related products to areas of North
America where demand is projected to exceed the current power supply.

In
pursuing this strategy, we intend to use our management and technical knowledge,
and expertise in finance, fuel, operations and power marketing, which we believe
provide us with a competitive advantage. We believe that we can maximize the
return on our investments in these new and existing facilities by utilizing and
building upon our current infrastructure and organization. Given the early
stages of development of some of these facilities, we may in the future elect
not to pursue these activities or we may not otherwise be able to do
so.

Build Strong Relationships with Local Customers. We seek to sell a
majority of our power under contracts of varying lengths. Therefore, we strive
to build strong relationships with the electric utilities, municipalities,
cooperatives and retail aggregators in the regions in which we generate energy,
including the companies that sell us our facilities. We believe that these
entities will continue to be the primary providers of electricity to retail
consumers in a deregulated environment, and that they will need products in
addition to energy, such as capacity, operating reserves, voltage support, and
automatic generation control, in order to reliably serve their customers' needs.
By providing these services, we believe that we can earn a better return than
would be available by primarily selling commodity energy into the spot markets
as they develop. In order to facilitate the development of these relationships,
we will operate our facilities on a decentralized basis, using local management
with expertise in the local power markets.

As
an initial step in building these relationships, we have entered into transition
contracts to sell energy and other products to Niagara Mohawk Power Corporation
and Duquesne Light Company, from whom we purchased assets. As substantially all
of the obligations under these contracts are expected to expire in the third
quarter of 2001 for Niagara Mohawk Power Corporation and early 2002 for Duquesne
Light Company, we have sought to continue these relationships beyond the
expiration date of these contracts and enter into new relationships with other
entities that provide retail electric service. In particular, we have extended
the period during which we will supply energy to Duquesne Light Company until
December 31, 2004. See "--Orion Power MidWest, L.P.--Provider of Last Resort
Contract." Additionally, we are examining opportunities to extend the energy
sales contract with Niagara Mohawk Power Corporation through September
2004.

The
majority of the capacity and energy of the Liberty Project, which is under
construction in Pennsylvania, is also committed under a 14-year tolling
agreement. See "--Orion Power Development Company, Inc.--Construction and
Development."

Actively manage energy and fuel merchant market risk. We are focused on
maximizing the net margin of energy and related products while minimizing risk.
Our electric markets and fuels group actively markets output from and manages
fuel procurement for the facilities on a monthly, daily and real-time basis. We
operate a 24-hour, seven-day-per-week service desk to dispatch facilities,
manage output and fuels and respond to operational issues on a real-time basis.

We
do not engage in any speculative trading of electricity or fuel. A key component
to our risk management strategy is to sell a majority of our output forward
through long-term and short-term contracts and purchase in advance the
associated fuel to match the term of those sales. We believe that this approach
allows us to successfully manage electric and fuel commodity risk while
maximizing our profit margins.

2000 Acquisitions of Facilities

On
April 28, 2000, we purchased seven generating plants located in Ohio and
Pennsylvania with a capacity of 2,614 megawatts from Duquesne Light Company. The
net purchase price for the assets was approximately $1.8 billion in cash. In
connection with this acquisition, we assumed approximately $24.4 million of
liabilities relating to employee benefits and environmental remediation and
assumed Duquesne Light Company's responsibility as provider of last resort for a
specified period.

On
December 11, 2000, we purchased from Columbia Energy Group (now a subsidiary of
NiSource Inc.) all the outstanding stock of Columbia Electric Corporation, a
power generation company with natural-gas-fired projects in various stages of
construction or development. Columbia Electric had divested its partial
ownership interest in facilities already in operation prior to our acquisition.
The net purchase price for this acquisition was $209 million in cash. In
connection with this acquisition, we assumed a $334 million credit facility, of
which approximately $148 million was outstanding as of December 31, 2000. We
also assumed from Columbia Energy Group construction contract and tolling
agreement guarantees of approximately $6 million and equity investment
obligations of approximately $41 million. As part of the Columbia Electric
acquisition, we also assumed a tolling agreement for the Liberty Electric
Generating Station.

Operations

We
operate our business on a decentralized basis. The majority of day-to-day
operating decisions are made by employees either at the facilities or in our
regional offices. This allows employees in our headquarters to focus on those
activities that benefit from economies of scale, that require inter-regional
coordination and that continue to grow our business.

We
own 5,396 megawatts of generating, capacity, with historic generation of energy
totaling over 20 million megawatt hours per year. Capacity refers to the net
tested, operational capability of a generating facility to produce energy in the
summer. The capacity of a particular facility will vary seasonally, typically as
a result of differences in ambient air temperature. As a result, capacity is
typically measured twice--once for the summer and once for the winter. Our
portfolio utilizes four primary fuels: coal, natural gas, oil, and water. Many
of our facilities that burn natural gas have the ability to switch between
burning either natural gas or oil as the primary fuel type. No one fuel type
currently accounts for as much as 50% of our capacity.

Corporate Operations

Our
corporate headquarters are located in Baltimore, Maryland. The corporate office
is focused on selected activities, including corporate administration,
accounting, financing, power sales, fuel procurement, asset management, risk
management and business development. As of December 31, 2000, there were 54
employees located in the corporate office, including all of the executive
officers. We conduct our day-to-day operations by subsidiaries which are
wholly-owned either by us or by another one of our subsidiaries.

We
centralize some aspects of asset management, risk management, power sales, and
fuel procurement. The combined power sales and fuel procurement group, which, as
of December 31, 2000, totaled 18 employees, focuses on optimizing the net margin
earned on sales of energy, capacity, and ancillary services after taking out the
cost of fuel and limiting the amount of risk in our activities. This group
concentrates solely on power sales and fuel procurement for our assets and is
not authorized by senior management to engage in speculative trading or
activities for unaffiliated third parties.

Our
business development team, consisting of six people, focuses on maximizing value
and growing our business, both through new acquisitions and new project
development. Most of our corporate employees, including all of our executive
officers, are directly involved in our business development efforts.

We
instituted a risk management committee to help monitor our business activities.
The committee meets at least once per month and has a broad mandate to review
all areas of our business, set policies for managing risk positions, and direct
management on appropriate actions to reduce our significant risks.

Orion Power New York, L.P.

Facilities. Our regional operating company, Orion Power New York, L.P.,
which is headquartered outside Syracuse, New York manages our assets located in
New York State. Orion Power New York manages a total of 74 power generation
facilities of which 72 are currently operational. Total aggregate capacity of
these facilities is approximately 2,607 megawatts. The facilities consist of 70
hydroelectric facilities, of which 68 are active, three facilities located in
New York City and the Carr Street Generating Station in East Syracuse. In April
2000, we acquired three subsidiaries of Constellation Operating Services that,
pursuant to strategic alliance agreements, operated the assets located in New
York. As of December 31, 2000, Orion Power New York employed 372 people as
direct employees.

We
have not owned these facilities for a substantial period of time, and therefore,
our historical financial and operating results do not provide a longer term
perspective on the operation of the assets located in New York.

Assets Located in New York City. We currently bid the energy produced by
the assets located in New York City into the energy and ancillary services
markets operated by the New York independent system operator (NY-ISO). Because
our assets located in New York City serve a transmission-constrained area, bids
for energy produced by these facilities are subject to market power mitigation
measures as implemented by the NY-ISO, in addition to the New York City capacity
regulations. The market power mitigation measures provide that if the energy bid
price for our assets located in New York City exceeds the market price at a
specified location reference point outside New York City by 5% or more, our bid
price is replaced with an energy reference price that approximates our cost of
production. All units that are dispatched will then receive the market clearing
price. Due to the fact that our units are located in critical areas in New York
City and are often dispatched for uneconomic reasons, we receive the greater of
the market clearing price or the cost of production.

Hydroelectric Assets. We have sold all of the output of the hydroelectric
assets, including energy, capacity, and ancillary services, to Niagara Mohawk
Power Corporation on a bilateral basis through September 30, 2001. Under this
contract, we receive an annual fixed payment, totaling $71.8 million for the
period October 1999 through September 2000 and $73.6 million for the period
October 2000 through September 2001, and a variable payment of $20 per megawatt
hour for all generation above approximately 2.2 million megawatt hours. The
actual targets are set on a quarterly basis to reflect the seasonal fluctuations
in energy production from our hydroelectric assets, and payments are made
monthly. If we fail to meet the minimum generation threshold, we are obligated
to pay penalties to Niagara Mohawk. The 2.2 million megawatt hour target is
approximately 78% of the average generation for the units over the last ten
years. Generation at hydroelectric facilities, however, varies based on
precipitation. We are currently working to extend this contract.

Carr Street. We have entered into a gas tolling agreement with
Constellation Power Source covering the Carr Street Generating Station, which
continues until 2003. Under this agreement, Constellation Power Source has the
exclusive right to all energy, capacity and ancillary services produced by the
plant. Constellation Power Source pays for, and is responsible for, all fuel
used by the plant during the term of the gas tolling agreement. We are currently
paid approximately $3.6 million per annum as a fixed fee and $3.15 per megawatt
hour generated, both of which escalate by approximately 2.5% per annum. We have
guaranteed certain aspects of the plant's operating performance and failure to
meet these guarantees could result in penalties.

Orion Power MidWest, L.P.

Facilities. Our regional operating company, Orion Power MidWest, L.P.,
which is headquartered near Pittsburgh, Pennsylvania, manages our assets located
in Ohio, Pennsylvania and West Virginia. The assets consist of seven power
generating facilities, six of which are active, located in western Pennsylvania
and Ohio, and one generating facility, the Ceredo Electric Generating Station,
currently under construction in West Virginia. We acquired the West Virginia
facility from Columbia Energy Group in December 2000, and it is scheduled to
begin commercial operations as a 500 megawatt peaking facility in June 2001. The
remaining seven facilities were acquired from Duquesne Light Company in April
2000, three of which Duquesne had recently acquired in an asset swap with
FirstEnergy Corp. The other four (including the retired facility) have
historically been owned and operated by Duquesne Light Company. The six
operating facilities have a total aggregate capacity of approximately 2,614
megawatts, with five of such facilities using coal as their primary fuel source
and one such facility using oil. The majority of the coal units operate as
baseload units because of their low production costs per megawatt hour. In
addition, in connection with the Duquesne acquisition we entered into the
provider of last resort contract with Duquesne Light Company. As of December 31,
2000, we employed 454 people in the direct operation of the eight facilities
managed by Orion Power MidWest.

We
have not owned these facilities for a substantial period of time, and therefore,
our historical financial and operating results do not provide a longer term
perspective on the operation of these assets.

Provider of Last Resort Contract. As part of our acquisition of seven
facilities located in Ohio and western Pennsylvania in April 2000, we entered
into the provider of last resort contract with Duquesne Light Company. Under the
contract, we are obligated for a specific period to provide energy to Duquesne
Light Company to meet its obligations to satisfy the demands of any customer in
the Duquesne Light Company service area that does not elect to buy energy from a
competitive supplier as allowed by the Pennsylvania state deregulatory
initiatives or that elects to return to Duquesne Light Company as the designated
provider of last resort. Under this contract, we must provide all of the energy
necessary to meet the contractual requirements with no minimum and no maximum
quantity and Duquesne Light Company must buy all of the energy needed to satisfy
its provider of last resort obligation from us.

The
provider of last resort contract is a wholesale contract between us and Duquesne
Light Company, and we have no responsibility for selling energy directly to the
related retail customers, nor are we obligated to provide capacity or other
ancillary services. Therefore, we have no involvement in billing retail
customers or collecting amounts owed by retail customers.

The
Duquesne Light Company service area covers approximately 580,000 retail
customers. According to information provided by Duquesne Light Company, the peak
demand for the Duquesne Light Company control area was approximately 2,673
megawatts, and the total amount of electricity consumed was approximately
14,103,000 megawatt hours in 2000. As of December 31, 2000, approximately 79% of
the customers in the Duquesne Light Company control area, as measured by energy
consumption, received energy from Duquesne Light Company as the provider of last
resort. The peak provider of last resort load was approximately 2,335 megawatts
for 2000. The total amount of electricity consumed by provider of last resort
customers was approximately 10,811,387 megawatt hours for 2000.

Under the provider of last resort contract, the prices we receive are a
specified portion of Duquesne Light Company's current retail rates, which have
been approved by the Pennsylvania Public Utility Commission. Our average gross
selling price was approximately $40 per megawatt hour for 2000. From this
amount, Duquesne Light Company deducts the Pennsylvania gross receipts tax of
4.4%, $1 per megawatt hour for ancillary services that Duquesne Light Company
procures from another party and transmission line losses. Based on recent
historical patterns of usage for each of Duquesne Light Company's rate classes,
we expect our average gross selling price in 2001 will be almost $41 per
megawatt hour.

The
provider of last resort contract continues in effect for each rate class until
the amount of Duquesne Light Company's stranded costs allocated to that rate
class have been recovered through the surcharge being added to each customer's
monthly bill. For two rate classes, all stranded costs have already been
recovered, and therefore the provider of last resort obligation is satisfied for
these rate classes. The remaining rate classes are projected to complete
stranded cost recovery between 2001 and 2003, with most rate classes expected to
have completed stranded cost recovery before the summer of 2002. Accordingly, we
expect the majority of the original provider of last resort contract obligations
to end during early 2002.

We
have reached agreement with Duquesne Light Company, which was approved by FERC,
to extend the provider of last resort contract until December 31, 2004 and to
amend the price and certain other terms. The new agreement will become effective
for each Duquesne Light Company retail customer class as that class comes off
the retail tariff that relates to the existing contract, which, based on
historic patterns, should occur in early 2002. The extension differs from the
existing tariff and contract in certain respects, including:

| |  | The penalty for failure to deliver energy will be reduced from $1,000 to $100
per megawatt hour under most circumstances where Duquesne Light Company is
required to reduce power provided to consumers;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We will be paid rates that are approximately nine percent higher
per megawatt hour, although the actual increase depends on actual demand in each
rate class;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We will be responsible for only a pro rata share of transmission line losses in
the Duquesne Light Company control area, together with the other electric
generation suppliers operating in the area, instead of being responsible for all
transmission line losses as the existing contract provides; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A customer switching rule has been added, retroactive to January 1, 2000, that
will reduce our risks associated with unintended abuses related to
customers' right to switch service providers.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Given the expected demand for energy from provider of last resort customers and
the historic energy generation from our assets located in Ohio and Pennsylvania
and our peaking power plant under construction in West Virginia, we generally
expect to produce more energy than needed to meet our provider of last resort
obligations. We will attempt to sell this excess energy into the market and will
receive the prevailing market price at the time. The provider of last resort
demand, however, will fluctuate on a continuous, real-time basis, and will
likely peak during summer and winter, on weekdays, and during some hours of the
day. This could cause the provider of last resort demand to be greater than the
amount of energy we are able to generate at any given moment. As a result, we
may need to purchase energy from the market to cover our contractual
obligations. This is likely to occur at times of higher market prices, although
the price we receive will be determined as described above and will not
fluctuate with the market. This situation could also arise or worsen if we have
operational problems at one or more of our generating facilities that reduce
their ability to produce energy. Failure to provide sufficient energy could give
rise to penalties under the contracts. A severe under-delivery of energy that
forces Duquesne Light Company to deny some customers energy could give rise to
penalties of $1,000 per megawatt hour under the initial provider of last resort
contract or $100 per megawatt hour under the extension. This risk should
diminish as the number of rate classes eligible for provider of last resort
service is reduced. Constellation Power Source currently manages our position in
the merchant energy market under an agreement that expires on March 31, 2001.
Upon expiration of this contract, we will deal directly with all counterparties
in the market.

Orion Power Development Company, Inc.

Orion Power Development Company, Inc., which is based in Baltimore, Maryland,
manages our assets under construction and development. Our development company's
primary objective will be to grow our portfolio of generating assets in a timely
manner by developing efficient generating facilities that can provide wholesale
customers with reliable, low-cost electricity and related products and services.
Our development team has extensive experience in business development, power
plant siting, system design, equipment procurement, construction management,
economic analysis and risk management. Our development team seeks to identify
attractive market opportunities and transmission constrained areas and then
pursues a structured approach tailored to the needs of the specific markets. Our
development team works closely with all members of the Orion Power team to
execute our overall growth strategy. As of December 31, 2000, Orion Power
Development Company, Inc. had no direct employees. Consequently, some of the
employees of Orion Power Holdings, Inc. managed the daily business of and the
development projects owned by Orion Power Development Company, Inc.

With
the exception of the Ceredo Electric Generating Station in Ceredo, West
Virginia, the facilities which we purchased from Columbia Energy Group in
December 2000 will be owned and managed through Orion Power Development Company,
Inc.

Construction and Development

A
primary facet of our strategy is to continue to grow by developing additional
capacity at our facilities by repowering or adding units at existing facilities
and by building new facilities throughout the U.S. and Canada.

For
example, in 2000, we restored a unit at the Astoria Generating Station in New
York City that was shut down by the prior owner in 1993. We have been granted
the right to operate this unit for up to three years in order to increase
capacity in New York City and enhance electric reliability. The restored unit is
capable of producing approximately 175 megawatts of energy.

We
currently have three projects that are under construction:

| |  | Ceredo Electric Generating Station, located in Wayne County, West Virginia, near
the border of Kentucky and Ohio, will be a 500 megawatt, natural gas fired facility,
which will consist of six General Electric model 7EA combustion turbines
arranged in a simple-cycle, peaking configuration. Ceredo Electric Generating
Station will assist in meeting the demand for electric power during times of
peak usage in the operating region known as the East Central Area Reliability
Council, more commonly referred to as ECAR. The output of this facility will
likely be made available for the ECAR energy merchant market and, if needed, for
output under our provider of last resort contract with Duquesne Light Company.
This facility is scheduled for completion by June 2001.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Liberty Electric Generating Station, located south of Philadelphia,
Pennsylvania, is a 568 megawatt, natural gas fired facility under construction,
which will consist of two General Electric model 7FA class combustion
turbine-generators supplying steam to a single Toshiba steam turbine-generator.
We expect that this facility will operate as a baseload facility. The output of
this facility is contracted under a tolling agreement for a term of
approximately 14 years. Under this agreement, the counterparty will have the
exclusive right to receive all energy, capacity and ancillary services produced
by the plant. The counterparty will pay for, and be responsible for, all fuel
used by the plant under the tolling agreement. Liberty will be operated by
Conectiv Operating Services Company under an operations and maintenance
agreement with a seven year term. This facility is scheduled for completion in
April 2002.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Brunot Island Generating Station, located near downtown Pittsburgh,
Pennsylvania, is currently a 234 megawatt peaking facility. We have begun the
conversion of many of the existing simple cycle, oil fired units on site back to
their original combined cycle operation and the upgrade of the on-site natural
gas pipeline to allow for natural gas to become the primary fuel. We will also
upgrade environmental control equipment to reduce our emissions. Our objective
is to increase capacity at Brunot Island by 140 megawatts and significantly
reduce production costs. This project is scheduled for final completion by the
summer of 2002.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
are currently pursuing a number of development opportunities:

| |  | Astoria Generating Station is in the design and permitting phase
of modifying two of the three large units at the Astoria Generating Station. As
currently envisioned, we intend to install new natural gas fired combustion
turbines to repower the units and to retire the third unit, resulting in an
increase in total capacity of approximately 585 megawatts. In addition to
increasing Astoria's total capacity to approximately 1,850 megawatts, this
project would significantly lower air emissions from the plant's current levels
and lower our cost of producing energy, making the Astoria plant even more
competitive in the New York City and New York State energy markets. We believe
that the permit, design and development process in New York could take up to two
more years to complete before we can begin construction. We currently believe
that the first phase of this project represents approximately 385 megawatts of
additional capacity. We expect it to be in service by the summer of 2004, with
the balance in service in 2005.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Kelson Ridge Generating Station, to be located in Waldorf, Maryland serving both
Washington, DC and Baltimore, will be a 1,650 megawatt gas fired facility under
advanced development, which we expect will be constructed in three phases. We
expect the initial phase, anticipated to be completed in 2004, to be 550
megawatts. The facility will be composed of three 550 megawatt blocks, each
consisting of two combustion turbine units, two heat steam recovery generation
units and a steam generator. The output will likely be committed under a
contract and/or made available for the Pennsylvania New Jersey Maryland (PJM)
wholesale merchant energy market.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Henderson Generating Station, to be located in Henderson County, Kentucky, will
be designed as a 500 megawatt gas fired, simple cycle peaking plant. We expect
to construct this facility in two phases of 250 megawatts. Henderson is expected
to meet the demand for electric power during times of peak usage in the ECAR
region.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We have plans over the long-term to develop additional power plants at both the
Avon Lake location and the Niles location. Preliminary plans project from 550 to
1,100 megawatts of additional capacity at Avon Lake depending on forecast market
conditions and up to 550 megawatts of additional capacity at Niles, which may
include the shutdown of some existing older, coal-fired capacity. We are
currently evaluating the costs and benefits of using coal and natural gas as the
primary fuel for these projects.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Given the early stage of all of the aforementioned projects, we may elect not to
pursue these activities or we may otherwise not be able to do so.

In
September 2000, we entered into a letter of intent for the delivery over the
next four years of 10 combustion turbine generators from Siemens Westinghouse
Power Corporation as part of our development efforts. The total purchase price
is approximately $345 million, substantially all of which is payable at various
times in 2003 and 2004. We paid a $5 million deposit in the third quarter of
2000 and will pay an additional $5 million deposit in the first quarter of 2001.
Furthermore, as part of our acquisition of Columbia Electric Corporation, we
acquired the rights to the eight turbine generators to be delivered by GE Power
Systems, which are being installed in the projects under construction. As of
December 31, 2000, approximately $33.9 million remained to be paid for these
eight turbines, of which $32 million was due at December 31, 2000, and recorded
in accounts payable on the balance sheet.

The
following table outlines our projects currently in construction and under
development:

`In Construction
                                                                                          Currently
                              Planned                                                      Expected
                             Capacity                                                     Operation
Facility                       (MW)      Primary Fuel Type         Location Served           Date
--------                       -----     -----------------         ---------------           ----
Ceredo                          500      Natural Gas               Wayne County, WV       June 2001
Brunot Island                    140     Natural Gas               Pittsburgh, PA              2002
Liberty                         568      Natural Gas               Philadelphia, PA            2002
                                ---
Total in Construction         1,208
                              -----

                                                  Under Development
                                                                                                    Currently
                               Planned                                                               Expected
                              Capacity                                                              Operation
Facility                        (MW)      Primary Fuel Type                 Location Served            Date
--------                        -----     -----------------                 ---------------            ----
Astoria
  Phase 1                         385     Natural Gas                       New York, NY               2004
  Phase 2                         200     Natural Gas                       New York, NY               2005
Henderson
  Phase 1                         250     Natural Gas                       Henderson County, KY       2004
  Future Phases                   250     Natural Gas                       Henderson County, KY       TBD
Kelson Ridge
  Phase 1                         550     Natural Gas                       Charles County, MD         2004
  Future Phases                 1,100     Natural Gas                       Charles County, MD         2006
Avon Lake repowering
  Phase 1                         550     Evaluating Coal v. Natural Gas    Cleveland, OH              TBD
  Future Phases                   550     Evaluating Coal v. Natural Gas    Cleveland, OH              TBD
Niles                             550     Evaluating Coal v. Natural Gas    Youngstown, OH             TBD
                               -----
Total under Development         4,385
                               -----

Total Projects Announced        5,593
                               =====`

The
actual commercial operation dates of these facilities will be dependent on
various factors, including timely delivery of and performance of the turbines,
transformers and other major equipment, timely construction of the gas and
electric interconnection lines and any unusual conditions at the sites or
otherwise which may impact construction, and we cannot assure you that these
facilities will operate as scheduled.

Recent Market Developments

New York Market Framework. The New York wholesale energy market has
recently been reorganized, with the NY-ISO taking over responsibility for daily
operation of the transmission system and the administration of bid-based markets
for energy, capacity, and ancillary services. The day-ahead and real-time energy
and ancillary services markets started on November 18, 1999. The capacity market
began with an auction in early April 2000 for the summer 2000 six-month capacity
period.

Under the NY-ISO, generators like us are able to sell energy to any wholesale
customer in the state. These sales may be done under bilateral contracts, in
which pricing and other provisions are determined through private negotiation,
or by bidding into the day-ahead and real-time energy and ancillary services
markets. The NY-ISO has only recently been formed, and the markets it operates
are new. The NY-ISO has experienced problems in administering New York's
competitive wholesale energy markets since its inception. As a result, some
parties involved in New York's wholesale market and certain members of the
NY-ISO have asked that the NY-ISO and, in some instances, FERC review the
structure of the wholesale market. Consequently, the NY-ISO is in the process of
reviewing and revising market rules and the implementation of its software. This
process has created some uncertainty for future market conditions in New York.
There can be no assurance that changes to New York's competitive wholesale
energy markets will not adversely affect our operations. The NY-ISO has the
ability to revise prices, which could lead to delayed or disputed collection of
amounts due to us for sales of energy and ancillary services. The NY-ISO also
has the ability, in some cases subject to FERC approval, to impose cost-based
pricing and/or price caps.

The
NY-ISO applied to FERC to impose a cost-based price with respect to the ten
minute spinning reserve and ten minute non-spinning reserve markets. FERC
granted the NY-ISO's request with respect to the ten-minute non-spinning reserve
market. In July 2000, FERC imposed a bid cap of $1,000 per megawatt hour to be
consistent with the independent system operators in the Mid-Atlantic and New
England. This cap is in place through April 2001, and parties have requested
extensions of the cap. Other independent system operators have suggested various
forms of cost-based bidding for energy and related services.

The NY-ISO recently announced it will implement a measure known as a "circuit
breaker" under which day-ahead energy bids will be automatically reviewed and,
if necessary, mitigated if economic or physical withholding is determined by the
summer of 2001. A number of additional changes have recently been proposed for
the New York wholesale market, which could be in place as early as the summer of
2001. These include the following:

| |  | A number of programs that will allow energy demand, commonly
referred to as "load", to respond to high prices in emergency and non-emergency
situations. The lack of load-responsive programs has been cited as one of the
major reasons for retaining bid caps.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The New York Public Service Commission has announced that it will request that
FERC lower the $1,000 bid cap on a regional basis.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

The
NY-ISO has established a capacity market, beginning with the summer 2000
capacity season, to ensure that there is enough generation capacity to meet
retail energy demand and ancillary services requirements. All power retailers
are required to demonstrate commitments for capacity sufficient to meet their
peak forecasted load plus a reserve requirement, currently set at 18%. As an
extra reliability measure, power retailers located in New York City are required
to procure the majority of this capacity (currently 80% of their peak forecasted
load) from generating units located in New York City. Since New York City is
currently short of this capacity requirement and the existing capacity is owned
by only a few entities, a price cap of $105 per kilowatt year has been
instituted for in-city generators. In 2000, in two separate auctions, we sold an
average of 1,983 megawatts at the price cap of $105 per kilowatt year. This
price cap and other rules relating to the capacity market may be reviewed by
regulatory agencies from time to time and may change.

Midwest Market Framework. The assets managed by Orion Power MidWest, L.P.
are located in the ECAR region. The ECAR region covers part or all of the
following states: Indiana, Kentucky, Maryland, Michigan, Ohio, Pennsylvania,
Virginia and West Virginia. There is no ISO or similar entity in place for the
entire ECAR region, although the utilities in the region are proposing at least
three plans for an independent system operator and/or a regional transmission
operator. The ECAR market is characterized by substantial costs for transmitting
power from one location to another, because each independent utility charges a
tariff to use its transmission facilities. Therefore, moving power across
multiple control areas becomes expensive and may become difficult or impossible
at times of maximum demand.

The
current market in the ECAR region is relatively illiquid and is dominated by
private bilateral contracts between parties. Notwithstanding the general lack of
liquidity, markets do exist for several areas within the ECAR region. The ECAR
region also lacks a specific capacity market and well-developed markets for
ancillary services.

Given the competing proposals currently under consideration and the many
divergent interests which exist in the ECAR region, we expect that any adoption
of ISOs or similar entities will be gradual. Some entities, including Duquesne
Light Company, have considered joining the PJM-West market, a newly created
wholesale market that would cover the western portion of the Mid-Atlantic region
as early as December 2001. If Duquesne Light Company, our primary customer in
the ECAR Region, joins the PJM-West market, we may well enter the newly created
wholesale market as well. We are unable to determine what impact, if any,
joining the PJM-West market would have on our business or financial prospects.

Regulation

We
are subject to complex and stringent energy, environmental, and other
governmental laws and regulations at the federal, state, and local levels in
connection with the development, ownership, and operation of our electric
generation facilities. The federal and state energy laws and regulations create
burdens and risks for our operations, as well as opportunities for further
acquisitions of facilities at attractive prices.

Federal Energy Regulation

The
Federal Energy Regulatory Commission, or FERC, is an independent agency within
the Department of Energy that regulates the transmission and wholesale sale of
electricity in interstate commerce under the authority of the Federal Power Act.
FERC is also responsible for licensing and inspecting private, municipal and
state-owned hydroelectric projects. FERC determines whether a public utility
qualifies for exempt wholesale generator status under the Public Utility Holding
Company Act, which was amended by the Energy Policy Act of 1992.

Federal Power Act. The Federal Power Act gives FERC exclusive rate-making
jurisdiction over wholesale sales of electricity and transmission of electricity
in interstate commerce. FERC regulates the owners of facilities used for the
wholesale sale of electricity and its transmission in interstate commerce as
"public utilities" under the Federal Power Act. The Federal Power Act also gives
FERC jurisdiction to review certain transactions and numerous other activities
of public utilities.

Under the Federal Power Act, an entity that sells electricity at wholesale is a
public utility, subject to FERC's jurisdiction. Public utilities are required to
obtain FERC's acceptance of their rate schedules for wholesale sales of
electricity. Because we are selling electricity in the wholesale market, we are
deemed to be a public utility for purposes of the Federal Power Act. In most
cases, FERC does not actively regulate the rates for facilities operated by
wholesale generating companies like ours. Accordingly, FERC has granted
market-based rate authority for the Carr Street facility, our hydroelectric
assets, our assets located in Ohio and Pennsylvania and, subject to various
market power mitigation measures, our assets located in New York City.
Market-based rate authority enables us to price based upon market conditions
rather than upon our costs. Certain parties recently requested significant
modifications to the New York City market power mitigation measures which, if
implemented, would impair our ability to collect market prices for our
electricity.

Usually, FERC's orders which grant us market-based rate authority, reserve the
right to revoke or revise our market-based rate authority on a prospective basis
if FERC subsequently determines that we possess excessive market power. If we
lost our market-based rate authority or if significant new mitigation rules were
adopted, we may be required to obtain FERC's acceptance of a cost-of-service
rate schedule and may become subject to the accounting, record-keeping and
reporting requirements that are imposed only on utilities with cost-based rate
schedules. When FERC considers our request for market-based rate authority in
connection with a new acquisition or development project, it may include
generation owned or controlled by our stockholders in determining whether we
possess market power.

FERC
also regulates the rates, terms, and conditions for electricity transmission in
interstate commerce. Tariffs established under FERC regulation give us access to
transmission lines, which enable us to sell the energy we produce into
competitive markets for wholesale energy.

In
April 1996, FERC issued an order requiring all public utilities to file "open
access" transmission tariffs that give wholesale generators, as well as other
wholesale sellers and buyers of electricity, access to transmission facilities
on a non-discriminatory basis. This order is being reviewed by the Supreme Court
of the United States. All utilities filed open access tariffs. Some utilities
are seeking permission from FERC to recover costs associated with stranded
investments through add-ons to their transmission rates. To the extent that FERC
permits these charges, the cost of transmission may be too high on some systems
to be of practical use to wholesale sellers like us.

FERC
is also encouraging the voluntary restructuring of transmission operations
through the use of independent system operators and regional transmission
groups. The result of establishing these entities typically is to eliminate or
reduce transmission charges imposed by successive transmission systems. The full
effect of these changes on us is uncertain at this time, in part, because it has
not been determined which of these entities will control the transmission
systems connected to certain of our generating facilities.

The
Federal Power Act also gives FERC exclusive authority to license non-federal
hydroelectric projects on navigable waterways and federal lands. FERC
hydroelectric licenses are issued for 30 to 50 years. The hydroelectric assets
are licensed by FERC from 2004 through 2036. Individual hydroelectric
facilities, representing approximately 90 megawatts of capacity, have licenses
that expire over the next ten years. Facilities representing approximately 160
megawatts of capacity have new or initial license applications pending before
FERC. Upon expiration of a FERC license, the federal government can take over
the project and compensate the licensee, or FERC can issue a new license to
either the existing licensee or a new licensee. In addition, upon license
expiration, FERC can decommission an operating project and even order that it be
removed from the river at the owner's expense. In deciding whether to issue a
license, FERC gives equal consideration to a full range of licensing purposes
related to the potential value of a stream or river. It is not uncommon for the
relicensing process to take between four and ten years to complete. Generally,
the relicensing process begins at least five years before the license expiration
date and FERC issues annual licenses to permit a hydroelectric facility to
continue operations pending conclusion of the relicensing process. We expect
that FERC will issue us new or initial hydroelectric licenses for all the
facilities with pending applications. Presently, there are no applications for
competing licenses and there is no indication that FERC will decommission or
order any of the projects to be removed.

Nonetheless, there remains the possibility that FERC will not issue new or
initial licenses for our projects, which could have a material adverse effect on
our operations and revenue. In addition, several interested parties have
intervened or are likely to intervene in our licensing proceedings. These
interested parties may be able to impose conditions and affirmative obligations
on our hydropower operations, which could add significant costs to our
operations or reduce revenues. In the past, FERC has issued licenses with
conditions that have rendered the operation of the relevant projects uneconomic.
Therefore, there is no guarantee that the hydroelectric licenses issued by FERC
will permit us to operate the projects profitably. Finally, the relicensing
process itself is costly, time consuming, and could affect adversely our
hydroelectric revenues.

The
remainder of our hydroelectric assets have licenses that expire over an
approximate 30 year period, are exempt from licensing because they are small
facilities with five megawatts or less or are not within FERC's jurisdiction
because they are not located on navigable waterways or federal land. Many of the
existing licenses contain conditions that have one or more operational
constraints, including restricting energy production, impacting the time of year
or day in which generation occurs, raising operating costs, and requiring
certain minimum river flow releases, which directly affect our ability to
generate energy.

Public Utility Holding Company Act. The Public Utility Holding Company
Act, known as PUHCA, provides that any entity that owns, controls or has the
power to vote 10% or more of the outstanding voting securities of an "electric
utility company," or a holding company for an electric utility company, is
subject to regulation under the Holding Company Act.

Registered holding companies under the Holding Company Act are required to limit
their utility operations to a single, integrated utility system and divest any
other operations that are not functionally related to the operation of the
utility system. In addition, a company that is a subsidiary of a holding company
registered under the Holding Company Act is subject to financial and
organizational regulation, including approval by the SEC of certain financings
and transactions. Under the Energy Policy Act of 1992, however, FERC can
determine that a company engaged exclusively in the business of owning or
operating an eligible facility used for the generation of electric energy for
sale at wholesale is an "exempt wholesale generator." Accordingly, it is exempt
from the Holding Company Act requirements. In the case of facilities previously
operated by regulated utilities, FERC can make an exempt wholesale generator
determination only after the state utility commission finds that allowing the
facility or facilities to be eligible for exempt wholesale generator status will
benefit consumers, is in the public interest, and does not violate state law.
Each of our operating subsidiaries has been designated by FERC as an exempt
wholesale generator.

We
do not expect to engage in any activities that will subject us to regulation
under PUHCA. In addition, our certificate of incorporation prohibits us from
engaging in, any activities that will subject us to regulation under PUHCA
without the consent of Goldman, Sachs & Co. until Goldman, Sachs & Co. and its
affiliates own less than 5% of our outstanding common stock. If we were to lose
our exempt wholesale generator status, we would become subject to regulation
under the Holding Company Act. It would be difficult for us to comply with the
Holding Company Act absent a substantial restructuring.

State Energy Regulation

At
the state level, public utility commissions are responsible for approving rates
and other terms and conditions under which public utilities purchase electric
power from independent producers and sell retail electric power to consumers. In
addition, most state laws require approval from the state commission before an
electric utility operating in the state may divest or transfer electric
generation facilities. These laws also give the commissions authority to
regulate the financial activities of electric utilities selling electricity to
consumers in their states.

State public utility commissions have authority to promulgate regulations for
implementing some federal laws. Power sales agreements, which we enter into, are
also potentially subject to review by state public utility commissions. In
particular, the state public utility commissions review the process by which the
utility has entered into power sales agreements. States may also assert
jurisdiction over the siting, construction, and operation of our facilities, as
well as the issuance of securities and the sale or other transfer of assets.

New York. In 1996, the New York Public Service Commission began proceedings to
introduce retail competition in New York State. These initiatives, in
conjunction with FERC's "open access" rules, led to the formation of an ISO
responsible for centralized control and operation of the state-wide electric
transmission grid. They also led to a spot market and a related competitive
electric energy auction. This auction is open on a non-discriminatory basis to
all electric service providers. Other aspects of New York's restructuring plan
include market power mitigation through utility divestiture of fossil fuel
generation plants, the unbundling and establishment of separate rates for
historic utility functions, and market mitigation measures at the wholesale
level.

Under the New York Public Service Law, the New York Public Service Commission
has jurisdiction over corporations engaged in the production of electricity and
transfers of electric generation facilities located in the State. The New York
Public Service Commission reviewed and approved each of our transactions to
acquire our assets located in New York, and made the necessary findings to
permit us to seek exempt wholesale generator status from FERC. Moreover, while
the NY-ISO is an independent entity, it is considered an "electric corporation"
subject to the New York Public Service Law.

In
addition, the New York Public Service Commission has determined that certain
requirements of the Public Service Law apply to new forms of electric service
providers, which differ from traditional electric utilities. As a result, even
though we do not engage in the sale of electricity at retail in New York State,
our assets located in New York are subject to "lightened regulation" by the New
York Public Service Commission. Under the lightened regulation regime, our
assets located in New York are subject to provisions of the Public Service Law
that relate to enforcement, investigation, safety, reliability, system
improvements, construction, excavation, and the issuance of securities. The
provisions relating to the issuance of securities apply to our subsidiaries that
operate our assets located in New York, but not to a holding company such as
Orion Power Holdings.

Pennsylvania. In December 1996, Pennsylvania adopted the Electricity
Generation Customer Choice and Competition Act, which is now part of the Public
Utility Code. The Act is a comprehensive restructuring plan that allows direct
access to be phased in over a three-year period beginning January 1, 1999 and
culminating in full retail choice by January 1, 2001. Under this plan, one-third
of each customer class will be eligible for direct access each year.

Pennsylvania opened its retail electric market to competition on January 1,
1999. The Act required each utility to submit its restructuring plan to the
Pennsylvania Public Utility Commission for approval. The Pennsylvania Public
Utility Commission is authorized to permit, but may not require, utilities to
divest their generation assets.

In
addition, the Pennsylvania restructuring plan authorizes utilities to implement
a non-bypassable Competitive Transition Charge to collect stranded costs,
subject to approval by the Pennsylvania Public Utility Commission, and permits
securitization of stranded costs.

The
Pennsylvania Public Utility Code also requires that the Pennsylvania Public
Utility Commission approve any transfers or acquisitions of property "used or
useful in public service." The Pennsylvania Public Utility Commission approved
the transaction between Duquesne Light Company and Orion Power MidWest. Unlike
New York, however, Pennsylvania does not have a regulatory regime for wholesale
generators in the state. Therefore, we do not expect to be subject to regulation
by the Pennsylvania Public Utility Commission. However, if we do become subject
to regulation by the Pennsylvania Public Utility Commission, additional costs
may be imposed on the operations of our assets located in Ohio and
Pennsylvania.

Ohio. The Ohio legislature passed a statute in 1999 providing for
implementation of retail competition beginning in 2001. The statute delegated to
the Ohio Public Utilities Commission the responsibility for developing certain
restructuring rules, including rules relating to market monitoring, stranded
cost recovery, and consumer protection. The Ohio Public Utilities Commission
proceedings are in a very early stage, and we cannot predict what effect they
will have on us. Similar to the case with Pennsylvania, we do not expect to be
subject to regulation by the commission. If we do become subject to regulation
by the Ohio Public Utilities Commission, however, additional costs may be
imposed on the operations of our assets located in Ohio and
Pennsylvania.

West Virginia. In 1998, the West Virginia Legislature enacted HB 4277,
which authorized the Public Service Commission to consider whether restructuring
was in the public interest and, if so, to submit a restructuring plan for
Legislative approval. In January 2000, the Commission issued an order finding
restructuring in the public interest and submitting a long-term plan for
transition to competitive power supply markets and consumer choice.

During the 2000 legislative session, the West Virginia Legislature approved the
Commission's plan. However, the plan cannot be implemented until the Legislature
passes tax measures included in the restructuring plan. In late 2000, the
Legislature decided to delay consideration of the tax changes that were
necessary before the restructuring plan could be implemented. Consideration of
the tax measures was delayed to give the Legislature the opportunity to seek an
independent review of the differences between the proposed restructured markets
in West Virginia and those that are experiencing difficulty in other regions of
the United States. It is anticipated that the Legislature and the Governor will
await independent evaluations of the Commission's proposed plan before
proceeding to implement deregulation and the development of competitive power
supply markets in West Virginia.

Maryland. In April 1999, Maryland's Governor signed the Electric Customer
Choice and Competition Act into law. This law established the legal framework
for the restructuring and deregulation of the electric utility industry in
Maryland. The Act deregulates the generation, supply, and pricing of electricity
and provides that retail electric choice will be fully available to all
customers by July 2002. As a consequence of restructuring, the Maryland Public
Service Commission no longer has statutory responsibility for the oversight of
generation facilities, but will continue its ongoing review of the maintenance
and operation of electric utility transmission and distribution facilities in
the State. Since the Act removes generation from the Maryland Public Service
Commission's jurisdiction, our Maryland generating assets will not be subject to
regulation by the Maryland Commission. If we do become subject to regulation by
the Maryland Commission, additional costs may be imposed on the operations of
our assets located in Maryland.

Kentucky. In 1998, the Kentucky Legislature passed legislation creating the
Kentucky Electricity Restructuring Task Force. In December 1999, the Task Force
issued its Findings and Recommendations under its initial authorization. These
findings are also found in the Final Report Special Task Force on Electricity
Restructuring, issued in September 2000. The first finding was that there was no
compelling reason to move quickly towards restructuring in Kentucky. The Task
Force based this finding on a number of facts, including Kentucky's current low
electricity rates and the possibility that Congress will pass a nationwide
restructuring bill. The Task Force advocated a wait-and-see approach that would
allow Kentucky to monitor progress in other states and develop options to
protect Kentucky's existing low rates.

In
April 2000, the Kentucky General Assembly reauthorized the Task Force. Under the
reauthorization, the Task Force is to monitor developments related to
electricity restructuring and make recommendations it deems appropriate for
consideration by the 2002 General Assembly and the Governor. The Task Force is
charged with reporting to the Legislative Research Commission and the Governor
no later than November 15, 2001.

Environmental Regulations

The
construction and operation of electric generating facilities are subject to
extensive environmental and land use regulation in the United States. Those
regulations applicable to us primarily involve the discharge of emissions into
the water and air as well as the use of water, but can also include wetlands
preservation, endangered species, waste disposal, and noise regulation. These
laws and regulations often require a lengthy and complex process of obtaining
and renewing licenses, permits, and approvals from federal, state, and local
agencies. If these laws and regulations are changed, modifications to our
facilities may be required.

Clean Air Act. In late 1990, Congress passed the Clean Air Act Amendments
of 1990, which affect existing facilities as well as new project development.
The act and many state laws require significant reductions in SO2 (sulfur
dioxide) and NOx (nitrogen oxide) emissions that result from burning fossil
fuels.

The
1990 Amendments create a marketable commodity called an SO2 "allowance." All
non-exempt facilities over 25 megawatts that emit SO2 must hold or obtain
allowances in order to operate. Each allowance gives the owner the right to emit
one ton of SO2. All non-exempt facilities that existed in 1990 have an assigned
number of allowances. If additional allowances are needed, they can be purchased
from facilities having excess allowances. Our assets located in New York
currently have more allowances than needed, while our assets located in Ohio and
Pennsylvania require additional allowances or the installation of SO2 controls.
We believe that the additional costs of obtaining the number of allowances
needed for future projects should not materially affect our ability to purchase
and operate such facilities.

The
1990 Amendments also require states to impose annual operating permit fees.
While such permit fees may be substantial and will be greater for coal-fired
projects like our assets located in Ohio and Pennsylvania than for those burning
gas or other fuels, such fees are not expected to significantly increase our
costs.

The
1990 Amendments also contain other provisions that could materially affect our
projects. Various provisions may require permits, inspections, or installation
of additional pollution control technology.

The
1990 Amendments expand the enforcement authority of the federal government by
increasing the range of civil and criminal penalties for violations of the Clean
Air Act. They enhance administrative civil penalties and add a citizen suit
provision. These enforcement provisions also include enhanced monitoring,
record-keeping, and reporting requirements for existing and new
facilities.

The
Ozone Transport Assessment Group, composed of state and local air regulatory
officials from the 37 eastern states, has recommended additional NOx emission
reductions that go beyond current federal standards. These recommendations
include reductions from utility and industrial boilers during the summer ozone
season.

As a
result of the Ozone Transport Assessment Group's recommendations, on October 27,
1998, the EPA issued a rule requiring 22 Eastern states and the District of
Columbia to reduce emissions of NOx (a precursor of ozone) in those states.
Among other things, the EPA's rule establishes an ozone season, which runs from
May through September, and a NOx emission budget for each identified state,
including New York, Ohio and Pennsylvania. The EPA rule requires states to
implement controls sufficient to meet their NOx budget by May 1, 2003. The
states use a marketable commodity called a NOx "allowance" allocation to
implement the NOx emission budget. Our assets will be subject to NOx reduction
requirements under the EPA rule. Due to relatively low NOx emissions from our
facilities, however, our assets located in New York are unlikely to be impacted
by this rulemaking. In contrast, the assets located in Ohio and Pennsylvania
will be affected significantly. Beginning in 2003, the EPA rule will result in a
requirement for substantial NOx reductions or the purchase of additional NOx
allowances at the assets located in Pennsylvania, which will likely result in
significant capital expenditures by us. The same requirement will impact our
Ohio assets in 2004.

The
EPA recently granted several state petitions under Section 126 of the Clean Air
Act. Section 126 allows the EPA to set limits for specific sources of emissions
originating in other states. As a result, the EPA will require reductions in NOx
emissions at the majority of our fossil energy facilities at levels consistent
with those required under the EPA rule. Consistent with the EPA's rule,
reductions have been proposed which would need to be achieved by May 1, 2004
through the implementation of controls or the purchase of emission allowances.
We believe that our assets located in New York City are already in compliance
with these limits. We anticipate capital expenditures of approximately $300
million at the assets located in Ohio and Pennsylvania through 2010 to address
these anticipated air emissions issues. We expect that the majority of these
expenditures under the EPA rule and the EPA's Section 126 initiative will occur
between 2002 and 2008. However, particularly given the trend towards more
stringent environmental regulation, it is possible that the amount we must spend
to bring the facilities into compliance may change materially. In addition, the
time at which these capital expenditures must be made could be accelerated, and
operations could be halted at these facilities until any necessary improvements
are made.

In
October and November 1999, the EPA and several states filed suits or announced
their intention to file suits against a number of coal-fired power plants in
Midwestern and Eastern states. These suits relate to alleged violations of the
Clean Air Act. More specifically, they derive from the deterioration prevention
and non-attainment provisions of the Clean Air Act's new source review
requirements. In 1999, the EPA requested information relating to the Avon Lake
Generating Station and Niles Generating Station from the previous owner of these
facilities. This was part of the EPA's broader industry information request, and
forms the basis for the agency's new source review actions against coal-fired
power plants. Although there have not been any new source review-related suits
filed against the Avon Lake Generating Station or the Niles Generating Station,
there can be no assurance that either of them will not be the target of any such
action in the future. Based on the levels of emissions control that the EPA
and/or states are seeking in these new source review enforcement actions, we
believe that significant additional costs and penalties could be incurred,
planned capital expenditures could be accelerated, or operations could be halted
at these stations if they ever became targets of a new source review enforcement
action.

Individual states can also regulate air emissions, the costs of compliance with
which could be significant. For example, in 1999, New York Governor George
Pataki introduced new emission requirements for generation facilities in the
State, which must be achieved by 2003. The New York State requirements, among
other things, require year-round reductions in nitrogen oxide emissions, which
were previously limited to summertime reductions. Additionally, under these
requirements, we have to reduce our sulfur dioxide emissions from our New York
power plants. These emission reductions would be phased in between January 1,
2003 and January 1, 2007. Compliance with these emission reductions
requirements, if they become effective, could have a material adverse impact on
the operation of our assets located in New York. While we anticipate that we
should be able to satisfy these constraints, additional constraints may be added
in various jurisdictions that may affect our facilities and increase our costs
of compliance.

The
1990 Amendments required the EPA to evaluate the public health impacts of
emissions of mercury, a hazardous air pollutant, from power plants. The EPA has
not proposed emissions controls because commercially viable control technologies
have not been developed for utility boilers. However, the EPA has announced that
it intends to propose regulations by 2003 and issue final rules by 2004. When
emissions controls are mandated, all coal-fired utility boilers would be
affected and the cost of compliance could be substantial.

The
Kyoto Protocol regarding greenhouse gas emissions and global warming was signed
by the United States, thereby committing the United States to significant
reductions in greenhouse gas emissions between 2008-2012. The U.S. Senate must
ratify the agreement for the protocol to take effect. Future initiatives on this
issue and the ultimate effect of the Kyoto Protocol are unknown at this time.
Fossil fuel-fired power plants, however, are believed to be significant sources
of carbon dioxide emissions, which constitute a principal greenhouse gas.
Therefore, the power industry's compliance costs with mandated federal
greenhouse gas reductions could be significant.

Clean Water Act. Our facilities are subject to a variety of state and
federal regulations governing existing and potential water /wastewater and
stormwater discharges from the facilities. Generally, federal regulations
promulgated through the Clean Water Act govern overall water/wastewater and
stormwater discharges through permits. Under current provisions of the Clean
Water Act, existing permits must be renewed at least every five years, at which
time permit limits come under extensive review and can be modified to account
for more stringent regulations. In addition, the permits can be modified at any
time. Many of our facilities need to renew their Clean Water Act permits over
the next two years. Major issues to be addressed when permits are renewed
include the impact of intake screens and cooling systems on fish, as well as the
adverse impact of discharging large quantities of warm water to public rivers
and lakes. The cost of addressing any of these environmental issues could be
substantial.

In
addition, changes to the environmental permits of our coal or other fuel
suppliers may increase the cost of fuel, which in turn could have a significant
impact on our operations.

Emergency Planning and Community Right-to-Know Act. In April 1997, the
EPA expanded the list of industry groups required to report the Toxic Release
Inventory under Section 313 of the Emergency Planning and Community
Right-to-Know Act to include electric utilities. Our operating facilities will
be required to complete a toxic chemical inventory release form for each listed
toxic chemical manufactured, processed, or otherwise used in excess of threshold
levels for the applicable reporting year. The purpose of this requirement is to
inform the EPA, states, localities, and the public about releases of toxic
chemicals to the air, water, and land that can pose a threat to the
community.

Changes in the laws governing disposal of coal ash generated by our coal-fired
plants to classify coal ash as a hazardous waste or otherwise restrict the
disposal of coal ash could increase our costs and expose us to greater potential
liabilities for environmental remediation. The ash disposal sites used by our
coal-fired facilities are permitted under state regulations. Those sites under
our operational control have approved closure plans in place, and funds have
been budgeted to accomplish the closures.

Comprehensive Environmental Response, Compensation and Liability Act. The
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
among other things, imposes cleanup requirements for threatened or actual
releases of hazardous substances that may endanger public health or welfare of
the environment. Under CERCLA, joint and several liability may be imposed on
waste generators, site owners, and operators and others regardless of fault or
the legality of the original disposal activity. Although all waste substances
generated by the facilities are generally not regarded as hazardous substances,
some products used in the operations and the disposal of such products are
governed by CERCLA and similar state statutes. As a result of CERCLA's no-fault,
retroactive liability scheme, we cannot assure you that we would be free from
substantial liabilities in the future.

Consent Orders. The assets located in New York City are subject to a
consent order issued by the New York State Department of Environmental
Conservation. The consent order requires active investigation and remediation of
past releases of petroleum and other substances at the facilities by the prior
owner. The consent order also contains obligations related to compliance with
air emission and opacity regulations, corrective action requirements for solid
waste management units, and investigation and implementation of measures to
reduce water contamination and the killing of fish. The total liability assumed
and recorded by Orion Power New York associated with these obligations was $9.2
million in the aggregate. We intend to fund this liability with cash flow from
operations.

Competition

We have many strong and well capitalized competitors in the wholesale power
generation industry. These are both domestic and international organizations,
many of whom have extensive and diversified operating expertise and financial
resources that are greater than those we possess. We face competition in the
markets for energy, capacity, and ancillary services, as well as intense
competition for the acquisition and development of additional facilities.

We anticipate increasing competition from international companies for
acquisitions as the market continues to deregulate. As a result, it may be more
difficult for us to compete effectively in future competitive bidding
situations. In recent years, the industry has been characterized by increasingly
strong competition with respect to the acquisition of existing electric
generating facilities. This includes a trend away from negotiated transactions
and towards competitive bidding.

Following the expiration of our various transition power and capacity
agreements, we will be subject to competition in the market for energy,
capacity, and ancillary services. We will principally compete on the basis of
the price of our products, although we will also compete to a lesser extent on
the basis of reliability and availability. The continuing deregulation of the
industry is likely to increase competition and may place downward pressure on
energy prices.

Employees

As
of December 31, 2000, we employed approximately 870 people. Of these employees,
approximately 554 are covered by collective bargaining agreements. The
collective bargaining agreements expire at various dates between June 2001 and
June 2006. We have never experienced a work stoppage, strike, or labor dispute.
We consider relations with our employees to be good.

Item 2.   Properties.

Our
corporate offices currently occupy approximately 15,340 square feet of leased
office space in Baltimore, Maryland, which lease expires in 2005, subject to
renewal options.

In
addition to our corporate office space, we lease or own various real property
and facilities relating to our assets and development activities. Our principal
facilities are generally described under the descriptions of our three operating
subsidiaries contained elsewhere. We believe that we have title to our
facilities in accordance with standards generally accepted in the energy
industry, subject to exceptions which, in our opinion, would not have a material
adverse effect on the use or value of the facilities. Substantially all of our
assets are pledged to our bank lenders under our credit facilities.

We
believe that all of our existing office and generating facilities, including the
facilities under construction, are adequate for our needs through calendar year
2001. If we require additional space, we believe that we will be able to secure
space on commercially reasonable terms without undue disruption to our
operations.

Our
total lease expense for all of our properties described above was approximately
$1.1 million for 2000, and will be approximately $1.1 million for
2001.

Item 3.   Legal Proceedings.

We
are involved in various litigation matters in the ordinary course of our
business. We are not currently involved in any litigation that we expect, either
individually or in the aggregate, will have a material adverse effect on our
financial condition or results of operations.

Item 4.   Submission of Matters to a
Vote of Security Holders

None.

Executive Officers of the Registrant

Our
executive officers are as follows:

`Officer Since
            Name                Age      Since        Position
            ----                ---      -----        --------
Jack A. Fusco................   38       1998         Chief Executive Officer, President and Director
Scott B. Helm................   36       1998         Executive Vice President and Chief Financial Officer
W. Thaddeus Miller...........   50       1999         Executive Vice President and Chief Legal Officer
E. Thomas Webb...............   48       1998         Senior Vice President of Operations
Michael J. Gluckman..........   63       2000         Senior Vice President of Corporate Development`

Our
officers are elected by our Board of Directors and serve at the discretion of
the Board.

Jack A. Fusco has been our Chief Operating Officer since our inception in
March 1998. He was appointed President and Chief Executive Officer in November
1999. Mr. Fusco has over 16 years of experience in various areas of the power
generation industry. Prior to joining us, Mr. Fusco was a Vice President at
Goldman Sachs Power, an affiliate of Goldman, Sachs & Co., beginning in 1997.
Prior to joining Goldman, Sachs & Co., Mr. Fusco was Executive Director of
International Development and Operations for Pacific Gas & Electric's
non-regulated subsidiary PG&E Enterprises. In that role, he was responsible for
the development and implementation of PG&E's International Business Strategy and
the launching of International Generating Company, an international wholesale
power producer. Mr. Fusco holds a B.S. in Mechanical Engineering from California
State University, and is a Registered Professional Mechanical Engineer in the
State of California.

Scott B. Helm joined us in September 1998 as Chief Financial Officer and
was appointed Executive Vice President in November 1999. He is responsible for
managing our accounting and finance functions. Prior to joining us, he was a
Vice President in the Investment Banking Division of Goldman, Sachs & Co.,
commencing in 1994, where he generally focused on commodity, cyclical and
industrial clients. Mr. Helm holds a B.S.B.A. from Washington
University.

W. Thaddeus Miller joined us in June 1999 as Chief Legal Officer, and was
appointed Executive Vice President in November 1999. Mr. Miller has been
advising us on legal matters since our inception. Prior to joining us, Mr.
Miller was a Vice President and Associate General Counsel for Goldman, Sachs &
Co., commencing in 1994 specializing in commodities, with particular emphasis on
energy matters, where he advised our stockholder, GS Capital Partners II, L.P.,
on certain legal matters in connection with its investment in us. Prior to
joining Goldman, Sachs & Co., Mr. Miller was a partner with Watson, Farley &
Williams, an international law firm. He has been practicing law for over 20
years. Mr. Miller holds a B.S. from the United States Merchant Marine Academy
(Kings Point) and a J.D. from St. John's University School of Law.

E. Thomas Webb joined us in September 1998 as Vice President of Asset
Management. In November 1999, he was appointed as Senior Vice President. Prior
to joining us, Mr. Webb was employed by Pacific Gas & Electric from 1977 to
August 1998 in a variety of posts, including power plant management,
transmission and distribution operations and most recently as a manager of
transmission projects. Mr. Webb has over 23 years of experience in the power
generation industry. Mr. Webb holds a B.S. in Mechanical Engineering from
California Polytechnic State University and an M.B.A. from St. Mary's College of
California. Mr. Webb is a Registered Professional Mechanical Engineer in the
State of California.

Michael J. Gluckman joined us in December 2000 in connection with the
acquisition of Columbia Electric Corporation, where he was President and Chief
Executive Officer since 1996. Dr. Gluckman has over 30 years of experience in
the energy industry, including research and development for all forms of fossil
and renewable generation, development and assessment of advanced gas turbine
technology, assessment of emerging electric markets, as well as a broad range of
project development activities. Prior to joining Columbia Electric Corporation
in 1996, Dr. Gluckman served as President and CEO of Paradigm Power
Incorporated. Dr. Gluckman also spent 17 years with the Electric Power Research
Institute. Dr. Gluckman holds a B.S. degree from the University of Cape Town in
South Africa and a Ph.D. in chemical engineering from the City College of the
City University of New York.

PART II

Item 5.   Market for Registrant's
Common Equity and Related Stockholder Matters.

Our
common stock began trading on the New York Stock Exchange ("NYSE") on November
14, 2000 under the symbol "ORN." Prior to such date, no public market for our
common stock existed. Set forth below are the high and low sales prices as
reported on the NYSE Composite Tape.

`2000:

Quarter                                            High                 Low
-------                                            ----                 ---

4th Quarter (commencing November 14, 2000)        $24.625             $16.688`

As
of March 1, 2001, there were approximately 30 shareholders of record. We believe
there are approximately 6,500 beneficial owners of our common stock.

Dividend Policy

We
have never declared or paid any cash dividends on our common stock. We currently
intend to retain any future earnings to fund the development and growth of our
business. Therefore, we do not anticipate paying any cash dividends on our
common stock in the foreseeable future. Our senior notes and credit facilities
limit our ability to pay cash dividends.

Use of Proceeds from November 2000 Initial Public Offering

In
November 2000, the Company completed an initial public offering. The following
information relates to that offering and the use of proceeds from that
offering.

|Effective Date of the Company's Registration Statement: | November 13, 2000
|------------------------------------------------------- | -----------------

|Commission File Number: | 333-44118;
|----------------------- | ----------

|Date the Offering Commenced: | November 14, 2000
|---------------------------- | -----------------

|Names of Managing Underwriters: | Goldman, Sachs & Co.; Credit Suisse First Boston; Deutsche Banc Alex, Brown;
Merrill Lynch & Co. and Morgan Stanley Dean Witter
|------------------------------- | -------------------------------------------------------------------------------------------------------------------------------

|Class of Securities Registered: | Common Stock
|------------------------------- | ------------

|Amount registered: | 31,625,000 shares of Common Stock (including 4,125,000 shares subject to
over-allotment option).
|------------------ | ------------------------------------------------------------------------------------------------

|Amount sold by Company: | 24,279,032 shares of Common Stock
|----------------------- | ---------------------------------

|Amount sold by selling stockholders:; | 3,220,968 shares of Common Stock
|------------------------------------- | --------------------------------

|Aggregate price of offering amount registered: | $550,000,000
|---------------------------------------------- | ------------

|Aggregate offering price of amount sold: | $455,231,850
|---------------------------------------- | ------------

|Expenses: | The expenses incurred for the Company's account in connection with the offering
are as follows:
|--------- | -----------------------------------------------------------------------------------------------

`Underwriting Discounts and Commissions:         $34,375,000
                  Finders Fees:                                   $         0
                  Expenses Paid to or for Underwriters:           $         0
                  Other Expenses:                                  $2,686,000
                                                                  -----------
                           Total Expenses:                        $37,061,000
                                                                  ===========`

None
of the expenses of the offering consisted of direct or indirect payments to (i)
directors, officers, general partners or affiliates of the Company, (ii) persons
owning 10 percent or more of any class of equity securities of the Company, or
(iii) affiliates of the Company, other than approximately $16.4 million of the
expenses of the offering which consisted of underwriting discounts and
commissions paid to Goldman, Sachs & Co., which is an affiliate of the
Company and an affiliate of persons owning 10 percent or more of the common
stock of the Company. The net proceeds to the Company from the offering, after
deducting underwriting discounts and commissions and other expenses, were
approximately $443.5 million, approximately $209 million of which were used to
acquire Columbia Electric Corporation. The remaining $243.5 million will be used
for other acquisitions and/or development projects and for general corporate
purposes, of which $100.0 million was used to fund construction of the Ceredo
Generating Station, $23.5 million was used for general corporate operating
expenses, and $120.0 million remained available as cash at December 31, 2000.
The proceeds were invested in AAA-rated short term securities and will continue
to be until the funds are appropriately deployed. None of such payments were
made to directors, officers or 10% or more stockholders or to any associates or
affiliates of the foregoing.

Item 6.   Selected Financial Data.

The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
all of the financial statements and the notes thereto and other financial
information included elsewhere herein. We have supplied selected capacity and
other data set forth below under the caption "Operating Data."

`Orion Power Holdings, Inc. and Subsidiaries
                                        Selected Consolidated Financial Data
                                               (Dollars in Thousands)

                                                           March 10, 1998
                                                           (Inception) to      Year Ended      Year Ended
                                                            December 31,       December 31,     December 31,
                                                                1998              1999             2000
                                                                ----              ----             ----
Statement of Income Data:

Revenue ...............................................   $      314          $  134,074          957,569
                                                                 ---             -------          -------
Operating expenses:
   Fuel ...............................................           --              20,463          437,763
   Operations and maintenance .........................           24              22,732           97,607
   General and administrative .........................        2,620              16,755           37,082
   Taxes other than income tax ........................           --              20,785           60,751
   Depreciation and amortization ......................           94              18,938          103,196
   Charge for buyout of operations and maintenance
     contracts with related party......................           --                  --           19,000
                                                                ----                ----           ------
Total operating expenses...............................        2,738              99,673          755,399
                                                               -----              ------          -------
Operating (loss) income................................       (2,424)             34,401          202,170
Interest expense, net..................................         (124)            (23,943)        (153,389)
                                                               -----             -------        ---------
(Loss) income before (benefit) provision for income tax       (2,548)             10,458           48,781
Income tax (benefit) provision.........................       (1,006)              4,796           20,242
                                                             -------               -----           ------
Net (loss) income......................................   $   (1,542)    $         5,662   $       28,539
                                                             =======               =====           ======

(Loss) Earnings per Average Common Share:
   Basic ..............................................   $   (12.94)    $          0.39   $         0.46
                                                             =======                ====             ====
   Diluted ............................................   $   (12.94)    $          0.38   $         0.44
                                                             =======                ====             ====

Statement of Cash Flows Data:
Cash flows from operating activities ..................   $   (2,335)    $        10,456   $       (2,756)
Cash flows from investing activities ..................      (16,407)         (1,047,167)      (2,113,133)
Cash flows from financing activities ..................       20,345           1,113,657        2,173,174

Operating Data:
Consolidated EBITDA(a).................................   $   (2,330)    $        53,339   $      305,366
                                                             =======              ======          =======
Megawatt hours produced during period..................        7,283           2,793,689       14,801,420
Net capacity owned at end of period (Megawatts)........          102               2,613            5,396

                                                                      As of December 31,
Balance Sheet Data:                                           1998                1999               2000
                                                              ----                ----               ----
Working capital(b) ...................................    $    3,108    $         154,245    $    473,696
Total assets .........................................        20,450            1,252,007       3,870,190
Total debt, including current portion ................         2,593              787,680       2,367,898
Total stockholders' equity ...........................        17,068              395,416       1,254,782`

---

|(a) | Consolidated EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA, as defined, is presented because it is a widely accepted
financial indicator used by some investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA, as defined, is not
intended to represent cash flows for the period, nor is it presented as an
alternative to operating income or as an indicator of operating performance. It
should not be considered in isolation or as a substitute for a measure of
performance prepared in accordance with generally accepted accounting principles
(GAAP) in the United States, is not indicative of operating income or cash flow
from operations as determined under GAAP and does not give effect to our capital
expenditures or debt service payments. Our method of computation may or may not
be comparable to other similarly titled measures by other companies.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Includes cash held in restricted accounts pursuant to our credit facilities of
$56.9 million as of December 31, 1999 and of $283.4 million as of December 31,
2000.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 7.   Management's Discussion and Analysis of
Financial Condition and Results of Operations

You
should read the following discussion in conjunction with "Selected Financial
Data" and our audited consolidated financial statements and the related notes
included elsewhere in this report.

Overview

We
were incorporated in Delaware in March 1998 for the purpose of acquiring,
developing, owning, and operating non-nuclear electric power generating
facilities throughout North America. Commencing in November 1998, in five
separate acquisitions, we directly or through our wholly-owned subsidiaries
acquired our existing facilities with a total electric generating capacity of
5,396 megawatts in operation and over an additional 5,000 megawatts in
construction and various stages of development.

Similar to other wholesale power generators, we typically sell three types of
products: energy, capacity, and ancillary services.

Energy. Energy refers to the actual electricity generated by our facilities and
sold to intermediaries for ultimate transmission and distribution to consumers
of electricity. Energy is the only product that is subsequently distributed to
consumers by power retailers.

Capacity. Capacity refers to the physical capability of a facility to
produce energy. In some regional power markets, like the market managed by the
NY-ISO, a market for capacity exists distinct from the market for the energy
produced by that capacity. In other power markets, like the ECAR region in the
Midwest, there is no market for capacity as a separate product, and the value of
the underlying capacity is included in the price of the energy
produced.

In
the New York market administered by the NY-ISO, wholesale power generators sell
capacity into a regional market to assure power retailers in that region that
they will have access to energy adequate to meet their retail demand. The sale
of capacity in New York represents a commitment by a wholesale generator to make
the energy it produces available to the relevant day-ahead market, but does not
commit the wholesale generator to sell that energy to any particular power
retailer or at any particular price. Power retailers are not committed to
acquire energy from the wholesale generators from whom they purchase capacity. A
wholesale generator will recognize additional revenue when it sells its energy,
either into the market administered by the independent system operator or to any
other third-party purchaser. Utilities and other power retailers build the cost
of acquiring capacity into the retail price for electricity.

In
markets like New York City, where there are constraints on the ability to
transmit power from outside the city into the city and reliability of the power
supply system is a high priority, capacity -- not the energy itself -- may
represent the principal product and significant source of revenue for local
wholesale generators.

Ancillary Services. Ancillary services generally are support products
used to ensure the safe and reliable operation of the electric power supply
system. Examples of ancillary services include:

| |  | automatic generation control, which is used to balance energy supply with energy
demand, referred to in our industry as "load," on a real-time basis;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | operating reserves, which are used on an hourly or daily basis to generate
additional energy if demand increases or if major generating resources go
off-line or if transmission facilities become unavailable;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | reactive supply and voltage support, which maintain voltages on the transmission
and distribution system within acceptable limits; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| |  | black start capability, which is used to restart generating facilities without
reliance on external energy sources.
| | - | -------------------------------------------------------------------------------------------------------------------

Markets. We typically sell our products to electric power retailers, which are
the entities that supply power to consumers. Power retailers include regulated
utilities, municipalities, energy supply companies, cooperatives, and retail
"load" aggregators.

We
may sell energy and ancillary services in advance under bilateral supply
contracts with specific buyers. Alternatively, we may sell them into regionally
operated day-ahead and real-time markets. Capacity may be sold in monthly,
semi-annual, or annual blocks in a competitive bid market or in advance under
bilateral contracts.

Results of Operations

Generally. The principal factor affecting recent changes in our results
has been the timing of the acquisitions of our facilities. We acquired the
existing facilities on the following dates:

| |  | Carr Street Generating Station -- November 19, 1998;
| | - | ----------------------------------------------------

| |  | Hydroelectric assets -- July 30, 1999;
| | - | --------------------------------------

| |  | Assets located in New York City -- August 20, 1999; and
| | - | -------------------------------------------------------

| |  | Assets located in Cleveland, Pittsburgh, West Pittsburg and
Youngstown -- April 28, 2000.
| | - | -----------------------------------------------------------------------------------------

Set forth below are certain operating data which we believe
indicate the general performance of our operations:

`March 10, 1998
                                                         (inception) to     Year Ended       Year Ended
                                                          December 31,     December 31,     December 31,
                                                             1998              1999             2000
                                                             ----              ----             ----
                                                                      (dollars in thousands)
Consolidated EBITDA.................................     $   (2,330)      $     53,339     $   305,366
                                                             =======            ======         =======
Megawatt hours produced during period...............          7,283          2,793,689      14,801,420
Net capacity owned at end of period (Megawatts).....            102              2,613           5,396`

Year ended December 31, 2000 Compared to the Year ended
December 31, 1999

Revenue. Our revenue was $957.6 million for the year ended December 31,
2000, as compared to revenue of $134.1 million for the year ended December 31,
1999. The increase was primarily due to a full year of operations in 2000 of our
hydroelectric assets and our assets located in New York City, and the
acquisition in April 2000 of our assets located in Cleveland, Pittsburgh, West
Pittsburg and Youngstown. The revenue from each facility was determined at least
in part in accordance with the various interim capacity and energy agreements
then in place, including the provider of last resort contract with Duquesne
Light Company. The provider of last resort contract has been revised and the
term extended through December 2004. Our capacity sale agreement for our assets
located in New York City with Consolidated Edison expired in April 2000, at
which time we began selling our capacity into the market.

Operating Expenses. Our operating expenses consisted of fuel expense,
operations and maintenance expense, taxes other than income taxes (principally
property taxes), general and administrative expenses and depreciation and
amortization expense.

We
had fuel expenses of $437.8 million for the year ended December 31, 2000,
compared with $20.5 million for the year ended December 31, 1999. The increase
in 2000 was the result of our acquisition of our assets located in Cleveland,
Pittsburgh, West Pittsburg and Youngstown, the full year of operation of our
assets located in New York City and higher per unit costs for natural gas and
oil in 2000. From the date of acquisition through November 18, 1999, the assets
located in New York City were being operated under a tolling agreement where the
party buying the power supplied the fuel. This contract terminated when the
NY-ISO began operations. Fuel expense for 2000 also includes $57 million for the
purchase of power from May 2000 through October 2000 to supplement the
generating capacity to meet our obligations under the provider of last resort
contract.

Our
operations and maintenance expenses were $97.6 million for the year ended
December 31, 2000, as compared to $22.7 million for the year ended December 31,
1999. The increase was a result of the ownership and operation of our
hydroelectric assets and our assets located in New York City for a full year in
2000 along with the acquisition in the more recent period of our assets located
in Cleveland, Pittsburgh, West Pittsburg and Youngstown. The year ended December
31, 1999, reflects the Carr Street facility for the period with partial periods
for our hydroelectric assets and our assets located in New York City.

Taxes other than income taxes amounted to $60.8 million for the year ended
December 31, 2000, compared to $20.8 million for the year ended December 31,
1999. The increase was a result of the ownership and operation of our
hydroelectric assets and our assets located in New York City for a full year in
2000 along with the acquisition in the more recent period of our assets located
in Cleveland, Pittsburgh, West Pittsburg and Youngstown. The year ended December
31, 1999, reflects the Carr Street facility for the full year and a partial year
for our hydroelectric assets and our assets located in New York City.

Our
general and administrative expenses were $37.1 million for the year ended
December 31, 2000, as compared to $16.8 million for the year ended December 31,
1999. The increase was the result of expanded corporate infrastructure to
support our growth along with the creation of a regional office for Orion Power
MidWest, L.P.

Depreciation and amortization expense was $103.2 million for the year ended
December 31, 2000, as compared to $18.9 million for the year ended December 31,
1999. The increase was a result of the ownership and operation of our
hydroelectric assets and our assets located in New York City for a full year in
2000 along with the acquisition in the more recent period of our assets located
in Cleveland, Pittsburgh, West Pittsburg and Youngstown. We also added the
provider of last resort contract value as an intangible asset in 2000. The year
ended December 31, 1999, reflects the Carr Street facility for the period with
partial periods for our hydroelectric assets and our assets located in New York
City.

Our
charge for buyout of operations and maintenance contracts was the result of the
acquisition of the subsidiaries of Constellation Operating Services in April
2000. We incurred a one-time loss of $19.0 million, principally a non-cash item.
There was no such loss for the year ended December 31, 1999.

Operating Income. As a result of these factors, our operating income was
$202.2 million for the year ended December 31, 2000, as compared to operating
income of $34.4 million for the year ended December 31, 1999.

Interest Expense. Our interest expense was $168.7 million for the year ended
December 31, 2000, as compared to $25.8 million for the year ended December 31,
1999. The increase in interest expense was due to our new bank credit agreement
for the acquisition of our assets located in Cleveland, Pittsburgh, West
Pittsburg and Youngstown, the $400 million senior notes issued in April and May
2000 and the revolving credit facility entered into in July 2000. Additionally,
in 2000, we had a full year of interest expense under our bank credit facility
related to the acquisition of our hydroelectric assets and our assets located in
New York City during 1999. Interest expense also includes amortization of
deferred financing costs from the establishment of Orion Power MidWest, L.P.'s
credit facility, the senior notes and the revolving credit facility, all
occurring in 2000.

Interest Income. Our interest income was $15.3 million for the year ended
December 31, 2000, as compared to $1.8 million for the year ended December 31,
1999. The increase was due to the increase of cash on hand from operations
resulting from a full year of operations in 2000 of our hydroelectric assets and
our assets located in New York City, the acquisition during 2000 of our assets
located in Cleveland, Pittsburgh, West Pittsburg and Youngstown, and the
additional cash raised as part of our initial public offering in November 2000.

Year Ended December 31, 1999 Compared to the Period March
10, 1998 (inception) through December 31, 1998

Revenue. Our revenue was $134.1 million for the year ended December 31, 1999, as
compared to revenue of $0.3 million for the period from March 10, 1998
(inception) through December 31, 1998. The increase was a result of the
ownership and operation of our hydroelectric assets and our assets located in
New York City in the more recent period, which were acquired after December 31,
1998 and the longer period of operation of the Carr Street facility in 1999. The
revenue from each facility was determined in accordance with the various interim
capacity and energy agreements then in place. Our transition energy sale
agreement with Consolidated Edison expired on November 18, 1999, allowing us to
realize market prices for energy sales after that date. Capacity sales generated
from our assets located in New York City were $71.3 million for the year ended
December 31, 1999.

Operating Expenses. Our operating expenses consisted of fuel expense, operations
and maintenance expense, taxes other than income taxes, general and
administrative expenses and depreciation and amortization expense.

We
had fuel expenses of $20.5 million for the year ended December 31, 1999,
compared with $0 for the period from March 10, 1998 (inception) through December
31, 1998. Both the Carr Street facility and, until November 18, 1999, our assets
located in New York City were operated under tolling agreements, which provided
that the party buying the power would supply all necessary fuel. In the third
quarter of 1999, we failed to meet the minimum threshold under our energy
contract with Niagara Mohawk due to a drought. This resulted in additional net
costs to meet our obligations of $1.7 million for the year.

Our
operations and maintenance expenses were $22.7 million for the year ended
December 31, 1999, as compared to $24,000 for the period from March 10, 1998
(inception) through December 31, 1998. The increase was a result of the
operation of our hydroelectric assets, our assets located in New York City, and
the Carr Street facility in the more recent period.

Taxes other than income taxes amounted to $20.8 million for the year ended
December 31, 1999 compared to $0 for the period from March 10, 1998 (inception)
through December 31, 1998. This was due to our ownership of the Carr Street
facility during all of 1999, as well as our hydroelectric assets and our assets
located in New York City for a portion of the period.

Our
general and administrative expenses were $16.8 million for the year ended
December 31, 1999, as compared to $2.6 million for the period from March 10,
1998 (inception) through December 31, 1998. The increase was the result of
expanded corporate infrastructure to support our growth and approximately $6.7
million of transition costs related to the acquisition of our hydroelectric
assets and our assets located in New York City.

Depreciation and amortization expense was $18.9 million for the year ended
December 31, 1999, as compared to $94,000 for the period from March 10, 1998
(inception) through December 31, 1998. Depreciation and amortization increased
due to the acquisition of our hydroelectric assets, our assets located in New
York City, and the ownership of the Carr Street facility during all of 1999.

Operating Income. As a result of these factors, our operating income was $34.4
million for the year ended December 31, 1999, as compared to an operating loss
of $2.4 million for the period from March 10, 1998 (inception) through December
31, 1998.

Interest Expense. Our interest expense was $25.8 million for the year ended
December 31, 1999, as compared to $137,000 for the period from March 10, 1998
(inception) through December 31, 1998. The increase was due to the additional
borrowings we incurred to acquire our hydroelectric assets and our assets
located in New York City.

Interest Income. Our interest income was $1.8 million for the year ended
December 31, 1999, as compared to $13,000 for the period from March 10, 1998
(inception) through December 31, 1998. The increase was due to the cash balances
required to be held under the bank credit facility of Orion Power New York, L.P.

Liquidity and Capital Resources

During the year ended December 31, 2000, we obtained cash from operations and
from borrowings under the credit facilities of our subsidiaries and the senior
notes, as well as through our initial public offering of common stock. This cash
was used to fund operations, service debt obligations, fund the acquisitions of
our assets located in Cleveland, Pittsburgh, West Pittsburg and Youngstown and
all the capital stock of Columbia Electric Corporation, and meet other cash and
liquidity requirements.

Operating activities for the year ended December 31, 2000, used $2.8 million of
cash. This resulted from a $295.2 million increase in operating assets,
including restricted cash and notes receivable balances, and an $8.0 million net
increase in deferred tax assets. This was offset by a $137.2 million increase in
operating liabilities, $114.5 million of depreciation and amortization, $28.5
million of net income, a $18.9 million non-cash charge on buyout for operations
and maintenance contracts and $1.3 million of deferred compensation.

Investing activities for the year ended December 31, 2000, used approximately
$2.1 billion of cash, primarily for the acquisitions of Columbia Electric
Corporation and our assets located in Cleveland, Pittsburgh, West Pittsburg and
Youngstown, with the remaining $137.9 million being used for facilities upgrades
and improvements.

Financing activities for the year ended December 31, 2000, provided
approximately $2.2 billion of cash, consisting of $1.6 billion of borrowings
under the credit facilities of our subsidiaries and the senior notes, of which
$109 million was repaid in the period, and $756.8 million of net proceeds from
the issuance of common stock. This was offset by $55 million used to fund
restricted cash balances as required by the credit facility of Orion Power
MidWest, L.P., $31.8 million paid for financing costs under this credit facility
and the senior notes and $17.1 million of advisory fees paid to our stockholders
in connection with the acquisition of our assets located in Cleveland,
Pittsburgh, West Pittsburg and Youngstown in accordance with our stockholders'
agreement then in effect.

As
of December 31, 2000, cash and cash equivalents were $135.8 million and working
capital was $473.7 million. Of this working capital, we had restricted cash of
$283.4 million that can only be used pursuant to our credit facilities in
certain circumstances to fund the business activities of the subsidiaries that
hold our hydroelectric assets, our assets located in New York City, our assets
located in Cleveland, Pittsburgh, West Pittsburg and Youngstown and the assets
in development that we acquired in connection with our purchase of Columbia
Electric Corporation in December 2000.

To
supplement generating capacity and to reduce the risk that Orion Power MidWest,
L.P. would not meet its forecasted obligation under the provider of last resort
contract, Orion Power MidWest entered into contracts to purchase 698,400 net
megawatt hours for the period of May through October 2000. The cost to purchase
this energy was approximately $57 million and was paid upon delivery of the
energy. Orion Power MidWest resold any excess energy that was not required to
meet the provider of last resort obligation into the market and realized the
prevailing price at that time. The purchase of the supplemental generating
capacity resulted in a net loss after sale of such power of $29.6 million for
the year ended December 31, 2000.

The
credit facility of Orion Power New York, L.P. is a credit agreement between
Orion Power New York and a group of lending institutions. Under the credit
facility agreement, Orion Power New York incurred $700 million of indebtedness
to finance the acquisition of our hydroelectric assets and our assets located in
New York City, of which $650 million was outstanding at December 31, 2000.
Amounts outstanding under the facility bear a floating rate of interest. In
addition, Orion Power New York has a $30 million working capital revolving
credit facility as part of the facility, of which $0 was outstanding as of
December 31, 2000, and $10 million was used to provide a letter of credit in
favor of Consolidated Edison of New York. During 2000, Orion Power New York used
funds from operations to pay down the original outstanding balance on the
working capital revolving credit facility to $0 as of December 31, 2000. This
credit facility is available only to Orion Power New York and not for Orion
Power Holdings' operations. It provides, among other things, that the amount of
dividends and distributions that Orion Power New York may pay us cannot exceed
$100 million over the life of the facility. As of December 31, 2000, no
dividends or distributions had been paid. On February 21, 2001, Orion Power New
York made a distribution of approximately $37,190,000 to us. The credit facility
has a maturity date of December 2002.

The
credit facility of Orion Power MidWest, L.P. is a credit agreement between Orion
Power MidWest and a group of lending institutions. Under the credit facility,
Orion Power MidWest incurred $1.11 billion of indebtedness to finance the
acquisition of our assets located in Cleveland, Pittsburgh, West Pittsburg and
Youngstown, all of which was outstanding at December 31, 2000. Amounts
outstanding under the credit facility bear a floating rate of interest. In
addition, Orion Power MidWest has a $90 million working capital facility, of
which $60.1 million was outstanding as of December 31, 2000, and $10 million was
used to provide a letter of credit in favor of Duquesne Light Company. This
credit facility is available only to Orion Power MidWest and not for Orion Power
Holdings' operations. It provides, among other things, that the cumulative
amount of dividends and distributions that Orion Power MidWest may pay us cannot
exceed $175 million over the life of the facility. As of December 31, 2000, no
dividends or distributions had been paid. The credit facility has a maturity
date of October 2002.

In
April and May 2000, we sold $400 million aggregate principal amount of 12%
senior notes due May 1, 2010.

On
July 27, 2000, we entered into a revolving credit facility, which provides for
up to $75 million of borrowings for general corporate purposes and issuances of
letters of credit. This facility matures in December 2002. There were $46
million of letters of credit outstanding as of December 31, 2000.

The
Liberty Electric Power, LLC credit facility was assumed by us in connection with
our acquisition of Columbia Electric Corporation in December of 2000. The credit
facility provides for up to $334 million of borrowings under multiple tranches.
With the exception of $41 million, the credit facility is recourse only to the
assets and cash flows of Liberty Electric and is non-recourse to Orion Power. As
of December 31, 2000, $148 million was outstanding under the facility. The
credit facility is available only to Liberty Electric and not for Orion Power
Holdings' operations. The credit facility has a final maturity date of April 15,
2026.

We
believe we are currently in compliance with all of the covenants under our
credit facilities and senior notes.

We
will require cash to meet the debt service obligations under our notes and
credit facilities. Debt service obligations will fluctuate depending on
variations in the interest rate and the balance on the working capital portion
of the facilities. The following table summarizes the outstanding indebtedness
as of December 31, 2000:

`Source                                                            Amount         Interest Rate
------                                                            ------         -------------
                                                                      (dollars in millions)

Orion Power New York Credit Facility........................       $ 650             8.10 %
Orion Power MidWest Credit Facility.........................       1,170             8.49
12% Senior Notes due 2010...................................         400            12.00
Orion Power Holdings Revolving Credit Facility                       ---              N/A
Liberty Electric Credit Facility ...........................         148             8.49
                                                                   -----            -----


     Total..................................................      $2,368             8.98 %(a)
                                                                  ======             =========`

---

(a)
Weighted average interest rate.

We
will need to refinance our indebtedness under the Orion Power New York credit
facility, which becomes due in December 2002, and the Orion Power MidWest credit
facility, which becomes due in October 2002. We are currently exploring
financing alternatives to replace this debt. Entering into a new credit facility
and issuing an additional series of notes are among the alternatives we are
considering.

We
review potential acquisition and development opportunities on an on-going basis.
In the near future, we may seek to acquire and/or develop additional facilities,
which, depending on the size and structure of these acquisitions or development
projects, may require significant cash resources. We currently have not made any
commitments or entered into any binding agreements with respect to any such
transaction. We may incur substantial additional indebtedness to finance future
acquisitions and development opportunities. This indebtedness may be incurred by
us or by one or more of our subsidiaries. Any increase in the level of
indebtedness will increase the amount of interest paid. We may also raise
additional equity to assist in the financing of these acquisitions and/or
development projects.

In
addition, we plan to improve the operational efficiency of our generating
facilities and, in some cases, to expand our facilities on-site. This on-site
expansion may come either through the construction of additional generating
plants at existing sites, referred to in the industry as "brownfield"
development, or through the repowering of existing plants. Our ability to expand
the capacity of our facilities is subject to numerous factors, including
restrictions imposed by environmental regulations. We anticipate maintenance
capital expenditures of between $30 and $40 million annually for the next
several years in connection with our assets. We also may incur significant
additional expenditures for capital improvements following 2001.

Additionally, we expect that capital expenditures on environmental projects
will total approximately $300 million over the next seven years, the
majority of which is expected to be expended between 2002 and 2006. We believe
that a substantial portion of this will be funded out of operating cash flow.
This amount may change, however, and the timing of any necessary capital
expenditures could be accelerated in the event of a change in environmental
regulations or any enforcement proceeding being commenced against us.

In
order to execute our business strategy and finance our anticipated capital
expenditures, we may need to incur additional debt and/or issue additional
equity. If we incur additional debt, we will refinance our existing indebtedness
and/or incur new debt in compliance with the restrictions of our existing
indebtedness or with the consent of our existing lenders. Any increase in our
level of indebtedness will increase the amount of interest we must pay. We may
also raise additional equity from the public markets to assist in the financing
of these acquisitions and/or development projects.

We
are restricted in our ability to incur additional indebtedness and make
acquisitions and capital expenditures by the terms and conditions of our senior
notes, our revolving credit facility and the credit facilities of our
subsidiaries. We may incur additional indebtedness under:

| |  | the senior notes if the ratio of consolidated cash flow to fixed charges is at
least 2.0 times, taking into account the additional indebtedness;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the revolving credit facility if we are in compliance with the financial
covenants in the credit facility, taking into account the additional
indebtedness;;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the Orion Power New York, L.P. credit facility with the consent of two-thirds of our lenders;
| | - | ---------------------------------------------------------------------------------------------

| |  | the Orion Power MidWest, L.P. credit facility as long as the debt has a maturity
date of 36 months or longer and the provisions of the indebtedness are no more
limiting or restrictive than the senior notes.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
ability to meet the payment obligations under our indebtedness or to fund
capital expenditures will depend on our future performance, which is subject to
regulatory, economic, financial, competitive, legislative and other factors that
are beyond our control. We believe that our current financial resources, in
combination with additional cash generated from operations, will most likely be
adequate to meet the cash needs for at least the next 12 months, excluding cash
that may be needed for acquisitions or new development projects. In the event of
an acquisition or new development project, we are likely to need additional
capital resources and may need to borrow additional funds or sell additional
equity.

Seasonality

Our
operations vary depending upon the season and regional weather conditions,
although the impact of seasonality can vary depending upon the geographic
location of our facilities. In many areas, the demand for electric power peaks
during the hot summer months, with energy and capacity prices correspondingly
being the highest at that time. We can earn a substantial amount of our net
income from a few days during the peak demand for electric power on the hottest
days of summer. In some areas, demand also increases during the coldest winter
months. Additionally, hydroelectric plants show seasonality depending upon the
availability of water flows, which generally will be high during rainy months or
as a result of snowmelt in the late winter and spring. Prices will generally
fluctuate with demand, being highest at times of greatest demand. This
fluctuation is currently somewhat mitigated by the existence of the
hydro-transition power sales agreement and the provider of last resort contract,
both of which have constant prices for the entire year. Our overall future
operating results may reflect different seasonal aspects, depending upon the
location and characteristics of any additional facilities we acquire.

Recent Accounting Pronouncements

We
will adopt Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS Nos. 137 and 138, on January 1, 2001. This standard requires us to
recognize all derivatives, as defined in the Statement, on the balance sheet at
fair value. Derivatives, or any portion thereof, that are not effective hedges
must be adjusted to fair value through income. If derivatives are effective
hedges, depending on the nature of the hedges, changes in the fair value of
derivatives either will offset the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or will be recognized in
other comprehensive income until the hedged items are recognized in earnings. We
estimate that the transition adjustment to implement this new standard will be a
negative adjustment of approximately $64,926,000 to other comprehensive income,
a component of stockholders' equity. The transition adjustment relates to hedges
of interest rate and commodity price risk exposure. The other comprehensive
income will be reclassified into earnings in the same periods during which the
hedged forecasted transaction affects earnings. We also have certain derivative
commodity contracts for the physical delivery of purchase and sale quantities
transacted in the normal course of business. These derivatives are exempt from
the requirements of SFAS 133 under the normal purchases and sales exception, and
thus will not be reflected on the balance sheet at fair value.

On
December 3, 1999, the SEC staff released Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition," to provide guidance on the recognition, presentation
and disclosure of revenue in financial statements. SAB No. 101 is effective
December 31, 2000. Adoption of SAB No. 101 will not have a material impact on
our current revenue recognition policies.

In
September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which replaces
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This standard revises the methods for
accounting for securitizations and other transfers of financial assets and
collateral as outlined in SFAS No. 125, and requires certain additional
disclosures. We do not expect the adoption of this standard to have a material
effect on our financial position or results of operations.

Item 7A.   Quantitative and
Qualitative Disclosures About Market Risk.

We
attempt to hedge some aspects of our operations against the effects of
fluctuations in inflation, interest rates, and commodity prices. Because of the
complexity and potential cost of hedging strategies and the diverse nature of
our operations, our results, although hedged, will likely be somewhat materially
affected by fluctuations in these variables and these fluctuations may result in
material improvement or deterioration of operating results. Results would
generally improve with lower interest rates and fuel costs, and with higher
prices for energy, capacity, and ancillary services, except where we are subject
to fixed price agreements such as the provider of last resort contract. We
incurred significant costs in connection with our hedging activities related to
the provider of last resort contract for the summer 2000. Under the provider of
last resort contract, these risks should be substantially less in subsequent
years, and we do not anticipate similar hedging costs related to that contract
after 2000. Our operating results are also sensitive to the difference between
inflation and interest rates, and would generally improve when increases in
inflation are higher than increases in interest rates. We do not use derivative
financial instruments for speculative or trading purposes.

As
of December 31, 2000, we were party to four interest rate swap agreements
designed to fix the variable rate of interest on $350 million of the credit
facility of Orion Power New York, L.P. The weighted average fixed rate of
interest for the related swap agreements are approximately 7.0%. In addition,
we were party to four interest rate swap agreements designed to fix the variable
rate of interest on $600 million of the credit facility of Orion Power MidWest,
L.P. The weighted average fixed rate of interest for the related swap agreement
is approximately 7.42%. As of December 31, 2000, if we sustained a 100 basis
point change in interest rates for all variable rate debt, the change would have
affected net pretax income by $9.4 million.

As
of December 31, 2000,we had entered into forward sale agreements to sell power
for a fixed price. These are financial transactions, and we hedge these forward
energy sales with fixed price fuel purchases to lock in a net margin. We sold
forward a total of 830,400 total megawatt hours for 2000 which locked in a net
margin of $43.2 million. If we had not entered into these forward
contracts, we would have earned a net margin of $25.3 million.

Item 8.   Financial
Statements and Supplementary Data.

Our
financial statements and the related notes, together with the Independent
Auditors' Report thereon, are set forth beginning on page F-1 of this Annual
Report on Form 10-K.

Item 9.   Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.

None.

PART III

Item 10.   Directors and Executive
Officers of the Registrant.

The
information required by Item 10 as to executive officers of the Company is
disclosed in Part I under the caption "Executive Officers of the Registrant."
The information required by Item 10 as to directors of the Company is
incorporated herein by reference to the definitive Proxy Statement to be filed
pursuant to Regulation 14A. We are not aware of any family relationship between
any director or executive officer. Each executive officer is generally elected
to hold office until the next Annual Meeting of the Board of
Directors.

Item 11.   Executive Compensation.

The
information required by Item 11 is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A.

Item 12.   Security Ownership of
Certain Beneficial Owners and Management.

The
information required by Item 12 is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A.

Item 13.   Certain Relationships and
Related Transactions.

The
information required by Item 13 is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A.

PART IV

Item 14.   Exhibits, Financial Statement
Schedules and Reports on Form 8-K.

(a)        The following
documents are filed as a part of this report on Form 10-K:

| | 1. | Financial Statements: Our financial statements and notes thereto are set forth
beginning on page F-1 of this Annual Report on Form 10-K
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Schedules to Financial Statements: All financial statement schedules have been
omitted because they are either inapplicable or the information required is
provided in the Company's Financial Statements and Notes thereto, included
in Part II, Item 8 of this Annual Report on Form 10-K.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Exhibits:  See "Exhibit Index."
| | -- | -------------------------------

(b)        A Current
Report on Form 8-K was filed by us on December 22, 2000, pursuant to Item 2 to
announce the completion of the purchase of Columbia Electric Corporation.

Orion Power Holdings, Inc.

INDEX TO FINANCIAL STATEMENTS

---

Consolidated Financial Statements of Orion Power Holding,
Inc.:

| | Report of Independent Public Accountants | F-2
| | ---------------------------------------- | ---

| | Consolidated Balance Sheets as of December 31, 1999 and 2000 | F-3
| | ------------------------------------------------------------ | ---

| | Consolidated Statements of (Loss) Income for the Period from March 10, 1998 | 
| | --------------------------------------------------------------------------- | 

| | (Date of Inception) to December 31, 1998 and for the Years Ended
December 31, 1999 and 2000 | F-5
| | ------------------------------------------------------------------------------------------- | ---

| | Consolidated Statements of Changes in Stockholders' Equity for the Period from | 
| | ------------------------------------------------------------------------------ | 

| | March 10, 1998 (Date of Inception) to December 31, 1998 and for the
Years Ended December 31, 1999 and 2000 | F-6
| | ---------------------------------------------------------------------------------------------------------- | ---

| | Consolidated Statements of Cash Flows for the Period from March 10, 1998 (Date | 
| | ------------------------------------------------------------------------------ | 

| | of Inception) to December 31, 1998 and for the Years Ended December
31, 1999 and 2000 | F-7
| | ------------------------------------------------------------------------------------- | ---

| | Notes to Consolidated Financial Statements as of December 31, 1999
and 2000 | F-9
| | --------------------------------------------------------------------------- | ---

|Condensed Financial Statements of Orion Power Holdings, Inc.: | 
|------------------------------------------------------------- | 

| | Report of Independent Public Accounts | F-29
| | ------------------------------------- | ----

| | Condensed Balance Sheets as of December 31, 1999 and 2000 | F-30
| | --------------------------------------------------------- | ----

| | Condensed Statements of (Loss) Income for the Period from
March 10, 1998 (Date of Inception) to December 31, 1998 and for the Years Ended
December 31, 1999 and 2000 | F-31
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----

| | Condensed Statements of Cash Flows for the Period from
March 10, 1998 (Date of Inception) to December 31, 1998 and for the Years
Ended December 31, 1999 and 2000 | F-32
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----

|Notes to Condensed Financial Statements as of December 31, 1999
and 2000 | F-33
|------------------------------------------------------------------------ | ----

Report of Independent Public Accountants

To Orion Power Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of
Orion Power Holdings, Inc. (a Delaware corporation) and subsidiaries
(Orion Power) as of December 31, 1999 and 2000, and the related
consolidated statements of (loss) income, changes in stockholders' equity and
cash flows for the period from March 10, 1998 (date of inception) to December
31, 1998 and for each of the two years in the period ended December 31,
2000. These financial statements are the responsibility of Orion Power's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Orion Power Holdings, Inc. and subsidiaries as of December 31, 1999
and 2000, and the results of their operations and their cash flows for the
period from March 10, 1998 (date of inception) to December 31, 1998 and for each
of the two years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP
Vienna, Virginia
March 2, 2001

(except with respect to the matters discussed in Note 14, as to which the date
is March 15, 2001)

Orion Power Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets
as of December 31, 1999 and 2000
(In Thousands)

`1999                2000
                                                                                ----                ----
Assets
Current assets:
     Cash and cash equivalents                                           $       78,549       $    135,834
     Restricted cash                                                             56,866            283,426
     Accounts receivable, net of allowances for bad debts of
       $1,458 in 2000                                                            37,271            154,777
     Inventories and supplies                                                    10,427             44,881
     Deferred income tax assets                                                   1,083             14,920
     Prepaid expenses and other current assets                                   13,765             28,307
                                                                                 ------             ------
Total current assets                                                            197,961            662,145
                                                                                -------            -------

Property and equipment, net of accumulated depreciation of $18,075 and
$116,861 for 1999 and 2000, respectively                                        975,835          3,083,546
                                                                                -------          ---------

Other noncurrent assets:
     Prepaid expenses and other noncurrent assets                                 3,164             12,134
     Identifiable purchased intangibles, net of accumulated
       amortization of $857 and $4,998, for 1999 and 2000, respectively          59,284             70,786
     Deferred financing costs, net of accumulated amortization of                15,763             41,579
       $2,178 and $13,459, for 1999 and 2000, respectively                       ------             ------
Total other noncurrent assets                                                    78,211            124,499
                                                                                 ------            -------
Total assets                                                             $    1,252,007       $  3,870,190
                                                                              =========          =========

The accompanying notes are an integral part of these consolidated balance sheets.`

`Orion Power Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets
as of December 31, 1999 and 2000
(In Thousands, Except Share Data)

                                                                  1999                 2000
                                                                  ----                 ----
Liabilities and stockholders' equity
Current liabilities:
     Accounts payable                                       $       23,643        $      117,000
     Accrued expenses                                               14,420                50,711
     Accrued interest                                                3,573                18,641
     Deferred revenue                                                1,794                 1,836
     Note payable - current portion                                    286                   261
                                                                       ---                   ---
Total current liabilities                                           43,716               188,449

Note payable, long-term                                                308                    --
Notes payable to stockholders                                       71,086                    --
Long-term debt                                                     716,000             2,367,637
Deferred income tax liabilities                                      3,094                 8,931
Other long-term liabilities                                         22,387                50,391
                                                                    ------                ------
Total liabilities                                                  856,591             2,615,408
                                                                   -------             ---------

Commitments and contingencies (Note 8)

Stockholders' equity:
     Common stock, $.01 par value; 200 million shares
       authorized; 36,162,629 and 93,095,926 shares
       issued and outstanding as of
       December 31, 1999 and 2000, respectively
                                                                       362                   931
     Additional paid-in capital                                    393,416             1,230,467
     Deferred compensation                                          (1,811)               (3,359)
     Notes receivable from officers                                   (671)               (5,916)
     Retained earnings                                               4,120                32,659
                                                                     -----                ------
Total stockholders' equity                                         395,416             1,254,782
                                                                   -------             ---------
Total liabilities and stockholders' equity                  $    1,252,007        $    3,870,190
                                                                 =========             =========

The accompanying notes are an integral part of these consolidated balance sheets.`

---

`Orion Power Holdings, Inc. and Subsidiaries

Consolidated Statements of (Loss) Income
for the Period from March 10, 1998 (Date of Inception) to December 31, 1998
and for the Years Ended December 31, 1999 and 2000
(In Thousands, Except Per Share Amounts)

                                                            1998             1999                 2000
                                                            ----             ----                 ----

 Operating revenues (Note 6)                          $       314        $   134,074          $   957,569
 Operating expenses
      Fuel                                                     --             20,463              437,763
      Operations and maintenance (Note 6)                      24             22,732               97,607
      General and administrative                            2,620             16,755               37,082
      Taxes, other than income taxes                        -----             20,785               60,751
      Depreciation and amortization                            94             18,938              103,196
       Charge for buyout of operations and
          maintenance contracts with related
          party (Notes 3 and 6)                              --                   --               19,000
                                                             ---                 ---               ------
 Total operating expenses                                   2,738             99,673              755,399
                                                            -----             ------              -------

 Operating (loss) income                                   (2,424)            34,401              202,170
 Interest income                                               13              1,824               15,281
 Interest expense                                            (137)           (25,767)            (168,670)
                                                            ------           -------             --------
 (Loss) income before (benefit) provision for
   income tax                                              (2,548)            10,458               48,781
 Income tax (benefit) provision                            (1,006)             4,796               20,242
                                                           ------              -----               ------
 Net (loss) income                                  $      (1,542)       $     5,662          $    28,539
                                                         ========              =====               ======

 (Loss) earnings per average common share:
 Basic                                                 $   (12.94)       $     0.39           $     0.46
                                                          =======              ====                 ====
 Diluted                                               $   (12.94)       $     0.38           $     0.44
                                                          =======              ====                 ====

The accompanying notes are an integral part of these consolidated balance sheets.`

`Orion Power Holdings, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders' Equity
For the Period from March 10, 1998 (Date of Inception) to December 31, 1998
and for the Years Ended December 31, 1999 and 2000
(In Thousands, Except Share Amounts)


                                                                                                Additional
                                                                        Common stock              paid-in
                                                                    Shares         Amount         capital
  Beginning balance, March 10, 1998                                        --    $      --     $         --
        Sale of common stock                                        1,864,542           19           18,626
        Net loss                                                           --           --               --
                                                                          ---          ---              ---
  Balance, December 31, 1998                                        1,864,542           19           18,626
        Sale of common stock, net of fees                          34,298,087          343          382,623
        Distribution to stockholders (Note 6)                              --           --          (9,750)
        Deferred compensation pursuant to issuance of stock
  ------------------------------------------------------------             --           --            1,917
           options
        Amortization of deferred compensation                              --           --               --
        Net income                                                         --           --               --
                                                                          ---          ---              ---
  Balance, December 31, 1999                                       36,162,629          362          393,416
        Sale of common stock, net of fees                          56,933,297          569          851,250
        Distribution to stockholders (Note 6)                              --           --         (17,050)
        Deferred compensation pursuant to issuance of stock
           options                                                         --           --            2,851
        Amortization of deferred compensation                              --           --               --
        Change in notes receivable                                         --           --               --
        Net income                                                         --           --               --
                                                                          ---          ---              ---
  Balance, December 31, 2000                                       93,095,926   $      931     $  1,230,467
                                                                  ===========          ===        =========


                                                                        Notes
                                                                      receivable   Retained
                                                          Deferred       from     (deficit)
                                                         Compensation   officers    earnings     Total
  Beginning balance, March 10, 1998                      $       --     $    --  $      --    $       --
        Sale of common stock                                     --        (35)         --        18,610
        Net loss                                                 --          --    (1,542)       (1,542)
                                                                ---         ---    -------       -------
  Balance, December 31, 1998                                     --        (35)    (1,542)        17,068
        Sale of common stock, net of fees                        --       (636)         --       382,330
        Distribution to stockholders (Note 6)                    --          --         --       (9,750)
        Deferred compensation pursuant to issuance
         of stock options                                    (1,917)         --         --            --
        Amortization of deferred compensation                   106          --         --           106
        Net income                                               --          --      5,662         5,662
                                                                ---         ---      -----         -----
  Balance, December 31, 1999                                (1,811)       (671)      4,120       395,416
        Sale of common stock, net of fees                        --     (5,001)         --       846,818
        Distribution to stockholders (Note 6)                    --          --         --      (17,050)
        Deferred compensation pursuant to issuance
          of stock options                                   (2,851)         --         --            --
        Amortization of deferred compensation                 1,303          --         --         1,303
        Change in notes receivable                               --       (244)         --         (244)
        Net income                                               --          --     28,539        28,539
                                                                ---         ---     ------        ------
  Balance, December 31, 2000                             $  (3,359)    $(5,916)  $  32,659   $ 1,254,782
                                                            =======     =======     ======     =========

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

`Orion Power Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
for the Period from March 10, 1998 (Date of Inception) to December 31, 1998
and for the Years Ended December 31, 1999 and 2000
(In Thousands)

                                                             1998                 1999            2000
                                                             ----                 ----            ----

  Cash flows from operating activities:
       Net (loss) income                                    $(1,542)             $5,662          $28,539
       Adjustments to reconcile net (loss) income to
         net cash (used in) provided by operating
         activities:
             Depreciation and amortization                       94              21,116          114,496
             Charge for buyout of operations and
               maintenance contracts (Notes 3 and 6)            --                  --            18,900
             Deferred income taxes                           (1,006)              3,017           (8,000)
             Deferred compensation                              --                  106            1,303
             Notes receivable from officers                     --                  (21)            (244)
             Change in assets and liabilities:
                    Restricted cash                            (623)            (30,243)        (169,268)
                    Accounts receivable                         (22)            (37,249)        (117,506)
                    Inventories and supplies                     --              (4,182)           7,930
                    Prepaid expenses and other
                      current assets                             (2)              6,004          (13,928)

                    Prepaid expenses and other
                      noncurrent assets                          --               3,164           (2,147)
                    Accounts payable                            477              23,166           83,286
                    Accrued expenses                            235              14,185           36,260
                    Accrued interest                             54               3,540           13,952
                    Other long-term liabilities                  --                 397            3,629
                    Deferred revenue                             --               1,794               42
                                                               ----               -----               --
  Net cash (used in) provided by operating activities        (2,335)             10,456           (2,756)
                                                             ------              ------           ------

  Cash flows from investing activities:
       Purchase of property, equipment and related
         assets in acquisitions (see Notes 2 and 3)         (16,407)         (1,024,332)      (1,975,252)
       Purchase of property and equipment in
         operations                                              --             (22,835)        (137,881)
                                                            -------             -------         --------
  Net cash used in investing activities                     (16,407)        $(1,047,167)       (2,113,133)
                                                            -------          ----------         ---------

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

`Orion Power Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (In Thousands)

Cash flows from financing activities:                        1998               1999             2000
                                                             ----               ----             ----
     Issuance of common stock, net                      $    18,610      $      382,330    $    756,832
     Distribution to stockholders                                --              (9,750)        (17,050)
     Proceeds from long-term debt                                --             720,000       1,629,537
     Payments on long-term debt                                  --              (4,000)       (109,000)
     Proceeds from notes payable to stockholders              1,735             110,539              --
     Payments on notes payable to stockholders                   --             (41,188)             --
                                                             ------           ---------       ---------
     Funding of reserve accounts established with
       the Credit Agreement (restricted cash)                    --             (26,000)        (55,000)
     Payment on note payable                                     --                (333)           (333)
     Payment of deferred financing costs                         --             (17,941)        (31,812)
                                                               ----             --------        -------
Net cash provided by financing activities                    20,345           1,113,657       2,173,174
                                                             ------           ---------       ---------

Net increase in cash and cash equivalents                     1,603              76,946          57,285
Cash and cash equivalents, beginning of period
                                                                 --               1,603          78,549
                                                              -----               -----          ------
Cash and cash equivalents, end of period                $     1,603      $       78,549    $    135,834
                                                              =====              ======         =======

 Supplemental disclosure of cash flow information:
     Cash paid for-
           Interest                                     $        83      $       20,070    $    144,436
                                                                 ==              ======         =======
           Income taxes                                          --      $          640    $     25,111
                                                               ====                 ===          ======
     Noncash disclosure-
           Note payable for inventory                   $       859      $           --    $         --
                                                                ===                ====             ===
           Notes receivable from officers               $        35      $          615    $      5,001
                                                                 ==                 ===           =====
           Other long-term liabilities assumed in
             acquisitions                               $        --      $       21,990    $     24,375
                                                               ====              ======          ======
           Debt assumed in acquisitions                 $        --      $           --    $    131,100
                                                               ====                ====         =======
           Conversion of notes payable to equity        $        --      $           --    $     71,086
                                                               ====                ====          ======`

Orion Power Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 2000

1.     Organization

Orion Power Holdings, Inc. (Orion Power) and subsidiaries, a
Delaware corporation, is engaged in the business of acquiring, developing,
owning and managing electric power generating facilities in North America. Orion
Power was incorporated on March 10, 1998, by Constellation Power Source, Inc.
(CPS), a Delaware corporation and an affiliate of Baltimore Gas and Electric
Company (BG&E), and GS Capital Partners II, L.P. along with certain other
affiliated private investment funds managed by Goldman, Sachs & Co.
(collectively GSCP). On November 5, 1999, certain affiliates of Mitsubishi
Corporation (Mitsubishi) and Tokyo Electric Power Company International B.V.
(TEPCO) became stockholders of Orion Power. In December 1999, CPS transferred
its interest in Orion Power to an affiliate - Constellation Enterprises, Inc.
(Constellation).

There are significant risks associated with our business,
including possible changes in federal and state government regulations, possible
increased environmental regulations and changing market structures. As the
impact of the deregulation of the energy industry evolves in areas in which
Orion Power operates, certain changes may adversely impact our operations.
However, since Orion Power operates in several markets (see Note 3) and has
certain long-term contracts in place, management does not believe that such
changes would have an immediate adverse impact on operations.

2.     Summary of Significant
Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the
accounts of Orion Power and its wholly owned subsidiaries. All material
intercompany transactions have been eliminated in the accompanying consolidated
financial statements.

Use of Estimates

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

The purchase prices of the acquisitions (see Note 3) were
allocated to the acquired assets, including identifiable intangible assets,
goodwill and assumed liabilities. Property and equipment and intangible assets
were recorded based on the advice of independent valuation experts. Certain
assets and liabilities have been recorded based on estimates and are subject to
adjustment based upon receipt of final information or resolution of
uncertainties. As of December 31, 2000, Orion Power has reallocated certain
identifiable intangible assets to generation assets based on the advice of
independent valuation experts.

Cash and Cash Equivalents

Orion Power considers all investments with an original maturity
of three months or less to be cash equivalents.

Restricted Cash

Restricted cash includes cash which is restricted under the
terms of certain wholly owned subsidiaries' credit and operating agreements.
Restricted cash includes amounts restricted for major maintenance, debt service,
and operations and maintenance costs (see Note 5).

Inventories and Supplies

Inventories and supplies are valued at the lower of cost or
market using the FIFO method. Inventories and supplies are comprised of the
following as of December 31, 1999 and 2000 (in thousands):

`1999                2000
                                        ----                ----
Fuel                              $     3,333           $    17,439
Supplies                                7,094                27,442
                                        -----                ------
                                  $    10,427           $    44,881
                                       ======                ======`

---

Property and Equipment

Property and equipment is recorded at cost or is recorded based
on a valuation performed by an independent expert at the time of acquisition and
is depreciated on a straight-line basis over the useful life of the asset. The
valuations considered the current replacement cost for similar capacity, market
value and discounted cash flows. Other equipment is carried at cost or at the
fair value determined at acquisition.

As of December 31, 1999 and 2000, the components of property and
equipment, net are as follows (in thousands):

`1999            2000         Useful Lives
                                     ----            ----         ------------
Structures and improvements      $    196,664     $    637,650        15-40
Production assets                     584,903        1,640,693        10-30
Accessories and other equipment       141,718          340,619        3-15
Other assets                           17,311          117,533        3-30
                                       ------          -------
                                      940,596        2,736,495
Less:  accumulated depreciation       (18,075)        (116,861)
                                      --------        ---------
                                      922,521        2,619,634
Land                                   53,314           66,610
Construction in progress                  ---          397,302
                                      --------         -------

Property and equipment, net        $  975,835     $  3,083,546
                                      -------        ---------`

---

Depreciation expense for the period from March 10, 1998 (Date of
Inception) to December 31, 1998 and the years ended December 31, 1999 and 2000
was (in thousands) $94, $18,081 and $99,026, respectively.

Repairs and maintenance costs are expensed as incurred.

Construction in progress is attributable to projects under
development during 2000. Orion Power capitalizes interest on projects during the
development and construction period. There was (in thousands) $0 and
$3,885 of capitalized interest as of December 31, 1999 and 2000,
respectively.

Project Development Costs

Project development costs represent amounts incurred for
professional services, direct salaries, permits, options on real property and
other direct incremental costs related to the development of new property and
equipment, principally electric generating facilities. These costs are expensed
as incurred until development reaches a stage when it is probable that the
project will be completed. A project is considered probable of completion upon
meeting one or more milestones which may include a power sales contract or
securing construction or operating permits, among others. Project development
costs that are incurred after a project is considered probable of completion but
prior to starting physical construction are capitalized. Project development
costs are included in construction in progress when physical construction
begins. Orion Power periodically assesses project development costs for
impairment. Project development costs are included in prepaid expenses and other
noncurrent assets in the accompanying consolidated balance sheets.

Identifiable Purchased Intangibles

Identifiable purchased intangibles include certain Federal
Energy Regulatory Commission (FERC) licenses for its hydroelectric plants. These
items are recorded based on an estimated fair value determined from an
independent expert valuation and amortized on a straight-line basis over the
life of the related license, ranging from 8 to 40 years.

The balance in identifiable purchased intangibles as of December
31, 1999 and 2000, included the following (in thousands):

`1999             2000
                                                   ----             ----
FERC licenses                               $    60,141         $   60,348
POLR contract (Note 3)                               --             14,288
Other                                                --              1,148
Accumulated amortization                           (857)            (4,998)
                                                   ----             ------
Total                                       $    59,284         $   70,786
                                                 ======             ======`

Amortization expense related to identifiable purchased
intangibles for the period from March 10, 1998 (Date of Inception) to December
31, 1998 and the years ended December 31, 1999 and 2000, was (in thousands) $0,
$857 and $4,170, respectively.

Deferred Financing Costs

Financing costs, consisting primarily of the costs incurred to
obtain debt financing, are deferred and amortized using the effective interest
method, over the term of the related permanent financing. Amortization expense
is included in interest expense on the accompanying statements of (loss) income.

Income Taxes

Orion Power accounts for income taxes under the asset and
liability method prescribed by Statement of Financial Accounting Standard (SFAS)
No. 109, "Accounting for Income Taxes," and, accordingly, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using existing enacted tax rates. The effect on deferred tax assets
and liabilities of a change in tax rates would be recognized in income in the
period that includes the enactment date.

Asset Impairment

Orion Power periodically reviews its long-lived assets,
including property and equipment, and identifiable purchased
intangibles for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
expected future undiscounted cash flows are less than the carrying amount of an
asset, an impairment loss would be recognized.

Revenue Recognition

Revenues from the sale of electricity are recorded based on
output delivered and capacity provided at rates specified under contract terms
or received in the wholesale marketplace.

Start-up and Organization Costs

Costs related to start-up activities and the organization of
Orion Power were expensed as incurred.

Customer Concentration

Allrevenues for the period from March 10, 1998
(Date of Inception) to December 31, 1998, were from CPS.

For the year ended December 31, 1999, revenues recognized on
contracts with Niagara Mohawk Power Corporation (Niagara Mohawk), Consolidated
Edison Company of New York Inc. (Consolidated Edison) and the New York
Independent System Operator (NY-ISO) (see Note 3) were approximately
$30,961,000, $72,481,000, and $22,237,000, representing approximately 23, 54 and
17 percent of total operating revenue, respectively.

Accounts receivable from Niagara Mohawk, Consolidated Edison and
the NY-ISO as of December 31, 1999, were approximately $6,544,000, $15,973,000,
and $14,665,000, representing approximately 17, 43 and 39 percent of the total
accounts receivable balance, respectively.

For the year ended December 31, 2000, revenues recognized
on contracts with Niagara Mohawk, Consolidated Edison, the NY-ISO and Duquesne
Light Company were approximately $92,376,000, $84,236,000, $413,157,000, and
$283,389,000, representing approximately 10, 9, 43 and 30 percent of total
operating revenue, respectively.

Accounts receivable from Niagara Mohawk, Consolidated Edison,
the NY-ISO and Duquesne Light Company as of December 31, 2000, were
approximately $6,123,000, $2,723,000, $64,236,000, and $65,434,000, representing
approximately 4, 2, 42 and 42 percent of the total accounts receivable
balance, respectively.

Stock-based Compensation

As described in Note 9, Orion Power accounts for stock-based
employee compensation arrangements using the intrinsic value method in
accordance with provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB Opinion No. 25, compensation cost is recognized
based on the difference, if any, on the date of grant between the fair value of
the Company's stock and the amount an employee must pay to acquire the stock.

Earnings per Share

Basic net income (loss) per share is computed by dividing income
(loss) attributable to common stockholders by the weighted average number of
common shares outstanding for the period. The diluted net income (loss) per
share data is computed using the weighted-average number of common shares
outstanding plus the dilutive effect of common stock equivalents, unless the
common stock equivalents are antidilutive.

Recent Accounting Pronouncements

On
December 3, 1999, the SEC staff released Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition," to provide guidance on the recognition, presentation
and disclosure of revenue in financial statements. SAB No. 101 is effective
December 31, 2000. Adoption of SAB No. 101 will not have a material impact on
Orion Power's current revenue recognition policies.

In
September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which replaces
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This standard revises the methods for
accounting for securitizations and other transfers of financial assets and
collateral as outlined in SFAS No. 125, and requires certain additional
disclosures. The Company does not expect the adoption of this standard to have a
material effect on its financial position or results of operations.

See Note 12 for discussion of adoption of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity."

3.     Acquisitions

1999 Acquisitions

Niagara Mohawk. On July 30, 1999, Orion Power,
through its wholly owned subsidiary Erie Boulevard Hydropower, L.P. (Erie
Blvd.), purchased certain hydroelectric generating assets and assumed certain
liabilities (see Notes 7 and 8) from Niagara Mohawk, for approximately
$425,000,000  in cash including acquisition costs of approximately
$1,700,000. These facilities consist of 70 hydro power plants with a
capacity of 650 MW (the Hydro Assets).

In connection with this acquisition, Erie Blvd. entered into a
Transition Power Purchase Agreement (the Erie Sales Agreement) with Niagara
Mohawk from the closing date through September 30, 2001. Under the terms of
the Erie Sales Agreement, Erie Blvd. will produce and deliver tiered amounts of
electric energy to Niagara Mohawk. As consideration, Erie Blvd. will receive
capacity payments and energy revenue based on the amount of electric energy
produced and sold to Niagara Mohawk. If Erie Blvd. fails to produce contractual
minimum levels of electric energy, it will be required to pay a penalty based on
formulas set forth in the Erie Sales Agreement. In the third quarter of 1999,
Erie Blvd. failed to meet the minimum threshold under this contract due to a
drought. This resulted in additional costs to meet the obligation of
approximately $1,700,000 for the year, which are recorded in fuel expense in
1999 in the accompanying financial statements. As part of the independent
valuation performed of the acquisition of the Hydro Assets, the third party
considered these agreements with Niagara Mohawk and determined that such
agreements were at market value. Therefore, no asset or liability related to the
Erie Sales Agreements has been recognized by Orion Power.

Orion Power is currently negotiating with Niagara Mohawk to extend the term of
the Erie Sales Agreement, with certain modifications. If an agreement is not
reached, Orion Power would sell power from the Erie Blvd. plants into the
market.

Consolidated Edison. On August 20, 1999, Orion
Power, through its wholly owned subsidiary Astoria Generating Company, L.P.
("Astoria"), purchased certain generating assets located in New York City
and assumed certain liabilities (see Notes 7 and 8) from Consolidated Edison,
for approximately $550,000,000 in cash including acquisition costs of
approximately $2,100,000. The Astoria facilities consist of three gas-or
oil-fired plants with a capacity of 2,030 MW (the New York City
Assets).

In connection with this acquisition, Astoria entered into a
Transition Capacity Agreement and a Transition Energy Sales Agreement
(collectively, the Astoria Sales Agreements) with Consolidated Edison. As
consideration, Astoria received capacity payments and energy revenue based on
the amounts of electric energy produced and sold to Consolidated Edison. The
Transition Energy Sales Agreement had a term from the closing date through the
commencement of the energy market administered by the NY-ISO. The Transition
Energy Sales Agreement was terminated on the commencement of the NY-ISO, which
occurred on November 18, 1999. The Transition Capacity Agreement had a term
from the closing date through the later of (a) the earlier of
(i) December 31, 2002 or (ii) the date on which Astoria receives
written notice from the NY-ISO that none of the electric capacity of the Astoria
assets is required for meeting the installed capacity requirements in
New York City as determined by the NY-ISO, or (b) the date the NY-ISO
capacity market commences. The NY-ISO capacity market began operations on
May 1, 2000. Under the terms of the Astoria Sales Agreements, during the
period of the Transition Energy Sales Agreement, Consolidated Edison provided
all of the fuel to the Astoria facilities and received from the facilities all
of the capacity and electric energy. As part of the independent valuation
performed of the acquisition of the New York City Assets, the third party
valued these agreements with Consolidated Edison and determined that such
agreements were at market value. Therefore, no asset or liability related to
these agreements has been recognized by Orion Power.

2000 Acquisitions

Constellation Operating Services, Inc.. On April 26,
2000, Orion Power purchased all of the outstanding stock of the three
subsidiaries of Constellation Operating Services, Inc. ("COSI"), which pursuant
to certain operation and maintenance service agreements operated all of Orion
Power's assets. Orion Power also acquired another subsidiary that was
established to perform operations and maintenance services for the Midwest
Assets following the completion of the acquisition. COSI is a wholly owned
subsidiary of Constellation Energy Inc. The purchase price was approximately
$19,000,000 payable at the time of the acquisition by issuing COSI
1,219,355 shares of Orion Power common stock valued at $15.50 per share
plus $100,000 cash. Orion Power has accounted for this transaction as the
settlement of the operation and maintenance contracts with COSI. The entire cost
of the transaction was charged to expense.

COSI agreed to assist in the transition process of operating the
Orion Power assets by cooperating with Orion Power for six months following the
closing. Additionally, COSI agreed to make its software available to Orion
Power. Furthermore, COSI agreed to provide technical support in the form of
professional, supervisory, managerial, administrative, and technical operating
assistance, until the earlier of December 31, 2002, or the date of
repayment in full of the New York Credit Facility (Note 5).

Duquesne Light- Company. On April 28, 2000, Orion
Power, through its wholly owned subsidiary Orion Power MidWest, L.P. (Orion
Power MidWest) purchased seven power plants located in Ohio and Pennsylvania
(the Midwest Assets) with a generating capacity of 2,614 MW from Duquesne Light
Company (Duquesne). The net purchase price for the assets was approximately
$1,764,000,000 in cash including approximately $17,000,000 in acquisition
costs. In association with this acquisition, Orion Power MidWest assumed certain
liabilities related to employee benefits and environmental remediation (See
Notes 7 and 8).

The acquisition of the Midwest Assets requires Orion Power
MidWest to assume Duquesne's responsibility as "provider of last resort"
(Provider of Last Resort). As Provider of Last Resort, Orion Power MidWest will
be obligated to supply electricity at predetermined tariff rates to all
customers in Duquesne's service area who do not select another electricity
supplier through December 31, 2004. While Orion Power MidWest should have the
capacity to meet these obligations under the contract (POLR Contract) most of
the time, there may be times when the energy required to meet the obligation may
exceed the amounts that can be produced from the Midwest Assets. If the
obligation exceeds Orion Power MidWest's energy production levels, Orion Power
MidWest will be required to purchase additional energy from outside sources at
market rates, and in certain circumstances, pay a penalty of currently $1,000
per megawatt hour. The value of this contract, at acquisition, was reviewed by
independent experts and determined to be favorable. As such, an intangible asset
of approximately $14,300,000 was recorded at the time of the purchase. The
intangible asset is being amortized over the life of the contract.

To supplement the generating capacity to meet Orion Power's
responsibilities under the Provider of Last Resort Contract with Duquesne, Orion
Power purchased 698,400 net megawatt hours for the period of May through October
2000. The cost for the purchases was approximately $57,000,000 and was paid upon
delivery of the energy. Orion Power resold all excess energy not required to
meet the Provider of Last Resort responsibility into the market and realized the
prevailing price at that time.

Columbia Electric Corporation. On December 11, 2000,
Orion Power, through its wholly owned subsidiary Orion Power Development, L.P.
(Orion Power Development) acquired all the outstanding stock of Columbia
Electric Corporation for approximately $209,000,000 in cash, including
approximately $1,300,000 in acquisition costs. In connection with this
acquisition, Orion Power agreed to assume a $334,000,000 credit facility, of
which approximately $131,100,000 was outstanding at the date of the acquisition.
Orion Power Development also assumed from Columbia Energy Group, former parent
of Columbia Electric Corporation, construction contract and tolling agreement
guarantees of approximately $6,000,000 as well as equity investment obligations
of approximately $41,000,000. The facilities acquired are under various stages
of development, will have total capacity of approximately 3,220 MW, and will
begin operations at various times from mid-2001 through 2004.

The acquisition was recorded under the purchase method of
accounting.  The purchase price has been allocated to assets
acquired and liabilities assumed based on the estimated fair market value at the
date of acquisition.  The purchase price allocation for this acquisition is
preliminary and further refinements will be made based on final valuations. The
pro forma operating results of this acquisition for the years presented was not
materially different from actual results.

The initial allocation of the purchase price is as follows (in
thousands):

`Current assets                           $         2,906
               Property and equipment                           336,286
               Noncurrent assets                                 12,127
               Debt and other liabilities assumed              (142,319)
                                                               ---------
                                                          $     209,000
                                                                =======`

4.     Fuel Contracts

Orion Power has entered into various fuel contracts for gas, oil
and coal to operate its generating assets. These contracts expire at various
dates through December 31, 2003. The contracts generally require the supplier to
have certain quantities of fuel available, do not require a minimum purchase by
Orion Power, and set prices at current market indices based on the type of fuel,
time of year and advance notice from Orion Power to the supplier.

5.     Debt

Credit Agreements

New York Credit Agreement. On July 30, 1999, Orion
Power New York, LP (Orion NY), a wholly owned subsidiary of Orion Power,
entered into a $730,000,000 secured credit agreement. The banks agreed to
provide an acquisition facility in an amount of up to $700,000,000 (the
Acquisition Loans), and a revolving working capital facility in an amount of up
to $30,000,000 (the Working Capital Facility) (collectively, the New York Credit
Agreement). The New York Credit Agreement has a maturity of December 31,
2002, for all indebtedness. The net proceeds under the New York Credit Agreement
were used to finance the Hydro Assets and New York City Assets
acquisitions.

The borrowings under each facility bear interest at a floating
rate. At Orion Power New York's option, the interest rate will be determined as
either the Base Rate as defined or LIBOR plus an applicable margin. The rate as
of December 31, 1999 and 2000, was 7.315 percent and
8.097 percent, respectively. The Acquisition Loans and Working Capital
Facility are secured by substantially all of the assets of Orion NY.

As of December 31, 1999 and 2000, Orion NY had $700,000,000
and $650,000,000 of the Acquisition Loans outstanding, respectively. As of
December 31, 1999, and December 31, 2000, Orion NY had $16,000,000 and
$0, respectively, of the Working Capital Loans outstanding. Under the Working
Capital Facility, an additional $10,000,000 is used to provide a letter of
credit in favor of Consolidated Edison in conjunction with the New York
City Assets acquisition.

In accordance with the New York Credit Agreement, Orion NY
entered into a Deposit Account Agreement with Bank of America, N.A. Accordingly,
Orion NY established 12 restricted use accounts for the disbursement of its
revenues. As of December 31, 1999 and 2000, the total balance in these
restricted use accounts totaled $56,214,000 and $116,478,000, respectively.

MidWest Credit Agreement. On April 28, 2000, Orion
Power MidWest entered into a $1,200,000,000 secured credit agreement. The banks
agreed to provide acquisition loans of $1,110,000,000 (the Acquisition Loans)
and a revolving working capital facility of $90,000,000 (the Working Capital
Facility) (collectively, the "MidWest Credit Agreement"). The MidWest Credit
Agreement has a maturity date of October 28, 2002, for all indebtedness.
The net proceeds under the MidWest Credit Agreement were used to finance the
acquisition of the Midwest Assets.

As of December 31, 2000, Orion Power MidWest had
$1,110,000,000 and $60,137,000 of Acquisition Loans and Working Capital Facility
outstanding, respectively. Under the working capital facility, Orion Power
MidWest is required to provide a $10,000,000 letter of credit in favor of
Duquesne as part of the POLR contract.

The borrowings under the MidWest Credit Agreement bear interest
at a floating rate. At Orion Power MidWest's option, the interest rate will be
determined as either the Base Rate as defined or LIBOR plus an applicable
margin. The rate as of December 31, 2000 was 8.489 percent. The credit agreement
is secured by substantially all the assets of Orion Power MidWest.

In accordance with the MidWest Credit Agreement, Orion Power
MidWest entered into a Deposit Account Agreement with Bank of America, N.A.
Accordingly, Orion Power MidWest established 12 restricted use accounts for
the disbursement of its revenues. As of December 31, 2000, the total balances in
these restricted accounts were approximately $62,884,000.

Under the New York Credit Agreement and the MidWest Credit
Agreement (collectively, the "Credit Agreements"), Orion Power New York and
Orion Power MidWest are restricted from distributing cash to Orion Power. These
credit agreements provide for various accounts to be created, into which all
operating revenues and other cash receipts are deposited, and from which
operating expenses, repayments of the loan facilities and distributions to Orion
Power may be made. The lenders under each credit agreement have a security
interest in all amounts on deposit in the accounts and if there is an event of
default under the appropriate credit agreement, the lenders will be able to
immediately exercise their security interest on any funds contained in that
credit facility's accounts.

Distributions to Orion Power may only be made after satisfaction
of the following  (1) all operating expenses of the applicable
subsidiary; (2) all debt service payments under the appropriate credit
agreement; (3) 50 percent of the Excess Cash Flow, as defined, has been
used to prepay each credit agreement; and (4) any other required
prepayments. After satisfaction of the aforementioned items, the Credit
Agreements allow Orion NY and Orion Power MidWest to pay dividends and make
other distributions to Orion Power up to the limit of $100,000,000 over the life
of the New York Credit Agreement and $175,000,000 over the life of the MidWest
Credit Agreement. As of December 31, 2000, no dividends or distributions
had been made to Orion Power. On February 21, 2001, Orion NY made a distribution
of approximately $37,190,000 to Orion Power.

Among other restrictions, the Credit Agreements also contain
customary affirmative covenants and significant negative covenants including a
requirement that expenditures be within 105 percent of their budgeted amounts
and that a debt service coverage ratio of at least 1.5 to 1.0 be maintained. In
addition, the following events are also events of default under the New York
Credit Agreement  reduction in the rule requiring New York City power
retailers to procure capacity equal to at least 80 percent of forecasted peak
demand from in-city generation sources to less than 75 percent and a reduction
in the price cap for capacity from in-city generators from $105 per kilowatt
year to less than $90 per kilowatt year.

Liberty Credit Agreement. In December 2000, in connection
with our acquisition of Columbia Electric Corporation, Orion Power assumed a
credit facility entered into by Liberty Electric Power, LLC (Liberty), a
wholly-owned subsidiary of Columbia Electric Corporation. This credit facility,
entered into by Liberty in July 2000, provides for the following:

| | (1) | a construction/term loan in an amount of up to $105,000,000;
| | --- | ------------------------------------------------------------

| | (2) | an institutional term loan in an amount of up to $165,000,000;
| | --- | --------------------------------------------------------------

| | (3) | an equity bridge loan in an amount of up to $41,000,000;
| | --- | --------------------------------------------------------

| | (4) | a revolving working capital facility for an amount of up to $5,000,000; and
| | --- | ---------------------------------------------------------------------------

| | (5) | a debt service reserve letter of credit of $17,500,000.
| | --- | -------------------------------------------------------

Amounts outstanding under the facility bear interest at a
floating rate for a portion of the facility, which may be either the Base Rate
as defined or LIBOR plus an applicable margin, and a fixed rate for the
remainder. At December 31, 2000, the interest rate was 7.81 percent on the
floating rate component and 9.15 percent on the fixed rate portion. As of
December 31, 2000, Orion Power Development had $73,200,000 and $74,300,000
of the floating rate and fixed rate portions of the facility outstanding,
respectively. The lenders have a security interest in substantially all of the
assets of Orion Power Development and have negative pledges on other fixed
assets. Orion Power Development also pays facility fees on the working capital
facility and the debt service reserve letter of credit.

The construction/term loan, the institutional term loan and the
equity bridge loan mature on the earlier of October 1, 2002, or a date on which
the conditions precedent to conversion to a term loan are met. The debt service
reserve letter of credit becomes available for use when the conditions precedent
to conversion to a term loan are met and matures five years thereafter. The
working capital facility becomes available for use six months prior to the
scheduled conversion date and matures five years thereafter. The
construction/term loan converts to an amortizing term loan when the conditions
precedent to conversion to a term loan are met and matures 10 years thereafter.
The institutional term loan has a final maturity date of April 15, 2026.

Each credit agreement is an independent recourse project
financing secured by the assets of the applicable borrower without recourse to
any other Orion Power financing facility.

Notes Payable

During 1999, Orion Power entered into several promissory notes
payable with CPS and GSCP in order to provide funding for acquisitions and
operations. The total borrowings under these notes amounted to approximately
$41,200,000 and $71,100,000 to CPS and GSCP, respectively. Each promissory note
was due five years from the date of the note. Earlier repayment of the debt was
required in the event of a public offering, sale, liquidation or merger of Orion
Power. Interest on the unpaid principal balance accrued at 7 percent and
was payable semiannually from the respective anniversary dates.

On November 8, 1999, Orion Power repaid the total balance
due to CPS with the funds from the capital call of Mitsubishi and TEPCO. On
April 28, 2000, Orion Power converted $71,100,000 of notes payable to GSCP into
7,108,600 shares of common stock.

In conjunction with Orion Power's acquisition of the Carr Street
facility (see Note 6), Orion Power entered into a non-interest bearing note
payable with US Generating Company, LLC in the amount of $1,000,000. Payment is
due annually starting November 19, 1999 through November 19, 2001.
Orion Power recognized a discount (8 percent) on this note at acquisition
of $141,000.

Senior Notes

In April and May 2000, Orion Power issued a total of
$400,000,000 of 12 percent senior notes, due 2010 (the Senior Notes). The
proceeds were used to assist in the financing of the acquisition of the Midwest
Assets. Interest is paid semiannually in May and November of each year. The
Senior Notes are senior unsecured obligations and rank pari passu with all of
Orion Power's existing and future unsecured indebtedness.

Before May 1, 2003, Orion Power may redeem up to
35 percent of the notes issued under the indenture at a redemption price of
112 percent of the principal amount of the notes redeemed, plus accrued and
unpaid interest and special interest, with the net cash proceeds of an equity
offering provided that certain provisions under the indenture are met. Orion
Power is not required to make any mandatory redemption or sinking fund payments
with respect to the Senior Notes.

Each holder of the Senior Notes will have the right to require
Orion Power to repurchase the notes pursuant to a change of control offer as set
forth in the indenture. The Senior Notes are not guaranteed by any of Orion
Power's subsidiaries.

Revolving Senior Credit Facility

On July 27, 2000, Orion Power entered into a $75,000,000
revolving senior credit facility. The credit facility matures in
December 2002. Amounts outstanding under the facility bear interest at a
floating rate. The facility is unsecured and ranks pari passu with all of Orion
Power's senior debt. As of December 31, 2000, here were no outstanding amounts
under this facility and $46,000,000 had been used to post letters of credit to
support various payout obligations.

Principal Payments on Debt Obligations

The following is a schedule of principal payments due under the
credit facilities, senior notes and the notes payable as of December 31, 2000
(in thousands):

`2001                              $             261
        2002                                      1,850,937
        2003                                          8,151
        2004                                          8,646
        2005                                          9,146
        Thereafter                                  490,757
                                                    -------
        Total                             $       2,367,898
                                                  ---------`

Total interest expense under the debt obligations, including
amortization of deferred financing costs, for the period from March 10, 1998
(Date of Inception) to December 31, 1998 and the years ended December 31, 1999
and 2000 was (in thousands) $137, $25,767 and $168,670, respectively.

Interest Rate Swap Agreements

Orion Power has entered into a number of interest rate swaps
designed to fix the rate of interest on its New York and MidWest Credit
Facilities. Surrounding the interest rate swap is a total notional amount of
interest rate swaps are $350,000,000 on the New York Credit Facility with an
average maturity of 7 years and an average fixed rate of approximately 7.0
percent and $600,000,000 on the MidWest Credit Facility with an average maturity
of 5 years and an average fixed rate of 7.4 percent.

Counterparties to the interest rate swap agreements are major
financial institutions. While Orion Power may be exposed to credit losses in the
event of non-performance by these counterparties, Orion Power does not
anticipate losses.

6.     Related-Party
Transactions

Capacity Sale And Tolling Agreement

On November 18, 1998, Carr Street, a 102 megawatt natural
gas-fired facility acquired from US Generating Company, LLC, entered into a
Capacity Sale and Tolling Agreement (the Sales Agreement) with CPS for a period
of five years. Under the terms of the Sales Agreement, CPS provides all
fuel to the Carr Street facility and receives from the facility all of the
capacity, electric energy and other products generated by the facility. As
consideration, Carr Street will receive capacity payments, electric revenue
based on the amount of electric energy produced and sold to CPS, certain
start-up fees and market steam reimbursable costs. The minimum required payment
to be received by Carr Street is $3,677,000 in 2001, $3,769,000 in 2002 and
$3,863,000 in 2003.

Operation and Maintenance Services
Agreement

Each operating subsidiary of Orion NY entered into Operation and
Maintenance Services Agreements (the O&M Agreements) with COSI for a term of
five years, whereby COSI provided ongoing operating and maintenance services.
Under the terms of the O&M Agreements, Carr Street, Astoria, and Erie Blvd.
paid COSI for direct materials and expenses, plus a base fee and certain
bonuses, as set forth in the O&M Agreements. The base fee and the bonuses
were subject to annual adjustments. Expenses incurred under the O&M
Agreements for the period from March 10, 1998 (Date of Inception) to
December 31, 1998, and for the years ended December 31, 1999 and 2000,
were approximately $24,000, $19,846,000 and $13,247,000, respectively. There
were no amounts owed to COSI at December 31, 1998 or 2000. Amounts owed to
COSI at December 31,1999, were approximately $1,674,000, and are included
in accounts payable on the accompanying consolidated balance sheets. See Note 3
for discussion of Orion Power's acquisition of the COSI subsidiaries that
eliminated the O&M agreements.

Stockholder Fees

As part of the original stockholders agreement between CPS and
GSCP and the Second Amended and Restated Stockholders Agreement, Orion Power was
required to pay a total of 1 percent of the aggregate consideration paid in
an acquisition to its stockholdersGSCP, CPS, Mitsubishi, and TEPCO. Orion
Power paid a total of $9,750,000 in August and September 1999 to GSCP
and CPS, and paid a total of $17,050,000 in June 2000, to the four primary
stockholders. These payments are recognized as a distribution to stockholders in
the accompanying statement of changes in stockholders' equity.

Additionally, Goldman Sachs had the right to provide all
investment banking services to Orion Power on an arms' length basis with regard
to terms, conditions and pricing. In association with the investment by
Mitsubishi and TEPCO on November 5, 1999 and April 28, 2000, Orion
Power was required to pay a 2 percent fee to Goldman Sachs, in accordance
with the Second Amended and Restated Stockholder's Agreement. The amounts of
these payments are approximately $2,400,000 and $1,600,000, respectively. Orion
Power charged the fee against additional paid-in capital.

Both of the obligations related to payments of shareholders fees
ended during 2000.

Notes Receivable From Officers

Certain officers were required to purchase shares of Orion
Power's common stock under their employment agreements. As of December 31,
1999, these officers owed Orion Power $671,000 related to the purchase of
approximately 97,500 shares of common stock and related interest. As of
December 31, 2000, these officers owed Orion Power $5,916,000 related to
the purchase of 742,700 shares of common stock, and related interest.

7.     Retirement
Plans

As part of the acquisitions of the Hydro Assets, New York City
Assets and Midwest Assets, Orion Power was required to assume the defined
benefit pension plans and other postretirement benefit plans (OPEB) for
employees that remained at the facilities subsequent to each acquisition. These
former Consolidated Edison, Niagara Mohawk, Duquesne and First Energy employees
were hired by COSI in the same capacity as with their former employers. The
plans were being maintained by COSI, through the date of the COSI acquisition
(see Note 3), although it was the subsidiary's responsibility to fund these
obligations. As of April 26, 2000, the plans were transferred to Orion Power's
control.

The following table reconciles the plans' funded status to the
accrued cost recorded as other long-term liabilities in the consolidated balance
sheets as of December 31, 1999 and 2000 (in thousands):

`Defined benefit plans                    OPEB
                                                    1999          2000            1999            2000
                                                    ----          ----            ----            ----
Change in benefit obligation-
    Benefit obligation at January 1             $        --   $     17,398     $        --    $      4,318
    Benefit obligation assumed in acquisition        17,984         10,071           4,226           9,504
    Service cost                                        629          2,215             238             886
    Interest cost                                       517          1,868             121             826
    Benefits paid                                        --         (1,085)             --              --
    Actuarial (gain) loss                           (1,732)            460           (267)           1,871
                                                    -------         ------           -----           -----
    Benefit obligation at December 31           $    17,398   $     30,927     $     4,318    $     17,405
                                                     ======         ======           =====          ======
Change in plan assets-
    Fair value of plan assets at January 1      $        --   $     11,967     $        --    $         --
    Fair value of plan assets assumed in
      acquisition                                    11,668             --              --              --
    Actual return on plan assets                        299            785              --              --
    Employer contributions                               --            597              --              --
    Benefits paid                                        --        (1,085)              --              --
                                                        ---        -------             ---             ---
    Fair value of plan assets at December 31    $    11,967   $     12,264     $        --    $         --
                                                     ======         ======             ===             ===
Funded status-
    Funded status of the plans at December 31   $   (5,431)   $   (18,663)     $   (4,318)    $   (17,405)
    Unrecognized actuarial net gains/(losses)       (1,618)          (887)           (267)           1,603
                                                    -------          -----           -----           -----
Accrued benefit cost                            $   (7,049)   $   (19,550)     $   (4,585)    $   (15,802)
                                                    ======        ========         =======        ========
Assumptions as of December 31:
    Discount rate                                     7.75%          7.75%           7.75%           7.75%
    Expected return on plan assets                    8.50%          8.50%             N/A             N/A
    Rate of compensation increase                     4.50%          4.00%           4.00%           5.00%`

---

As of December 31, 1999 and 2000, the defined benefit pension
plan for employees covered by the Erie Boulevard Plan, included in the table
above, had plan assets in excess of benefit obligations of (in thousands) $1,246
and $242, respectively.

The components of Orion Power's net periodic benefit cost for
the years ended December 31, 1999 and 2000 were as follows (in
thousands):

`Defined benefit plans              OPEB
                                                        1999           2000       1999            2000
                                                        ----           ----       ----            ----
Components of net periodic benefit cost:
         Service cost                                $    629         $ 2,215   $    238        $   886
         Interest cost                                    517           1,868        121            826
         Expected return on plan assets                  (413)         (1,017)        --             --
         Amortization of actuarial (gain) or loss          --             (38)        --             --
                                                          ---             ----       ---            ---
         Net periodic benefit cost                   $    733         $ 3,028   $    359        $ 1,712
                                                          ===           =====        ===          =====`

---

The assumed healthcare cost trend rates for fiscal year 2000 for
Medicare eligible and non-Medicare eligible retirees is 8.5 percent; this rate
is expected to decrease gradually to 5.0 percent in 2008 and remain at that
level thereafter. The assumed healthcare trend rate has a significant effect on
the amounts reported for the healthcare plans. A one-percentage-point change in
the assumed healthcare trend rate would have the following effects:

`1-percentage             1-percentage
                                                               point increase           point decrease
                                                            1999           2000      1999         2000
                                                            ----           ----      ----         ----
Increase (decrease) total service and interest cost
     components                                                $80          $  464   $  (62)      $ (361)
Increase (decrease) OPEB obligation                            908           3,758     (712)      (2,949)`

Effective January 1, 1999, Orion Power established a 401(k)
retirement plan for the benefit of all eligible employees. The plan is for all
employees of Orion Power with no minimum age or minimum service requirements.
Participants may contribute up to 15 percent of their annual compensation,
subject to statutory limits. Employee contributions are fully vested. Orion
Power's matching contribution is discretionary and therefore will be determined
on an annual basis. Employees will fully vest in any discretionary contributions
ratably over five years. Orion Power made no contributions to the plan in 1999
and approximately $614,000 in contributions in 2000.

8.     Commitments and Contingencies

Environmental Liabilities

Orion Power has recorded a liability for the estimated cost of
environmental remediation associated with the acquisition of the Hydro Assets
and New York City Assets based on valuation reports provided by independent
environmental liability assessment experts. In conjunction with these
valuations, Orion Power has developed remediation plans for each item
specifically identified. For environmental items at Astoria, the New York State
Department of Environmental Conservation has issued consent orders requiring
active investigation and remediation of past releases of petroleum and other
substances by the prior owners. The consent order also contains obligations
related to continuing compliance with environmental regulations. The total
liability assumed and recorded by Orion NY totaled approximately $9,150,000, on
an undiscounted basis. Through December 31, 2000, Orion NY had spent
approximately $50,000 toward completion of its remediation plans and anticipates
that the remaining portion will be paid out through 2009.

In association with the Midwest Acquisition, Orion Power MidWest
has recorded a liability for the estimated cost of environmental remediation,
based on valuations performed by independent environmental liability assessment
experts. In conjunction with these valuations, Orion Power MidWest has developed
remediation plans for the known liabilities. The total liability assumed by
Orion Power MidWest totaled approximately $4,800,000 on an undiscounted basis
and is recorded in other long-term liabilities.

On an ongoing basis, Orion Power monitors its compliance with
environmental laws. Due to the uncertainties associated with environmental
compliance and remediation activities, future costs of compliance or remediation
could be higher or lower than the amount currently accrued.

Tax Savings Sharing Agreement With Niagara Mohawk

As part of the acquisition of the Hydro Assets, Orion NY has
entered into a tax savings sharing agreement with Niagara Mohawk. Funds received
from settlement of prior Niagara Mohawk filed property tax litigation or future
property tax reduction agreements are shared 25 percent to Niagara Mohawk. The
total amount paid to Niagara Mohawk cannot exceed $20,000,000. Since this amount
due to Niagara Mohawk is contingent on future events, amounts due to Niagara
Mohawk will only be recognized when a settlement has been reached with a local
jurisdiction and related payment received. As of December 31, 1999 and 2000, no
such payments had been received from local tax jurisdictions that would require
Orion Power NY to make payment to Niagara Mohawk.

Turbine Purchases

In September 2000, Orion Power entered into a letter of intent
for the delivery over the next four years of 10 combustion turbine generators
from Siemens Westinghouse Power Corporation as part of the repowering and new
development efforts. The total purchase price made is approximately
$345,000,000, substantially all of which is payable at various times in 2003 and
2004. Orion Power made a $5,000,000 deposit during 2000 and will pay an
additional $5,000,000 by the end of the first quarter of 2001. Furthermore, as
part of Orion Power's acquisition of Columbia Electric Corporation, Orion Power
acquired the rights to purchase eight additional turbine generators which will
be installed in the projects under construction. As of December 31, 2000,
approximately $33,900,000 remained to be paid for these eight turbines, of which
$32,000,000 was due at December 31, 2000 and recorded in accounts payable on the
accompanying balance sheets.

Labor Subject to Collective Bargaining Agreements

Orion Power has 64 percent of its employees subject to one of
five collective bargaining agreements. Such agreements expire at various times
between June 2001 through June 2006.

Leases

Orion Power and its subsidiaries have entered into various
noncancelable operating lease arrangements for office space, storage space,
office furniture and vehicles. These leases terminate at various dates through
December 2021.

On November 10, 1999, Erie Blvd. entered into a capital lease
arrangement for the land at the Watertown hydroplant located in Potsdam, New
York. This land will house a maintenance facility and a regional headquarters
for the Hydro Assets. The lease term begins at the completion of the facility,
which was completed in October 2000, and expires in 2014. Under the terms of the
lease, the monthly payments are $10,500. Erie Blvd. has the option to purchase
the land for $450,000 at the end of the lease term.

Future minimum payments due under these leases are as follows
(in thousands):

`Year ending December 31,                     Capital                Operating
   ------------------------                     -------                ---------
   2001                                       $      126             $   1,266
   2002                                              126                 1,280
   2003                                              126                 1,298
   2004                                              126                 1,309
   2005                                              126                 1,054
   Thereafter                                      1,145                 3,830
                                                   -----                 -----
                                                   1,775             $  10,037
                                                                         =====
   Interest portion                                 (594)
                                                    -----
   Total                                      $    1,181
                                                   =====`

Total rental expense for the period from March 10, 1998 (Date of
Inception) to December 31, 1998, and the years ended December 31, 1999 and 2000,
was (in thousands) $0, $373 and $1,831, respectively.

Litigation and Claims

Orion Power is directly or indirectly involved in various
pending lawsuits and claims. Litigation reserves are recorded when a loss is
determined to be probable and the amount can be reasonably estimated. In the
opinion of management, the ultimate outcome of the claims will not have a
material impact on Orion Power's financial position or the results of its
operations.

During 2000, Orion Power, through Orion NY, provided certain
services to Con Edison under the local electric system reliability rules. Con
Edison has questioned its obligation to make separate payment to Orion Power
related to these services. As of December 31, 2000, the amount requested by
Orion Power for these services was approximately $24,000,000. Since Orion Power
management and its counsel cannot reasonably estimate the amount Orion Power
will ultimately collect, no amount has been recognized in these consolidated
financial statements. The parties are discussing resolution to this item. At
such time as this issue is resolved and payments are either receivable or
payable, Orion Power will recognize the revenue or expense as appropriate.

9.     Stock Option Plan

On May 21, 1998, Orion Power adopted the 1998 Stock
Incentive Plan (the "Plan") to provide for granting of stock options and other
equity based awards to directors, officers, employees, and consultants. The
Plan, as amended, provides that up to 7,500,000 shares of common stock may
be issued pursuant to such options and other awards. Stock options may be
granted at an exercise price as determined by the Board of Directors or a
committee designated by the Board of Directors. Options generally are granted at
fair market value at the date of grant, are exercisable in installments
beginning one year from the date of grant, and expire 10 years after the date of
grant. The plan permits the issuance of either incentive stock options or
non-qualified stock options.

Orion Power utilizes the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock Based Compensation," which defines a "fair
value based method" of accounting for stock-based compensation and applies APB
Opinion No. 25 and related interpretations in accounting for its stock
option and stock purchase plans.

Orion Power has granted options to acquire shares of its common
stock at an exercise price less than the fair value of Orion Power's common
stock. As of December 31, 2000, Orion Power has recognized deferred compensation
of $4,768,000 to be amortized over the three-year vesting period. Orion Power
recognized $0, $106,000 and $1,303,000 of compensation expense related to these
options for the period from March 10, 1998 (Date of Inception) to December 31,
1998, and the years ended December 31, 1999 and 2000, respectively.

The following summarizes options granted to directors, officer
and employees:

`Number              Weighted-average
                                                             of shares              exercise price
                                                       -----------------------  ------------------------
Outstanding at March 10, 1998 (Date of Inception)                     --           $         --
     Granted                                                      49,964                  10.00
                                                                  ------
Outstanding at December 31, 1998                                  49,964                  10.00
     Granted                                                   1,627,246                  11.91
                                                               ---------
Outstanding at December 31, 1999                               1,677,210                  11.86
     Granted                                                   3,544,813                  17.39
     Forfeited                                                   (32,176)                (14.91)
                                                                 --------
Outstanding at December 31, 2000                               5,189,847                  15.28
                                                               =========
Options exercisable at December 31, 1998                              --                     --

Options exercisable at December 31, 1999                         118,163                  10.00
                                                                 -------
Options exercisable at December 31, 2000                         678,352                  10.66
                                                                 -------`

Exercise prices for options outstanding as of December 31, 2000,
ranged from $10 to $20. The following table provides certain information with
respect to stock options outstanding at December 31, 2000:

`Weighted-average
                                                                                      remaining
                                  Stock options           Weighted-average         contractual life
Range of exercise prices           outstanding             exercise price             (in yrs.)
---------------------------- ------------------------- ------------------------ -----------------------
$10.00 - $15.50                     2,996,379                   $11.95                   $8.96
$15.51 - $20.00                     2,193,468                    19.83                    9.86
---------------------------- ------------------------- ------------------------ -----------------------
                                    5,189,847                   $15.28                   $9.34
---------------------------- ------------------------- ------------------------ -----------------------`

The following table provides certain information with respect to
stock options exercisable at December 31, 2000:

`Stock options                   Weighted-average
Range of exercise prices                  exercisable                     exercise price
-------------------------------- ------------------------------- ---------------------------------
$10.00 - $15.50                             678,352                              $10.66
$15.51 - $20.00                                  --                               --
-------------------------------- ------------------------------- ---------------------------------
                                            678,352                              $10.66
-------------------------------- ------------------------------- ---------------------------------`

The weighted-average fair values at date of grant for options
granted during 1998, 1999 and 2000 were $0, $8.96, and $15.60, respectively, and
were estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions:

`1998                  1999                   2000
---------------------------------- --------------------- --------------------- -----------------------
Expected life in years                      10                    10                     10
Risk-free interest rate                    N/A                  5.12%                  5.11%
Volatility                                 N/A                  16.40%                 35.00%
Dividend yield                             ---                    ---                    ---
---------------------------------- --------------------- --------------------- -----------------------`

Orion Power's pro forma information for the years ended
December 31, 1999 and 2000, prepared in accordance with the provisions of SFAS
No. 123, is provided below. The pro forma impact for the period from March 10,
1998 (Date of Inception) to December 31, 1998, was not material. For purposes of
pro forma disclosures, stock-based compensation is amortized to expense on a
straight-line basis over the vesting period.

`(Dollars in thousands,
except per share amounts)                   1999                   2000
----------------------------------  --------------------- -----------------------
Pro forma net income                       $4,711                $17,853
Pro-forma net income
   per common share-basic                   $0.33                  $0.29
Pro forma net income
   per common share -
   assuming dilution                        $0.32                  $0.28
----------------------------------  --------------------- -----------------------`

10.     Income Taxes

The sources of and differences between the financial accounting
and tax basis of Orion Power's assets and liabilities which give rise to the net
deferred tax assets and net deferred tax liabilities as of December 31,
1999 and 2000, respectively, are as follows (in thousands):

`1999                             2000
                                                    Current        Long-Term       Current         Long-Term
Accumulated deferred income taxes:
     Deferred tax assets-
         Accruals and Prepaids                   $        --     $      --      $  15,352       $     1,090
         Net operating loss carryforward                  --            --             --             5,853
         Amortization differences on
             intangibles                                  --            --            517             6,720
         Long-term liabilities assumed in
             acquisition                                 938         8,007             --            17,964
         Deferred compensation                            --            44             --               532
         Acquisition costs                               145         3,109            122             3,172
                                                       -----        ------         ------            ------
Total deferred tax assets                              1,083        11,160         15,991            26,313
                                                       -----        ------         ------            ------
     Deferred tax liabilities-
         Depreciation differences on property
             and equipment                                --        (5,308)         ------          (25,582)
         Difference in asset basis of property
             and equipment                                --        (8,946)         ------          (18,680)
         Other                                            --            --         (1,071)               --
                                                       -----        ------         ------            ------
Total deferred liabilities                                --       (14,254)        (1,071)          (44,262)
                                                       -----        ------         ------            ------
Net accumulated deferred income tax assets
  (liabilities)                                  $     1,083     $  (3,094)     $  14,920       $    (8,931)
                                                       =====        =======        ======            =======`

The components of the income tax (benefit) provision during the
period from March 10, 1998 (Date of Inception) to December 31, 1998, and for the
years ended December 31, 1999 and 2000, are as follows:

`1998                    1999                    2000
                                          --------------------    --------------------    ------------------
Current:
     Federal                                $        --             $       1,378           $      14,417
     State                                           --                       401                  13,825
                                                     --                       ---                  ------
                                                     --                     1,779                  28,242
                                                 ------                     -----                  ------
Deferred:
     Federal                                       (880)                    2,418                   1,079
     State                                         (126)                      599                  (9,079)
                                                 -------                    -----                  ------
                                                 (1,006)                    3,017                  (8,000)
                                                 ------                     -----                  ------
Total income tax (benefit) provision        $    (1,006)            $       4,796           $      20,242
                                                 ------                     -----                  ------`

The tax (benefit) provision differs from the amounts obtained by
applying the statutory U.S. Federal income tax rate to pre-tax income from
operations. The differences are reconciled as follows (in thousands):

---

`1998          1999          2000
Income tax (benefit) provision computed at Federal
    statutory rates                                      $    (892)    $    3,660     $  17,073
Permanent differences                                           --            484            84
State income taxes, net of Federal income tax benefit          (83)           650         3,085
Other                                                          (31)             2            --
                                                            ------          -----        ------
Total                                                    $  (1,006)    $    4,796     $  20,242
                                                            =======         =====        ======`

As of December 31, 2000, the Company had state net operating
loss carryforwards of (in thousands) $9,004, which are due to expire in tax
years 2010 through 2020.

11.     Earnings per
Share

The impact of 2,500 stock options from the second quarter of
2000 and 2,077,000 stock options from the fourth quarter of 2000 have been
excluded from diluted EPS due to their antidilutive effect. The following table
shows the computation of Orion Power's basic and diluted EPS for 1998, 1999 and
2000 (in thousands, except per share data).

`Per Share
                                                                Net Income       Shares         Amount
                                                                ----------       ------         ------
For the period from March 10, 1998 (Date of Inception) to
December 31, 1998:
     Basic EPS-                                                  $  (1,542)        119,200     $  (12.94)
         Effect of dilutive securities                                  --              --
     Diluted EPS-                                                $  (1,542)        119,200     $  (12.94)
                                                                    =======        =======        =======

For the year ended December 31, 1999:
     Basic EPS-                                                  $   5,662      14,344,400     $    0.39
         Effect of dilutive securities
            Stock options                                               --          83,700
            Warrants                                                    --         518,800
                                                                     -----      ----------
     Diluted EPS-                                                $   5,662      14,946,900     $    0.38
                                                                     =====     ===========          ====

For the year ended December 31, 2000
     Basic EPS-                                                  $  28,539      61,755,269     $    0.46
         Effect of dilutive securities:
             Stock options                                             --          480,364
             Warrants                                                  --        2,202,685
                                                                 ---------       ---------
         Diluted EPS-                                            $  28,539      64,438,318     $    0.44
                                                                    ======      ==========          ====`

12.     Derivatives, Fair
Value of Financial Instruments and Market and Credit Risks

Derivatives. Orion Power will adopt Statement of
Financial Accounting Standards (SFAS) No. 133," Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS Nos. 137 and 138, on
January 1, 2001. This standard requires Orion Power to recognize all
derivatives, as defined in the Statement, on the balance sheet at fair value.
Derivatives, or any portion thereof, that are not effective hedges must be
adjusted to fair value through income. If derivatives are effective hedges,
depending on the nature of the hedges, changes in the fair value of derivatives
either will offset the change in fair value of the hedged assets, liabilities,
or firm commitments through earnings, or will be recognized in other
comprehensive income until the hedged items are recognized in earnings. Orion
Power estimates that the transition adjustment to implement this new standard
will be a negative adjustment of approximately $64,926,000 to other
comprehensive income, a component of stockholders' equity. The transition
adjustment relates to hedges of interest rate and commodity price risk
exposure. The other comprehensive income will be relcassified into earnings in
the same periods during which the hedged forecasted transaction affects
earnings. Orion Power also has certain commodity contracts for the physical
delivery of purchase and sale quantities transacted in the normal course of
business. These derivatives are exempt from the requirements of SFAS 133 under
the normal purchases and sales exception, and thus will not be reflected on the
balance sheet at fair value.

Fair Value of Financial Instruments. Orion Power's
financial instruments consist of cash and cash equivalents, restricted cash,
accounts receivable, interest, taxes and other accounts payable, accrued
expenses, notes payable and long-term debt. The fair value of these financial
instruments, except for notes payable, senior notes and the fixed rate component
of the Liberty Credit Facility, approximates their carrying value as of
December 31, 2000, due to their short-term nature or due to the fact that
the interest rate paid on the debt is variable.

The carrying amount of the notes payable as of December 31,
1999, was approximately $71,100,000 with a fair value of approximately
$65,800,000. The carrying amount of the senior notes and the
fixed component of the Liberty Credit facility as of December 31, 2000 was
approximately $474,300,000, with a fair value of approximately $529,289,000. The
fair value was estimated using discounted cash flow analysis, based on Orion
Power's current incremental borrowing rate and the approximate carrying value
based on quoted market prices for similar types of borrowing arrangements.

The fair value of interest rate swap agreements, which are not
carried on the balance sheet, is estimated by determining the difference between
the fixed payments on the agreements and what the fixed payments would be based
on current market fixed rates for the appropriate maturity, then calculating the
present value of that difference for the remaining terms of the agreements at
current fixed market rates. The estimated value of interest rate swap agreements
was an asset of approximately $2,400,000 and a liability of approximately
$56,400,000 at December 31, 1999 and 2000, respectively.

Market Risk. Market risk is the potential loss Orion
Power may incur as a result of changes in the market or fair value of a
particular instrument or commodity. All financial and commodities-related
instruments, including derivatives, are subject to market risk. Orion Power's
exposure to market risk is determined by a number of factors, including the
size, duration, composition, and diversification of positions held, the absolute
and relative levels of interest rates, as well as market volatility and
illiquidity. The most significant factor influencing the overall level of market
risk to which Orion Power is exposed is its use of hedging techniques to
mitigate such risk. Orion Power manages market risk by actively monitoring
compliance with stated risk management policies as well as monitoring the
effectiveness of its hedging policies and strategies. Orion Power's risk
management policies limit the amount of total net exposure and rolling net
exposure during stated periods. These policies, including related risk limits,
are regularly assessed to ensure their appropriateness given Orion Power's
objectives.

Credit Risk. Orion Power is exposed to losses in the
event of nonperformance by counterparties to its derivative financial
instruments. Credit risk is measured by the loss Orion Power would record if its
counterparties failed to perform pursuant to terms of their contractual
obligations and the value of collateral held, if any, was not adequate to cover
such losses. Orion Power has established controls to determine and monitor the
creditworthiness of counterparties, as well as the quality of pledged
collateral, and uses master netting agreements whenever possible to mitigate
Orion Power's exposure to counterparty credit risk. Additionally, Orion Power
may require counterparties to pledge additional collateral when deemed
necessary.

Concentrations of credit risk from financial instruments,
including contractual commitments, exist when groups of counterparties have
similar business characteristics or are engaged in like activities that would
cause their ability to meet their contractual commitments to be adversely
affected, in a similar manner, by changes in the economy or other market
conditions. Orion Power monitors credit risk on both an individual and group
counterparty basis.

13.     Stockholders' Equity

In accordance with the Second Amended and Restated Stockholder's
Agreement (the Agreement) dated November 5, 1999, the stockholders were
required to purchase common stock when capital was needed for the acquisition
and management of portfolio assets, as defined in the Agreement. As of April 28,
2000, the stockholders had fulfilled their commitments under the Agreement.

The Agreement also states that at the time of a capital call,
Orion Power shall issue warrants to GSCP and CPS for shares of Orion Power
common stock in accordance with certain formulas, as defined in the Agreement.
Under the terms of the original stockholders agreement between CPS and GSCP,
only GSCP was entitled to receive warrants. The warrants will have an exercise
price equal to the subscription price of the common stock ($10.00 or $15.50) and
expire on the tenth anniversary of their issuance. The warrant holder may
exercise the warrants for an equivalent number of shares of Orion Power common
stock when accompanied by payment of the full exercise price. The warrant holder
may also exercise the warrant without payment and would be entitled to a number
of shares of Orion Power common stock equivalent to (x) the difference
between the aggregate Current Market Price, as defined, less the aggregate
exercise price, divided by (y) the Current Market Price of one share of
common stock. As of December 31, 1999 and 2000, 4,172,609 and 6,400,400
warrants, respectively, had been issued by Orion Power to GSCP and 705,900
warrants have been issued to Constellation Power Source as of December 31, 2000.
No warrants have been exercised as of December 31, 2000, and accordingly, all
warrants are outstanding. No more capital is subject to call under this
agreement and no more warrants are issuable.

In April 2000, Orion Power issued 24,326,310 shares of common
stock at an average per share price of $12.51 for net proceeds of approximately
$304,300,000. Orion Power also issued 7,108,600 shares of common stock in
exchange for repayment of notes held by Goldman Sachs in the amount of
$71,100,000

On August 10, 2000, Orion Power's Board of Directors approved a
stock split of 100 to 1 to be effective August 10, 2000. These financial
statements reflect the stock split retroactive for all periods presented.

On November 17, 2000, Orion Power completed an initial public
offering of 27,500,000 shares of common stock (3,220,968 shares from a selling
stockholder) at $20.00 per share for net proceeds of approximately $452,500,000.

14.     Subsequent Event

On March 15, 2001, Orion Power made an initial filing on Form
S-4 to register its Senior Notes issued in April and May 2000 (See Note
5).

15.     Quarterly Financial
Data (Unaudited)

Orion Power's quarterly operating results have fluctuated in the
past and may continue to do so in the future as a result of a number of factors,
including, but not limited to, the timing and size of acquisitions, the
completion of development projects, and variations in levels of production. The
following quarterly information is in thousands, except for per share amounts.

`Quarter Ended
                                    March 31       June 30           September 30     December 31
2000

Operating Revenues                 $   105,506    $    236,168         $  343,010     $   272,885
Operating Income                   $    28,918    $     65,689         $   59,586     $    47,977
Net Income                         $     8,294    $      5,456         $    3,921     $    10,868
Net Income per share - basic       $      0.23    $       0.09         $     0.05     $      0.13
Net Income per share - diluted     $      0.22    $       0.09         $     0.05     $      0.13

1999

Operating Revenues                 $       933    $      1,090         $   35,612     $    96,439
Operating Income (Loss)            $      (752)   $     (2,016)        $   12,019     $    25,150
Net Income (Loss)                  $      (504)   $     (1,175)        $    2,683     $     4,658
Net Income per share - basic       $     (0.27)   $      (0.61)        $     0.13     $      0.14
Net Income per share - diluted     $     (0.27)   $      (0.61)        $     0.13     $      0.13`

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orion Power Holdings, Inc.:

We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements of Orion
Power Holdings, Inc. and subsidiaries, incorporated by reference in this Form
10-K, and have issued our report thereon dated March 2, 2001. Our audit was made
for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The schedule listed in the index of financial
statements is the responsibility of the company's management and is presented
for the purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

/s/ Arthur Andersen LLP
Vienna, Virginia
March 2, 2001
(except with respect to the matters discussed in Note M, as to which the date
is March 15, 2001)

Orion Power Holdings, Inc.
Condensed Financial Information of Registrant
Condensed Balance Sheets
As of December 31, 1999 and 2000
(in Thousands)

`ASSETS                                                                   1999                  2000
                                                                   ----------------      ----------------
Current Assets:
   Cash and cash equivalents                                       $       78,081        $      133,653
   Restricted cash                                                            651                    --
   Due from affiliates                                                     17,112               149,910
   Prepaid expenses and other current assets                                  132                 1,294
                                                                   ----------------      ----------------
Total current assets                                                       95,976               284,857
                                                                   ----------------      ----------------
Property and equipment:
   Property and equipment                                                   2,936                 3,333
   less accumulated depreciation                                             (218)                 (564)
Property and equipment, net                                                 2,718                 2,769
Deferred tax asset                                                          3,911                28,212
Deferred financing fees, net of accumulated amortization
   of $1,082 at December 31, 2000                                              --                12,118
Prepaid expenses and other noncurrent assets                                   --                 2,200
Investment in subsidiaries                                                370,787             1,350,831
                                                                   ----------------      ----------------
Total assets                                                       $      473,392        $    1,680,987
                                                                   ================      ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                                $           --        $          742
   Accrued expenses                                                         4,729                17,226
   Accrued income taxes                                                        --                    --
   Accrued interest                                                         2,161                 8,237
                                                                   ----------------      ----------------
Total current liabilities                                                   6,890                26,205
Notes payable to stockholders                                              71,086                    --
Long-term debt                                                                 --               400,000
                                                                   ----------------      ----------------
Total liabilities                                                          77,976               426,205
                                                                   ----------------      ----------------

Stockholders' Equity:
   Common stock, $.01 par value: 200,000,000 shares authorized;
     36,162,629 and 93,095,926 shares issued and outstanding,
     respectively                                                             362                   931
   Additional paid-in capital                                             393,416             1,230,467
   Deferred compensation                                                   (1,811)               (3,359)
   Notes receivable from officers                                            (671)               (5,916)
   Retained earnings                                                        4,120                32,659
                                                                   ----------------      ----------------
Total stockholders' equity                                                395,416             1,254,782
                                                                   ----------------      ----------------
Total liabilities and stockholders' equity                         $      473,392        $    1,680,987
                                                                   ================      ================`

ORION POWER HOLDINGS, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF (LOSS) INCOME
For the Period From March 10, 1998 (Date of Inception) to December 31,
1998 and For the Years Ended December 31, 1999 and 2000
(in Thousands)

`For the Period From               For the Year Ended
                                                         March 10, 1998
                                                       (Date of Inception)       December 31,      December 31,
                                                      to December 31, 1998           1999             2000
                                                      --------------------       ------------      ------------
Revenue..............................................      $      --           $      --         $       --
Expenses:
   General and administrative........................          2,150               4,441             12,513
   Depreciation and amortization.....................             --                 218                346
   Charge for buyout of operations
     and maintenance contracts with a
     related party...................................             --                  --             19,000
                                                            --------             --------          ---------
                                                               2,150               4,659             31,859
                                                            --------             -------           --------
Operating loss.......................................         (2,150)             (4,659)           (31,859)
Interest income......................................             12                 265              6,019
Interest expense.....................................           (136)             (2,933)           (35,633)
                                                            --------             --------          ---------
Loss before benefit for income taxes.................         (2,274)             (7,327)           (61,473)
Tax benefit..........................................         (1,006)             (2,905)           (24,301)
Equity in earnings from subsidiaries.................           (274)             10,084             65,711
                                                            --------             --------          ---------
Net (loss) income....................................      $  (1,542)          $   5,662         $   28,539
                                                           =========           =========         ==========`

ORION POWER HOLDINGS, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
For the Period From March 10, 1998 (Date of Inception) to
December 31, 1998 and For the Year Ended December 31, 1999
(In Thousands)

`For the Period
                                                              From March 10,
                                                              1998 (Date of          For the Year Ended
                                                               Inception) to
                                                                December 31,    December 31,   December 31,
                                                                    1998           1999            2000
                                                               -------------    ------------   ------------
Cash flows from operating activities:
   Net (loss) income........................................   $   (1,542)      $    5,662      $   28,539
   Adjustments to reconcile net loss to net cash used in
     operating activities--
     Equity in earnings from subsidiaries...................          275          (10,084)        (65,711)
     Deferred income taxes..................................       (1,006)          (2,905)        (24,301)
     Depreciation and amortization..........................           --              218           1,428
     Deferred compensation..................................           --              106           1,303
     Change in notes receivable from officers................          --               --            (244)
     Change in assets and liabilities:
       Restricted cash......................................           --             (651)            651
       Due from affiliates..................................           --          (17,112)       (132,798)
       Prepaid expenses and other current assets............           (2)            (130)         (3,362)
       Accounts payable.....................................           --               --             742
       Accrued expenses.....................................          605            4,123          12,497
       Accrued interest.....................................           54            2,107           6,076
                                                                   ------          -------        --------
Net cash used in operating activities.......................       (1,616)         (18,666)       (175,180)
                                                                   ------          -------        --------
Cash flows from investing activities:
   Purchase of property and equipment.......................           --           (2,936)           (397)
   Investment made in subsidiaries..........................      (18,600)        (342,377)       (914,333)
                                                                  -------         --------        --------
Net cash used in investing activities.......................      (18,600)        (345,313)       (914,730)
                                                                  -------         --------        --------
Cash flows from financing activities:
   Capital contribution from stockholders...................       18,610          382,330         758,682
   Payments of deferred financing                                      --               --         (13,200)
     costs..................................................
   Distribution to stockholders.............................           --           (9,750)             --
   Proceeds from senior notes and credit facility...........           --               --         420,000
   Payments on credit facility..............................           --               --         (20,000)
   Proceeds from notes payable to stockholders..............        1,735          110,539              --
   Payments on notes payable to stockholders................           --          (41,188)             --
                                                                   ------          -------       ---------
Net cash provided by financing activities...................       20,345          441,931       1,145,482
                                                                   ------          -------       ---------
Change in cash and cash equivalents.........................          129           77,952          55,572
Cash and cash equivalents, beginning of period..............           --             129           78,081
                                                                   ------          -------       ---------
Cash and cash equivalents, end of period....................   $      129       $   78,081      $ $133,653
                                                               ==========       ==========      ==========
Supplemental disclosure of cash flow information:
   Cash paid for--
     Interest...............................................   $       83       $      826      $   28,475
                                                               ==========       ==========      ==========
     Income taxes...........................................   $       --       $       --      $       --
                                                               ==========       ==========      ==========
   Noncash disclosures -
     Notes receivable from officers.........................   $       --       $       --      $    5,001
                                                               ==========       ==========      ==========
     Conversion of notes payable to equity..................   $       --       $       --      $   71,086
                                                               ==========       ==========      ==========

                    The accompanying notes are an integral part of these condensed statements.`

ORION POWER HOLDINGS, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL STATEMENTS
As of December 31, 1999 and 2000

A)
The accompanying condensed financial information of Orion Power Holdings, Inc.
("Orion Power") presents the financial position, results of operations
and cash flows of the Parent Company with the investment in, and operations of,
consolidated subsidiaries with restricted net assets on the equity method of
accounting.

B)
Deferred Financing Costs

Financing costs, consisting primarily of the costs incurred to obtain debt
financing, are deferred and amortized using the effective interest method, over
the term of the related permanent financing. Amortization expense is included in
interest expense on the accompanying statements of (loss) income.

C)
Credit Agreements

New
York Credit Agreement. On July 30, 1999, Orion Power New York, LP (Orion
NY), a wholly owned subsidiary of Orion Power, entered into a $730,000,000
secured credit agreement. The banks agreed to provide an acquisition facility in
an amount of up to $700,000,000 (the Acquisition Loans), and a revolving working
capital facility in an amount of up to $30,000,0000 (the Working Capital
Facility) (collectively, the New York Credit Agreement). The New York Credit
Agreement has a maturity of December 31, 2002, for all indebtedness. The net
proceeds under the New York Credit Agreement were used to finance the Hydro
Assets and New York City Assets acquisitions.

The
borrowings under each facility bear interest at a floating rate. At Orion
NY's option, the interest rate will be determined as either the Base Rate
as defined or LIBOR plus an applicable margin. The rate as of December 31, 1999
and 2000, was 7.315 percent and 8.097 percent, respectively. The Acquisition
Loans and Working Capital Facility are secured by substantially all of the
assets of Orion NY.

As
of December 31, 1999 and 2000, Orion NY had $700,000,000 and $650,000,000 of the
Acquisition Loans outstanding, respectively. As of December 31, 1999, and
December 31, 2000, Orion NY had $16,000,000 and $0, respectively, of the Working
Capital Loans outstanding. Under the Working Capital Facility, an additional
$10,000,000 is used to provide a letter of credit in favor of Consolidated
Edison in conjunction with the New York City Assets acquisition.

In
accordance with the New York Credit Agreement, Orion NY entered into a Deposit
Account Agreement with Bank of America, N.A. Accordingly, Orion NY established
12 restricted use accounts for the disbursement of its revenues. As of December
31, 1999 and 2000, the total balance in these restricted use accounts totaled
$56,214,000 and $116,478,000, respectively.

MidWest
Credit Agreement. On April 28, 2000, Orion Power MidWest entered into a
$1,200,000,000 secured credit agreement. The banks agreed to provide acquisition
loans of $1,110,000,000 (the Acquisition Loans) and a revolving working capital
facility of $90,000,000 (the Working Capital Facility) (collectively, the
"MidWest Credit Agreement"). The MidWest Credit Agreement has a
maturity date of October 28, 2002, for all indebtedness. The net proceeds under
the MidWest Credit Agreement were used to finance the acquisition of the Midwest
Assets.

As
of December 31, 2000, Orion Power MidWest had $1,110,000,000 and $60,137,000 of
Acquisition Loans and Working Capital Facility outstanding, respectively. Under
the working capital facility, Orion Power MidWest is required to provide a
$10,000,000 letter of credit in favor of Duquesne as part of the POLR contract.

The
borrowings under the MidWest Credit Agreement bear interest at a floating rate.
At Orion Power MidWest's option, the interest rate will be determined as
either the Base Rate as defined or LIBOR plus an applicable margin. The rate as
of December 31, 2000 was 8.489 percent. The credit agreement is secured by
substantially all the assets of Orion Power MidWest.

In
accordance with the MidWest Credit Agreement, Orion Power MidWest entered into a
Deposit Account Agreement with Bank of America, N.A. Accordingly, Orion Power
MidWest established 12 restricted use accounts for the disbursement of its
revenues. As of December 31, 2000, the total balances in these restricted
accounts were approximately $62,884,000.

Under
the New York Credit Agreement and the MidWest Credit Agreement (collectively,
the "Credit Agreements"), Orion NY and Orion Power MidWest are
restricted from distributing cash to Orion Power. These credit agreements
provide for various accounts to be created, into which all operating revenues
and other cash receipts are deposited, and from which operating expenses,
repayments of the loan facilities and distributions to Orion Power may be made.
The lenders under each credit agreement have a security interest in all amounts
on deposit in the accounts and if there is an event of default under the
appropriate credit agreement, the lenders will be able to immediately exercise
their security interest on any funds contained in that credit facility's
accounts.

Distributions
to Orion Power may only be made after satisfaction of the following - (1) all
operating expenses of the applicable subsidiary; (2) all debt service payments
under the appropriate credit agreement; (3) 50 percent of the Excess Cash Flow,
as defined, has been used to prepay each credit agreement; and (4) any other
required prepayments. After satisfaction of the aforementioned items, the Credit
Agreements allow Orion NY and Orion Power MidWest to pay dividends and make
other distributions to Orion Power up to the limit of $100,000,000 over the life
of the New York Credit Agreement and $175,000,000 over the life of the MidWest
Credit Agreement. As of December 31, 2000, no dividends or distributions had
been made to Orion Power. On February 21, 2001, Orion NY made a distribution of
approximately $37,190,000 to Orion Power.

Among
other restrictions, the Credit Agreements also contain customary affirmative
covenants and significant negative covenants including a requirement that
expenditures be within 105 percent of their budgeted amounts and that a debt
service coverage ratio of at least 1.5 to 1.0 be maintained. In addition, the
following events are also events of default under the New York Credit Agreement
- reduction in the rule requiring New York City power retailers to procure
capacity equal to at least 80 percent of forecasted peak demand from in-city
generation sources to less than 75 percent and a reduction in the price cap for
capacity from in-city generators from $105 per kilowatt year to less than $90
per kilowatt year.

Liberty
Credit Agreement. In December 2000, in connection with our acquisition of
Columbia Electric Corporation, Orion Power assumed a credit facility entered
into by Liberty Electric Power, LLC (Liberty), a wholly-owned subsidiary of
Columbia Electric Corporation. This credit facility, entered into by Liberty in
July 2000, provides for the following:

| | (1) | a construction/term loan in an amount of up to $105,000,000;;
| | --- | -------------------------------------------------------------

| | (2) | an institutional term loan in an amount of up to $165,000,000;
| | --- | --------------------------------------------------------------

| | (3) | an equity bridge loan in an amount of up to $41,000,000;
| | --- | --------------------------------------------------------

| | (4) | a revolving working capital facility for an amount of up to $5,000,000; and
| | --- | ---------------------------------------------------------------------------

| | (5) | a debt service reserve letter of credit of $17,500,000.
| | --- | -------------------------------------------------------

Amounts
outstanding under the facility bear interest at a floating rate for a portion of
the facility, which may be either the Base Rate as defined or LIBOR plus an
applicable margin, and a fixed rate for the remainder. At December 31, 2000, the
interest rate was 7.81 percent on the floating rate component and 9.15 percent
on the fixed rate portion. As of December 31, 2000, Orion Power Development had
$73,200,000 and $74,300,000 of the floating rate and fixed rate portions of the
facility outstanding, respectively. The lenders have a security interest in
substantially all of the assets of Orion Power Development and have negative
pledges on other fixed assets, Orion Power Development also pays facility fees
on the working capital facility and the debt service reserve letter of credit.

The
construction/term loan, the institutional term loan and the equity bridge loan
mature on the earlier of October 1, 2002, or a date on which the conditions
precedent to conversion to a term loan are met. The debt service reserve letter
of credit becomes available for use when the conditions precedent to conversion
to a term loan are met and matures five years thereafter. The working capital
facility becomes available for use six months prior to the scheduled conversion
date and matures five years thereafter. The construction/term loan converts to
an amortizing term loan when the conditions precedent to conversion to a term
loan are met and matures 10 years thereafter. The institutional term loan has a
final maturity date of April 15, 2026.

Each
credit agreement is an independent recourse project financing secured by the
assets of the applicable borrower without recourse to any other Orion Power
financing facility.

D) Notes Payable

During
1999, Orion Power entered into several promissory notes payable with CPS and
GSCP in order to provide funding for acquisitions and operations. The total
borrowings under these notes amounted to approximately $41,200,000 and
$71,100,000 to CPS and GSCP, respectively. Each promissory note was due five
years from the date of the note. Earlier repayment of the debt was required in
the event of a public offering, sale, liquidation or merger of Orion Power.
Interest on the unpaid principal balance accrued at 7 percent and was payable
seminally from the respective anniversary dates.

On
November 8, 1999, Orion Power repaid the total balance due to CPS with the funds
from the capital call of Mitsuishi and TEPCO. On April 28, 2000, Orion Power
converted $71,100,000 of notes payable to GSCP into 7,108,600 shares of common
stock.

E) Senior Notes

In
April and May 2000, Orion Power issued a total of $400,000,000 of 12 percent
senior notes, due 2010 (the Senior Notes). The proceeds were used to assist in
the financing of the acquisition of the Midwest Assets. Interest is paid
semiannually in May and November of each year. The Senior Notes are senior
unsecured obligations and rank pari passu with all of Orion Power's
existing and future unsecured indebtedness.

Before
May 1, 2003, Orion Power may redeem up to 35 percent of the notes issued under
the indenture at a redemption price of 112 percent of the principal amount of
the notes redeemed, plus accrued and unpaid interest and special interest, with
the net cash proceeds of an equity offering provided that certain provisions
under the indenture are met. Orion Power is not required to make any mandatory
redemption or sinking fund payments with respect to the Senior Notes.

Each
holder of the Senior Notes will have the right to require Orion Power to
repurchase the notes pursuant to a change of control offer as set forth in the
indenture. The Senior Notes are not guaranteed by any of Orion Power's
subsidiaries.

F) Revolving Senior Credit Facility

On
July 27, 2000, Orion Power entered into a $75,000,000 revolving senior credit
facility. The credit facility matures in December 2002. Amounts outstanding
under the facility bear interest at a floating rate. The facility is unsecured
and ranks pari passu with all of Orion Power's senior debt. As of December
31, 2000, there were no outstanding amounts under this facility and $46,000,000
had been used to post letters of credit to support various payout obligations.

G) Interest Expense

Total
interest expense under the debt obligations, including amortization of deferred
financing costs, for the period from March 10, 1998 (Date of Inception) to
December 31, 1998 and the years ended December 31, 1999, and 2000, was (in
thousands) $136, $2,933 and $35,633, respectively.

H) Stockholder Fees

As
part of the original stockholders agreement between CPS and GSCP and the Second
Amended and Restated Stockholders Agreement, Orion Power was required to pay a
total of 1 percent of the aggregate consideration paid in an acquisition to its
stockholdersGSCP, CPS, Mitsubishi, and TEPCO. Orion Power paid a total of
$9,750,000 in August and September 1999 to GSCP and CPS, and paid a total of
$17,050,000 in June 2000, to the four primary stockholders. These payments are
recognized as a distribution to stockholders in the accompanying statement of
changes in stockholders' equity.

Additionally,
Goldman Sachs had the right to provide all investment banking services to Orion
Power on an arms' length basis with regard to terms, conditions and
pricing. In association with the investment by Mitsubishi and TEPCO on November
5, 1999 and April 28, 2000, Orion Power was required to pay a 2 percent fee to
Goldman Sachs, in accordance with the Second Amended and Restated
Stockholder's Agreement. The amounts of these payments are approximately
$2,400,000 and $1,600,000, respectively. Orion Power charged the fee against
additional paid-in capital.

Both
of the obligations related to payments of shareholders fees ended during 2000.

I) Notes Receivable From Officers

Certain
officers were required to purchase shares of Orion Power's common stock
under their employment agreements. As of December 31,1999, these officers owed
Orion Power $671,000 related to the purchase of approximately 97,500 shares of
common stock and related interest. As of December 31, 2000, these officers owed
Orion Power $5,916,000 related to the purchase of 742,700 shares of common
stock, and related interest.

J) Turbine Purchases

In
September 2000, Orion Power entered into a letter of intent for the delivery
over the next four years of 10 combustion turbine generators from Siemens
Westinghouse Power Corporation as part of the repowering and new development
efforts. The total purchase price made is approximately $345,000,000,
substantially all of which is payable at various times in 2003 and 2004. Orion
Power made a $5,000,000 deposit on behalf of Orion Power Development during 2000
and will pay an additional $5,000,000 on their behalf by the end of the first
quarter of 2001. Furthermore, as part of Orion Power's acquisition of Columbia
Electric Corporation, Orion Power acquired the rights to purchase eight
additional turbine generators which will be installed in the projects under
construction. As of December 31, 2000, approximately $33,900,000 remained to be
paid for these eight turbines, of which $32,000,000 was due at December 31,
2000.

K) Leases

Orion
Power has entered in various noncancelable operating lease arrangements for
office space, storage space, and office furniture. These leases terminate at
various dates through December 2005.

Future minimum payments due under these leases are as follows (in thousands):

`Year ending December 31,                            Operating
------------------------                          --------------
2001                                              $         204
2002                                                        212
2003                                                        220
2004                                                        227
2005                                                        116
Thereafter                                                   --
                                                  --------------
                                                  $         979
                                                  ==============`

Total
rental expense for the period from March 10, 1998 (Date of Inception) to
December 31, 1998 and the years ended December 31, 1999 and 2000, was (in
thousands) $0, $268 and $205, respectively.

L)
Fair Value of Financial Instruments. Orion Power's financial
instruments consist of cash and cash equivalents, restricted cash, due from
affiliates, interest, taxes and other accounts payable, accrued expenses, notes
payable and long-term debt. The fair value of these financial instruments,
except for notes payable and senior notes, approximates their carrying value as of December 31,
2000, due to their short-term nature or due to the fact that the interest rate
paid on the debt is variable.

The
carrying amount of the notes payable as of December 31, 1999, was approximately
$71,100,000 with a fair value of approximately $65,800,000. The carrying amount
of the senior notes as of December 31, 2000, was approximately $400,000,000 with
a fair value of approximately $435,250,000. The fair value was estimated using
discounted cash flow analysis, based on Orion Power's current incremental
borrowing rate and the approximate carrying value based on quoted market prices
for similar types of borrowing arrangements.

M) Subsequent Event. On March 15, 2001, Orior Power made an initial
filing on Form S-4 to register its Senior Notes issued in April and May 2000
(See Note E).

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Baltimore,
State of Maryland, on March 15, 2001.

| | ORION POWER HOLDINGS, INC.
By: /s/ Jack A. Fusco
       Jack A. Fusco
       President and Chief Executive Officer
| | ------------------------------------------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.

|SIGNATURE | TITLE | DATE
|--------- | ----- | ----

|/s/ Jack A. Fusco
Jack A. Fusco | Chief Executive Officer, President and Director
(Principal Executive Officer) | March 15, 2001
|------------------------------- | ----------------------------------------------------------------------------- | --------------

|/s/ Scott B. Helm
Scott B. Helm | Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer) | March 15, 2001
|------------------------------- | ------------------------------------------------------------------------------------------------- | --------------

|/s/ Frederic V. Salerno
Frederic V. Salerno | Chairman of the Board of Directors | March 15, 2001
|------------------------------------------- | ---------------------------------- | --------------

|/s/ Edward A. Crooke
Edward A. Crooke | Director | March 15, 2001
|------------------------------------- | -------- | --------------

|/s/ Richard A. Friedman
Richard A. Friedman | Director | March 15, 2001
|------------------------------------------- | -------- | --------------

|/s/ Tsutomu Kajita
Tsutomu Kajita | Director | March 15, 2001
|--------------------------------- | -------- | --------------

|/s/  Douglas F. Londal
Douglas F. Londal | Director | March 15, 2001
|---------------------------------------- | -------- | --------------

|/s/  Cheryl Mills
Cheryl Mills | Director | March 15, 2001
|------------------------------ | -------- | --------------

|Terence M. O'Toole | Director | March     , 2001
|------------------ | -------- | ----------------

|Vincent Tese | Director | March     , 2001
|------------ | -------- | ----------------

EXHIBIT INDEX

|Exhibit Number | Description
|-------------- | -----------

| | 3.1* | Certificate of Incorporation, as amended.
| | ---- | -----------------------------------------

| | 3.2* | Bylaws, as amended.
| | ---- | -------------------

| | 4.1* | Indenture, dated as of April 27, 2000 between Orion Power Holdings, Inc. and
Wilmington Trust Company.
| | ---- | ------------------------------------------------------------------------------------------------------

| | 4.2* | Amended and Restated Registration Rights Agreement, dated April 26, 2000, by and
among Orion Power Holdings, Inc., GS Capital Partners II, L.P. (and certain
affiliates), Constellation Enterprises, Inc., Constellation Operating Services,
Inc., certain affiliates of Mitsubishi Corporation and Tokyo Electric Power
Company International B.V.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3* | Rights Agreement dated as of November 1, 2000 between Orion Power Holdings, Inc.
and LaSalle Bank National Association, as Rights Agent.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------

| | 4.4* | Exchange and Registration Rights Agreement dated as of April 27, 2000 by and
among Orion Power Holdings, Inc. and the purchasers of the 12% senior notes due
2010.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1* | Credit Agreement, dated as of July 28, 1999, by and among Orion Power New York,
L.P., Bank of America Securities LLC, Paribas, and the other financial
institutions who are signatories to the agreement.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2** | Amended and Restated Credit Agreement, dated as of December 15, 2000, between Orion Power MidWest,
L.P., Banc of America Securities LLC, Goldman Sachs Credit Partners L.P.,
Paribas, Deutsche Bank Securities Inc., Bank of America, N.A., Deutsche Bank AG
New York Branch, and the Lenders named therein.
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3* | Credit Agreement, dated as of July 27, 2000, by and among Orion Power Holdings,
Inc., Fleet National Bank, Union Bank of California, N.A. and the other
financial institutions who are signatories to the agreement.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4* | Asset Purchase Agreement, dated as of March 2, 1999, between Astoria Generating
Company, L.P. and Consolidated Edison Company of New York, Inc., relating to the
acquisition of the assets located in New York City.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5* | Asset Purchase Agreement, dated December 2, 1998, between Erie Boulevard
Hydropower, L.P. and Niagara Mohawk Power Generating Company, L.P., relating to
the acquisition of the Hydro Assets.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6* | Asset Purchase Agreement, dated as of September 24, 1999 between the Company,
Duquesne Light Company, First Energy Corporation and the other parties named
therein.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7* | Asset Purchase Agreement, dated as of June 23, 1998, between Carr Street
Generating, L.P. and East Syracuse Generating Company, relating to the
acquisition of the Carr Street Generating Station.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8* | Transition Capacity Agreement, dated as of July 1, 1999, between Astoria
Generating Company, L.P. and Consolidated Edison Company of New York, Inc.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9* | Provider of Last Resort Agreement, dated as of September 24, 1999, between
Duquesne Light Company and Orion Power Holdings, Inc.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------

| | 10.10* | Transition Power Purchase Agreement, dated as of February 4, 1999, between
Niagara Mohawk Power Corporation and Erie Boulevard Hydropower, L.P.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11* | Capacity Sale and Tolling Agreement, dated as of November 19, 1998, between Carr
Street Generating Station, L.P. and Constellation Power Source, Inc.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12* | Strategic Alliance Agreement, dated as of March 10, 1998, between Orion Power
Holdings, Inc. and Constellation Power Source, Inc.
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------

| | 10.13* | Non-Competition Agreement, dated as of March 10, 1998, between Orion Power
Holdings, Inc., Baltimore Gas and Electric Company and Constellation Power, Inc.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14* | Non-Competition Agreement, dated as of November 5, 1999, between Orion Power
Holdings, Inc. and Mitsubishi Corporation.
| | ------ | -----------------------------------------------------------------------------------------------------------------------

| | 10.15* | Non-Competition Agreement, dated as of November 5, 1999, between Orion Power
Holdings, Inc. and Tokyo Electric Power Company International B.V.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16* | Form of Amended and Restated Employment Agreement between Orion Power Holdings,
Inc. and Jack A. Fusco.
| | ------ | -------------------------------------------------------------------------------------------------------

| | 10.17* | Form of Amended and Restated Employment Agreement between Orion Power Holdings,
Inc. and Scott B. Helm.
| | ------ | -------------------------------------------------------------------------------------------------------

| | 10.18* | Form of Amended and Restated Employment Agreement between Orion Power Holdings,
Inc. and W. Thaddeus Miller.
| | ------ | ------------------------------------------------------------------------------------------------------------

| | 10.19* | Form of Employment Agreement between Orion Power Holdings, Inc. and E. Thomas
Webb.
| | ------ | -----------------------------------------------------------------------------------

| | 10.20* | Third Amended and Restated Stockholders' Agreement, dated as of April 26, 2000,
by and among Orion Power Holdings, Inc., GS Capital Partners II, L.P. (and
certain affiliates), Constellation Enterprises, Inc. (and certain affiliates),
certain affiliates of Mitsubishi Corporation and Tokyo Electric Power Company
International B.V.
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.21* | Agency Agreement, dated as of April 28, 2000, by and between Orion Power
MidWest, L.P., Orion Power Holdings, Inc. and Constellation Power Source, Inc.
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.22* | Investor Rights Agreement dated as of April 5, 2000 between Orion Power
Holdings, Inc., Frederic V. Salerno and the existing stockholders named therein.
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.23* | Agreement dated as of April 5, 2000 between Orion Powers Holdings, Inc. and
Frederic V. Salerno.
| | ------ | ------------------------------------------------------------------------------------------------

| | 10.24* | Stock Purchase Agreement dated as of April 26, 2000 between Orion Powers
Holdings, Inc. and Constellation Operating Services, Inc.
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------

| | 10.25* | Stock Purchase Agreement dated as of September 29, 2000 between Columbia Energy
Group and Orion Power Holdings, Inc.
| | ------ | --------------------------------------------------------------------------------------------------------------------

| | 10.26* | Gas Tolling Agreement dated as of September 21, 2000 between Orion Powers
Holdings, Inc. and Constellation Power Source, Inc.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------

| | 10.27* | Form of Agreement among Orion Powers Holdings, Inc. and the Goldman Shareholders
named therein.
| | ------ | -----------------------------------------------------------------------------------------------

| | 10.28* | Form of Agreement among Orion Powers Holdings, Inc. and the
Shareholders named therein.
| | ------ | ---------------------------------------------------------------------------------------

| | 10.29** | Employment Agreement dated as of December 12, 2000 between Orion
Power Holdings, Inc. and Michael Gluckman.
| | ------- | -----------------------------------------------------------------------------------------------------------

| | 10.30** | Master Agreement dated as of July 31, 2000 between Liberty Electric Power, LLC,
Liberty Electric PA, LLC, the Institutional Lenders named therein, and The Chase
Manhattan Bank as Administrative Agent.
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.31** | Credit Agreement dated as of July 31, 2000 between Liberty Electric PA, LLC, the
Bank Lenders named therein, and the Chase Manhattan Bank as Administrative
Agent.
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.32** | Note Purchase Agreement dated as of July 31, 2000 between Liberty Electric PA,
LLC and the Institutional Lenders named therein.
| | ------- | -------------------------------------------------------------------------------------------------------------------------------

| | 21.1 | Subsidiaries Schedule.
| | ---- | ----------------------

---

* Incorporated by reference to the Registrant's Registration Statement on Form
S-1, as amended (File No. 333-44118).

** Incorporated by reference to the Registrant's Registration Statement on Form
S-4 (File No. 333-57110).