**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-K**


(Mark
      One)


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




For
        the
        fiscal year ended December 31, 2005





o
            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:  0-23432





**RIDGEWOOD
      ELECTRIC POWER TRUST III**


****(Exact
      Name of Registrant as Specified in Its Charter)


Delaware
            
            22-3264565(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (IRS
                Employer Identification Number)





1314
                King Street, Wilmington, DE 19801(Address
                of Principal Executive Offices, including Zip Code)





(302)
                888-7444(Registrant’s
                telephone number, including area code)





SECURITIES
      REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


None


SECURITIES
      REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:


Investor
                  Shares of Beneficial Interest(Title
                  of Class)


Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.    Yes  o    No 
x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or 15(d) of the
      Act.      Yes o     No
x




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 o    No 
x




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 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.  o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filer  oAccelerated
      filer o Non-accelerated
      filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.    Yes  o   No 
x




There
      is
      no market for the Investor Shares. The number of Investor Shares outstanding
      at
      September 30, 2007 was 391.8444.












**EXPLANATORY
      NOTE**




This
      Annual Report on Form 10-K for the year ended December 31, 2005 (this “Form
      10-K”) being filed by Ridgewood Electric Power Trust III (the “Trust”) contains
      complete audited financial statements of the Trust for the years ended December
      31, 2005, 2004 and 2003 and interim financial information presented for each
      quarter during those periods. The financial information for the year ended
      December 31, 2003 and for the quarterly periods ended March 31, 2003, June
      30,
      2003, September 30, 2003, March 31, 2004, June 30, 2004 and September 30, 2004
      is presented on a restated basis. This Form 10-K is being filed by the Trust
      in
      lieu of the Trust separately filing with the United States Securities and
      Exchange Commission (the “SEC”) (i) its delinquent Annual Reports on Form 10-K
      for the years ended December 31, 2005 and 2004,  and the Quarterly
      Reports on Form 10-Q for each of the quarterly periods during the year ended
      December 31, 2005, and (ii) restatements of its Annual Report on Form 10-K
      and
      Quarterly Reports on Form 10-Q filed with the SEC for periods commencing on
      or
      after January 1, 2003 (the foregoing quarterly and annual reports of the Trust
      herein collectively are referred to as the “Reports for the Historical Periods”
and each such report is referred to herein as a “Report for a Historical
      Period”). This Form 10-K does not contain financial information, or discussion
      in Management’s Discussion and Analysis of Financial Condition and Results of
      Operations, for periods ended prior to January 1, 2003.




This
      Form
      10-K includes the financial and other disclosures required to be made by the
      Trust in each of the Reports for the Historical Periods. To the extent that
      a
      Report for a Historical Period was previously filed with the SEC, the
      information contained in this Form 10-K amends, restates and supersedes in
      its
      entirety the information contained in such report for periods commencing on
      or
      after January 1, 2003. Except as noted above, this Form 10-K also includes
      the
      financial and other information that would have otherwise been required to
      have
      been provided in the Trust’s delinquent Annual Reports on Form 10-K for the
      years ended December 31, 2004 and 2005 and quarterly reports on Form 10-Q for
      the periods ended March 31, 2005, June 30, 2005 and September 30, 2005, had
      such
      reports been filed with the SEC.




As
      previously disclosed in its Form 8-K filed October 11, 2007, (i) the
      consolidated financial statements of the Trust included in the Trust’s Quarterly
      Reports on Form 10-Q and the Trust’s Annual Report on Form 10-K for each of the
      periods beginning with the three-month period ended March 31, 2003 and
      continuing through the three and nine-month periods ended September 30, 2004
      filed with the SEC (the “Previously Issued Financial Statements”) should no
      longer be relied upon and (ii) the Previously Issued Financial Statements should
      be restated to conform to generally accepted accounting principles (“GAAP”). The
      determination to restate these financial statements and selected financial
      data
      was made by the Trust and Ridgewood Renewable Power LLC, the Managing
      Shareholder of the Trust (the “Managing Shareholder”), as a result of the
      identification of accounting errors as more fully described in Note 2 to the
      Consolidated Financial Statements. The Trust has discussed these matters with
      its independent registered public accounting firm. As these errors were material
      to the Trust’s consolidated financial statements and selected financial
      information filed with the SEC, the Trust has concluded that it must restate
      the
      consolidated financial statements of such prior periods to correct misstatements
      therein.














**FORM
      10-K**




**TABLE
      OF CONTENTS**




**PART
                  I**Item
                  1.
              Business
              1Item
                  1A.
              Risk
                  Factors
              6Item
                  1B.
              Unresolved
                  Staff Comments
              10Item
                  2.
              Properties
              10Item
                  3.
              Legal
                  Proceedings
              10Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              10**PART
                  II**Item
                  5.
              Market
                  for Registrant’s Common Equity, Related Security Holder
                  Matters andIssuer
                  Purchases of Equity Securities
              10Item
                  6.
              Selected
                  Financial Data
              10Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and
                  Results of Operations
              12Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              22Item
                  8.
              Financial
                  Statements and Supplementary Data
              22Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and
                  Financial Disclosure
              22Item
                  9A.
              Controls
                  and Procedures
              24Item
                  9B.
              Other
                  Information; Unregistered Sales of Equity Securities and
                  Use of Proceeds;Defaults
                  Upon Senior Securities
              25**PART
                  III**Item
                  10.
              Directors
                  and Executive Officers of the
                  Registrant
              25Item
                  11.
              Executive
                  Compensation
              27Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management
                  andRelated
                  Security Holder Matters
              27Item
                  13.
              Certain
                  Relationships and Related
                  Transactions
              27Item
                  14.
              Principal
                  Accountant Fees and Services
              28**PART
                  IV**Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              29SIGNATURES
              31











**Forward-Looking
        Statements**




Certain
      statements discussed in Part I, Item 1. “Business”, Part I, Item 3. “Legal
      Proceedings”, Part II, Item 7. “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” and elsewhere in this Annual
      Report on Form 10-K constitute forward-looking statements within the meaning
      of
      the Private Securities Litigation Reform Act of 1995.




These
      forward-looking statements generally relate to the Trust’s plans, objectives and
      expectations for future events and include statements about the Trust’s
      expectations, beliefs, plans, objectives, intentions, assumptions and other
      statements that are not historical facts.  These statements are based
      upon management’s opinions and estimates as of the date they are
      made.  Although management believes that the expectations reflected in
      these forward-looking statements are reasonable, such forward-looking statements
      are subject to known and unknown risks and uncertainties that may be beyond
      the
      Trust’s control, which could cause actual results, performance and achievements
      to differ materially from the results, performance and achievements projected,
      expected, expressed or implied by the forward-looking statements. Examples
      of
      events that could cause actual results to differ materially from historical
      results or those anticipated include changes in political and economic
      conditions, federal or state regulatory structures, government mandates, the
      ability of customers to pay for energy received, supplies and prices of fuels,
      operational status of generating plants, mechanical breakdowns, volatility
      in
      the price for electric energy, natural gas, or renewable
      energy.  Additional information concerning the factors that could
      cause actual results to differ materially from those in the forward-looking
      statements is contained in Part I, Item 1A. “Risk Factors” and
      Part II, Item 7. “Management’s Discussion and Analysis of Financial
      Condition and Results of Operations”, and elsewhere in this Annual report on
      Form 10-K.  The Trust undertakes no obligation to publicly revise any
      forward-looking statements or cautionary factors, except as required by
      law.









**PART
      I**




**ITEM
      1. BUSINESS**





**Overview**





The
      Trust
      is a Delaware trust formed on December 6, 1993 to primarily make investments
      in
      projects and businesses in the energy and infrastructure sectors. Ridgewood
      Renewable Power LLC (“RRP” or the “Managing Shareholder”), a New Jersey limited
      liability company, is the Managing Shareholder. As the Managing Shareholder,
      RRP
      has direct and exclusive control over the management and operations of the
      Trust.




The
      Trust
      has focused primarily on projects fueled by natural gas and renewable sources
      of
      fuel. These projects allow the Trust to develop secure long-term positions
      in
      attractive specialty markets for products and services provided by its projects
      and companies. As
      of
      December 31, 2005, the projects in which the Trust then had investments were
      located in the United States. As of that date, the Trust had investments in
      a
      landfill gas-fired electric generating project with total capacity of 13.8
      megawatts (“MW”) and in electric cogeneration projects with total capacity of
      14.2MW.




The
      Trust
      initiated its private placement offering in January 1994 selling whole and
      fractional investor shares of beneficial interests of $100,000 per share
      (“Investor Shares”). There is no public market for Investor Shares and one is
      not likely to develop. In addition, Investor Shares are subject to significant
      restrictions on transfer and resale and cannot be transferred or resold except
      in accordance with the Trust’s Declaration of Trust (“Declaration of Trust”) and
      applicable federal and state securities laws. The offering was concluded in
      May
      1995 and after payment of offering fees, commissions and investment fees, the
      Trust had $32.9 million available for investments and operating expenses. As
      of
      September 30, 2007, the Trust had 391.8444 Investor Shares outstanding, held
      by
      841 shareholders.





**Managing
      Shareholder**




RRP,
      via
      a predecessor corporation, was founded in 1991 by Robert E. Swanson. As the
      Managing Shareholder, RRP has direct and exclusive control over the management
      of the Trust’s operations. With respect to project investment, RRP locates
      potential projects, conducts appropriate due diligence and negotiates and
      completes the transactions in which the investments are made by the
      Trust.




1





In
      addition, RRP performs (or arranges for the performance of) the operation and
      maintenance of the projects owned by the Trust and the management and
      administrative services required for Trust operations. Among other services,
      RRP
      administers the accounts and handles relations with the shareholders, including
      tax and other financial information. RRP also provides the Trust with office
      space, equipment and facilities and other services necessary for its
      operation.




As
      compensation for its management services, the Managing Shareholder is entitled
      to (i) an annual management fee, payable monthly, equal to 2.5% of the prior
      year net asset value of the Trust and (ii) a 20% interest in the cash
      distributions made by the Trust in excess of certain threshold amounts expressed
      in terms of shareholder returns. The Managing Shareholder is also entitled
      to
      receive reimbursement from the Trust for operating expenses incurred by the
      Trust, or on behalf of the Trust and paid by RRP, as the Managing Shareholder.
      RRP has arranged for administrative functions required to be performed for
      the
      Trust to be performed by an affiliate, Ridgewood Power Management LLC (“RPM”),
      and at RPM’s costs, which costs are reimbursed to RPM by the Trust. RRP also
      serves as the managing shareholder (or managing member as appropriate) of a
      number of affiliated Trusts and investment vehicles similar to the Trust and,
      through RPM, provides services to those entities similar to those provided
      to
      the Trust.




Affiliates
      of RRP act on behalf of a number of investment vehicles in the oil and gas
      and
      venture capital sectors in a manner similar to that for which RRP serves on
      behalf of the Trust.




**Business
      Strategy**




The
      Trust’s primary investment objective is to generate cash flow for distribution
      to shareholders and capital appreciation from one or more of the acquisition,
      development, ownership and operation of interests in electricity generation
      and
      other infrastructure projects and companies. The Trust generally seeks to invest
      in projects and companies that provide products or services through a number
      of
      small facilities and that offer opportunities for expansion either through
      increasing production at existing sites or through the establishment of
      additional sites. These projects often involve development, construction and
      operating risk but, once established, may be able to effectively “lock-in” the
      customer (or customers) served by the project, which would prevent competitors
      from dislodging the Trust’s project. The Trust focuses on markets in which
      projects can be developed and built quickly and can be standardized as to their
      design, equipment and construction. By following this strategy, the Trust seeks
      to take advantage of attractive market opportunities while streamlining the
      development process and diversifying across a number of projects in order to
      contain the exposure of the Trust to the risks inherent in such projects. As
      of
      December 31, 2005, all of the Trust’s projects are managed by the Managing
      Shareholder and are either 100% owned by the Trust or owned through investment
      vehicles that the Trust co-owns with certain affiliated investment Trusts.




**Projects
      and Properties**




The
      following table is a summary of the Trust’s primary investment portfolio as of
      December 31, 2005 detailing the nature of the business and the portion of the
      investment owned by the Trust.




Company
            Trust
              Interest
            Leased/
              Owned1
            Purpose
            Structure2San
                Joaquin Project3
            100%
            Leased
            Electricity
                generation
            Steel
                building/
              concrete
                slabByron
                Project3
            100%
            Leased
            Electricity
                generation
            Steel
                building/
              concrete
                slabRidgewood
              Providence4
            35.7%
            Leased
            Electricity
                generation
            Steel
                building/
              concrete
                slab





1
            Refers
                to the locations on which the Trust’s projects are located and not the
                projects themselves.


2
              Describes
                    the type of structure in which the projects of the Trust are
                    housed.


3
            Located
                in Northern California.




4
            Co-owned
                with Ridgewood Electric Power Trust IV (“Trust IV”). The facility is
                located in Rhode Island.




2


**San
        Joaquin Project and Byron Project**




In
      January 1995, the Trust acquired 100% of the existing partnership interests
      of
      JRW Associates, L.P., which owned and operated an 8.5MW electric cogeneration
      facility located in Atwater, California (the “San Joaquin Project”). The
      aggregate purchase price was $4.9 million, including transaction
      costs.





In
      January 1995, the Trust caused the formation of Byron Power Partners, L.P.
      in
      which the Trust owns 100% of the partnership interests.  In January
      1995, Byron Power Partners, L.P. acquired a 5.7MW electric cogeneration facility
      located in Byron, California (the “Byron Project”).  The aggregate
      purchase price was $2.5 million, including transaction costs.





The
      Byron
      Project and the San Joaquin Project (collectively the “Norcals”) are fueled by
      natural gas and sell their electric output to Pacific Gas & Electric Company
      (“PG&E”) under power contracts that expire in 2020. Thermal energy from the
      San Joaquin Project is used to provide steam to an adjacent food processing
      company under a long-term contract that also expires in 2020. Thermal energy
      from the Byron Project is used to evaporate brine from oil and gas wells under
      a
      long-term contract that also expires in 2020.





The
      Norcal’s contract prices with PG&E were determined pursuant to a contract
      formula approved by the California Public Utilities Commission ("CPUC") with
      the
      energy payment originally based upon a benchmark energy price adjusted for
      changes over time in a natural gas price index; referred to as the Short Run
      Avoided Cost Methodology ("SRAC").  Effective August 2001, however,
      the Norcals entered into amendments to its power contracts, which provided
      for,
      among other things, that the Norcals would receive a fixed energy payment (as
      well as the required capacity payment) for a term of five years, until August
      2006.  Upon expiration of the amendment, through the remainder of the
      term of the contract, the SRAC formula contained in the original contract is
      to
      be used to determine the energy price paid by PG&E.





The
      Norcals entered into agreements with Coral Energy Services, Inc. (“Coral”), a
      subsidiary of Shell Oil, to procure its natural gas fuel at a fixed price
      through August 2006.  Coral and the Norcals also had master re-sale
      agreements, which also expired in August 2006.  Such agreement enabled
      the Norcals to not take delivery of, and to sell back to Coral, certain amounts
      of natural gas once predetermined prices have been established. During the
      contract, the Norcals re-sold gas back to Coral.





The
      plants are operated and maintained by RPM, on an at-cost basis.





**Ridgewood
      Providence**





Ridgewood
      Providence Power Partners, L.P. (“Ridgewood Providence”) was formed in February
      1996 as a Delaware limited partnership and in April 1996, Ridgewood Providence
      purchased substantially all of the net assets of Northeastern Landfill Power
      Joint Venture for $20.4 million including the assumption of debt. The assets
      acquired included a 13.8MW electrical generating station and associated gas
      treatment system, located at the Central Landfill in Johnston, Rhode Island.
      Ridgewood Providence includes nine reciprocating engine/generator sets, which
      are fueled by methane gas produced by, and collected from, the landfill. The
      project has been operating on the site since 1990 and the net electricity
      generated is sold to New England Power Service Company (“NEP”) under a long-term
      electricity sales contract. The contract expires in 2020 but becomes a
      market-rate contract in 2010. The plant is operated and maintained by RPM,
      on an
      at-cost basis.





Ridgewood
      Providence occupies the site and uses the gas from the landfill under the terms
      of an agreement with the Rhode Island Resource Recovery Corporation (“RIRRC”), a
      Rhode Island state agency that owns and operates the landfill. Ridgewood
      Providence subleases a portion of its rights to the landfill gas to Central
      Gas
      Limited Partnership (“CGLP”). CGLP operates and maintains a portion of the
      landfill gas collection system and sells the collected gas to Ridgewood
      Providence. Ridgewood Providence pays a royalty to RIRRC that is based on its
      revenue and pays CGLP on a per kilowatt basis. The Ridgewood Providence project
      qualifies for renewable energy incentives in Massachusetts and Connecticut
      and a
      portion of the benefits of these incentives are eligible to be sold to a power
      marketer under an agreement that continues through 2009.





In
      December 2002, the Managing Shareholder of the Trust formed Ridgewood Rhode
      Island Generation LLC (“RRIG”), for the purpose of utilizing the supply of gas
      from the landfill that is in excess of the quantity that could be used by
      Ridgewood Providence. The project owned by RRIG reached full operation in
      October 2005 and has a capacity of 8.5MW. RRIG has rights to gas from the
      landfill for the purpose of operating the RRIG project. Other than the gas
      rights granted to RRIG, there is no commercial relationship between RRIG and
      Ridgewood Providence. The landfill generates significantly more gas than can
      be
      utilized by the combined projects of Ridgewood Providence and
      RRIG.


3


On
      August
      1, 2003, Ridgewood Providence entered into an Environmental Attribute Agreement
      with RIRRC and Ridgewood Gas Services, LLC (“RGS”), an affiliate of Ridgewood
      Providence that provides management services to RIRRC. Pursuant to the terms
      of
      the agreement, Ridgewood Providence is required to pay 15% net revenue royalty
      to RIRRC and RGS which is derived from the sale of Renewable Portfolio Standards
      Attributes (“RPS Attributes”) and is the only direct cost of the renewable
      attribute revenue. The term of the agreement coincides with the Central Landfill
      lease agreement, which expires in 2020 and provides for an extension of an
      additional ten years.




On
      January 17, 2003, Ridgewood Providence received a “Statement of Qualification”
from the Massachusetts Division of Energy Resources (“DOER”) pursuant to
      the renewable portfolio standards adopted by Massachusetts. Since Ridgewood
      Providence has now become qualified, it is able to sell to retail electric
      suppliers the RPS Attributes associated with its electrical energy. Retail
      electric suppliers need to purchase RPS Attributes associated with renewable
      energy and not necessarily the energy itself. Thus, electrical energy and RPS
      Attributes are separable products and need not be sold or purchased as a bundled
      product. Retail electric suppliers in Massachusetts will then use the purchase
      of such RPS Attributes to demonstrate compliance with the Restructuring Act
      and
      RPS regulations.




During
      2004, Ridgewood Providence became qualified to sell RPS Attributes in
      Connecticut under a similar RPS program, except that the Connecticut program
      does not have a “vintage” prohibition, which in Massachusetts disqualifies the
      amount of a facility’s generation of electric energy measured by its average
      output during the period 1995 through 1997. Thus, Ridgewood Providence can
      sell
      the 86,000 megawatt hours (“MWh”) that are ineligible under Massachusetts
      standards into the Connecticut market. During 2006, 2005 and 2004, Ridgewood
      Providence sold its “vintage” RPS Attributes pursuant to agreements with various
      power marketers.




Similar
      agreements have committed Ridgewood Providence to sell its 2007 “vintage” RPS
      Attributes to such designated parties at certain fixed quantities and prices.
      Pursuant to the terms of the agreement, Ridgewood Providence is only required
      to
      deliver the specified RPS Attributes it generates and is not obligated to
      produce, nor is it subject to penalty if it is unable to produce, contracted
      quantities.




Ridgewood
      Providence and the Trust, along with Trust IV and RRIG, are evaluating expanding
      the generation facilities at the site. If such expansion were to occur, the
      Trust may make an additional investment in Ridgewood Providence.





**Other
      Investments**





*Mobile
      Power Units*





In
      the
      third quarter of 1999, the Trust purchased, for $1.7 million, five mobile power
      generating units. Due to the increases in competition and production of newer
      more efficient generating models, the Trust experienced continued decreases
      in
      rental revenue. The Trust decided in 2003 to sell these units; one unit was
      sold
      in the fourth quarter of 2003 for proceeds of $171,000 and the remaining units
      were sold in the second quarter of 2004 for proceeds of $384,000.





*On-site
      Cogeneration Projects*





In
      1995,
      the Trust purchased a portfolio of 35 projects from affiliates of Eastern
      Utilities Associates ("EUA"), which sell electricity and thermal energy to
      industrial and commercial customers, for an aggregate purchase price of $11.3
      million. The Trust then invested an additional $1.4 million for capital
      improvements. The projects were located in California (18 sites), Connecticut
      (6
      sites), Massachusetts (2 sites), New York (8 sites) and Rhode Island (1
      site).  The projects used natural gas fired turbines or reciprocating
      engines to produce electrical energy and/or heat for industrial uses or air
      conditioning under a variety of individual customer circumstances. Their energy
      service agreements had terms expiring between September 1996 and 2011. The
      Trust
      shut down all but two of the projects beginning in 2001 through 2003. The
      remaining projects ceased operations in the fourth quarter of 2006.





In
      September 1997, the Trust formed a joint partnership, Ridgewood/AES Power
      Partners, L.P. with AES-NJ Cogen, Inc. (“AES-NJ”) to develop cogeneration
      projects. During 2003, The Trust sold its interest in the joint partnership
      for
      $100,000 cash, a $150,000 interest bearing promissory note ("promissory note"),
      and a $74,000 interest free note ("interest free note"). The promissory note
      bore interest at a rate of 10% per annum, and was fully paid monthly over a
      four
      year term. The interest free note was repaid over a six month term.




4





In
      2003,
      the Trust sold the assets of a project located in Fall River, Massachusetts
      (“Globe”) for $240,000.





**Significant
      Customers and Supplier**





During
      2005, 2004 and 2003, the Trust’s largest customer, Pacific Gas and Electric
      Company, accounted for 82%, 87% and 75%, respectively of total revenues. During
      2005, 2004 and 2003, the Trust purchased substantially all of its gas from
      one
      supplier, Coral.





**Business
      Segments**





Power
      generation is the only business
      segment within which the Trust manages and evaluates its
      operations.





**Project
      Feedstock/Raw Materials**





The
      investments of the Trust each
      convert a raw material into a finished product and the arrangements for
      obtaining these raw materials are a key element in the business of the Trust.
      The cogeneration facilities use natural gas as fuel. Unless contracted for
      otherwise, the price charged for the gas is based on current market conditions.
      The landfill facility consists of reciprocating engine generator sets that
      use
      methane-containing landfill gas as fuel. Gas is collected from the landfills
      as
      it is produced through natural anaerobic digestion of the waste. Ridgewood
      Providence does not own or operate the landfill but has arrangements with the
      site owner/operator, which gives the project certain rights, including the
      right
      to build the projects, occupy the compounds and use the gas from the landfill.
      The gas agreement is a long-term agreement running for the expected life of
      the
      project and includes provisions for royalty payments from the project to the
      landfill operator as compensation for the granting of these rights. Royalty
      payments are calculated as a percent of revenue. The investments of the Trust
      do
      not maintain material inventories of raw materials.





**Competition**





Power
      generated from the Norcal projects and Ridgewood Providence is sold pursuant
      to
      long-term contracts, and as a result, these facilities do not face competition
      in the sale of its finished product.





**Government
      Incentives and Regulation**




Ridgewood
      Providence qualifies for incentives because of its location and use of renewable
      fuel.




In
      1997,
      Massachusetts enacted the Electric Restructuring Act of 1997 (the “Restructuring
      Act”). Among other things, the Restructuring Act requires that all retail
      electricity suppliers in Massachusetts (i.e., those entities supplying electric
      energy to retail end-use customers in Massachusetts) purchase a minimum
      percentage of their electricity supplies from qualified new renewable generation
      units powered by one of several renewable fuels, such as solar, biomass or
      landfill. Beginning in 2003, each such retail supplier must obtain at least
      one
      (1%) percent of its supply from qualified new renewable generation units. Each
      year thereafter, the requirement increases one-half of one percentage point
      until 2009, when the requirement equals four (4%) percent of each retail
      supplier’s sales in that year. Subsequent to 2009, the increase in the
      percentage requirement will be determined and set by DOER.





In
      January 17, 2003, Ridgewood Providence received a “Statement of Qualification”
from the DOER pursuant to the RPS adopted by Massachusetts. Since Ridgewood
      Providence has been qualified, it has sold to retail electric suppliers the
      RPS
      Attributes associated with its electrical energy. Retail electric suppliers
      need
      to purchase RPS Attributes associated with renewable energy and not necessarily
      the energy itself. Thus, electrical energy and RPS Attributes are separable
      products and are not required to be sold or purchased as a bundled product.
      Retail electric suppliers in Massachusetts will then use the purchase of such
      RPS Attributes to demonstrate compliance with the Restructuring Act and RPS
      regulations.





During
      2004, Ridgewood Providence also became qualified to sell RPS Attributes in
      Connecticut under a similar RPS program, except that the Connecticut program
      does not have a “vintage” prohibition, which in Massachusetts disqualifies the
      amount of a facility’s generation of electric energy measured by its average
      output during the period 1995 through 1997. Thus, Ridgewood Providence can
      sell
      the 86,000 MWh that are ineligible under Massachusetts standards into the
      Connecticut market.




5


Insurance


The
      Trust has in place, either directly
      or through investee companies, insurance typical for activities such as those
      conducted by the Trust. These policies include property and casualty, business
      interruption and workman’s compensation insurance, which the Trust believes to
      be appropriate. Certain of the insurance carried by the Trust are required
      by
      the lenders of certain investee companies.




**Employees**




The
      Trust
      does not have employees. The activities of the Trust are performed either by
      employees of the Managing Shareholder, its affiliates or those of the specific
      investments of the Trust.




**Offices**




The
      principal office of the Trust is
      located at 1314 King Street, Wilmington, Delaware, 19801 and its phone number
      is
      302-888-7444. The Managing Shareholder maintains offices 947 Linwood Avenue,
      Ridgewood, New Jersey, 07450 and its phone number is 201-447-9000.




**Available
      Information**




The
      Trust’s shares are registered under
      Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”). The Trust must therefore comply with, among other things, the periodic
      reporting requirements of Section 13(a) of the Exchange Act. As a result, the
      Trust prepares and files annual reports with the SEC on Form 10-K, quarterly
      reports on Form 10-Q and, from time to time, current reports on Form 8-K.
      Moreover, the Managing Shareholder maintains a website at
      http://www.ridgewoodpower.com that contains important information about the
      Managing Shareholder, including biographies of key management personnel, as
      well
      as information about the investments made by the Trust and the other investment
      programs managed by the Managing Shareholder.




**Where
      You Can Get More Information**




The
      Trust
      files annual, quarterly and current reports and certain other information with
      the SEC. Persons may read and copy any documents the Trust files at the SEC’s
      public reference room at 100 F Street, NE, Washington D.C. 20549. You may obtain
      information on the operation at the public reference room by calling the SEC
      at
      1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy
      and information statements, and other information regarding issuers that file
      electronically with the SEC at http://www.sec.gov. A copy of any such filings
      will be provided free of charge to any shareholder upon written request to
      the
      Managing Shareholder at its business address - 947 Linwood Avenue, Ridgewood,
      New Jersey 07450, ATTN: General Counsel.




**Reports
      to Shareholders**




The
      Trust
      does not anticipate providing annual reports to shareholders but will make
      available upon request copies of the Trust’s periodic reports to the SEC on Form
      10-K and on Form 10-Q.




**ITEM
      1A.RISK FACTORS**




In
      addition to the other information
      set forth elsewhere in this report, you should carefully consider the following
      factors when evaluating the Trust:




**RISKS
      INHERENT IN THE BUSINESSES OF THE TRUST**




**The
      Trust has material weaknesses in its disclosure controls and
      procedures.**




Material
      weaknesses in disclosure
      controls and procedures have been identified by management of the Trust. These
      weaknesses primarily relate to the Trust’s inability to complete its reporting
      obligations on a timely basis as a result of deficient disclosure controls
      and
      procedures. See Item 9A. “Controls and Procedures” in this report. The inability
      of the Trust to timely report its results could impact the ability of an
      investor to adequately understand its investment, restrict the Trust’s ability
      to conduct its activities and subject the Trust to fines and penalties. Upon
      further review, the Trust may also determine that it has material weaknesses
      in
      its internal control over financial reporting.




6




**The
        Trust’s Ridgewood Providence business depends on the production of landfill
        methane from the landfill site on which it operates and access to that gas
        production.**


The
      electricity production of the Ridgewood Providence project is typically limited
      by the available amount of landfill methane gas used as fuel by the project.
      A
      number of factors influence the amount of landfill methane gas produced by
      a
      landfill site including the quantity and makeup of the waste deposited into
      the
      site by the landfill operator, the manner and sequence of the waste deposition,
      the non-waste materials used to support the landfill structure and the amount
      of
      liquid in the landfill. A number of factors also influence the ability of the
      Trust’s personnel to gain access to gas that is being produced by a landfill
      including the land filling strategy and practices of the landfill site operator.
      To the extent that these factors limit the production of landfill methane gas
      or
      the ability of the project to collect and use that gas, Ridgewood Providence
      may
      not achieve profitable output levels.




**The
      Trust’s Ridgewood Providence business is subject to interruption of its business
      operations.**





The
      electric generating plant owned by Ridgewood Providence is located on property
      owned by the landfill from which Ridgewood Providence derives the methane gas
      to
      power its plant. If the landfill expands in the direction of the electric
      generating plant it is possible that the site on which the electric generating
      plant is located may be included in such expansion. If such an expansion occurs,
      Ridgewood Providence might have to relocate or abandon the electricity
      generating plant.  Were this to occur, Ridgewood Providence could face a
      temporary or permanent loss of the revenues from this plant.





**The
      operations of the Trust have limited capital, limited access to new capital
      and
      have obligations to third parties for borrowed money.**




The
      Trust’s investments, but not the
      Trust itself, have in the past utilized debt financing. Debt financing could
      increase the variability of results and could increase the financial risk of
      the
      Trust. In such cases, the rights of the Trust to the cash flow of the projects
      would typically be subordinated to the obligations of the projects under the
      debt facilities, which could limit the Trust’s ability to receive cash
      distributions from its investments.




**The
      projects of the Trust depend on the near-continuous operation of their
      equipment. Should the productivity of some or all of this equipment be
      compromised or should the equipment fail altogether, the Trust would be
      adversely affected. The Trust may also experience difficulty in hiring qualified
      operating personnel.**




The
      primary equipment of the Trust is
      subject to mechanical failure that the Trust may not be able to predict and
      that
      can render specific projects inoperable for considerable periods of time. This
      risk also extends to failures of the electricity grid near the Trust’s projects
      that could prevent the affected project or projects from delivering its
      electricity. In addition, the Trust may experience price increases for, or
      difficulty in obtaining, spare parts for its projects and in identifying and
      hiring personnel qualified to operate, maintain and repair the specialized
      equipment that make up parts of its projects.




**The
      projects of the Trust are subject to regulatory changes (including changes
      in
      environmental regulations) that could significantly reduce revenues or increase
      expenses of the Trust.**




This
      area of risk is inherently
      difficult to predict but could include matters such as emission control changes.
      Such changes could increase costs at affected projects or prevent certain
      projects from operating.




Ridgewood
      Providence derives a significant portion of its income from renewable energy
      incentive programs sponsored by state governments. Should states reduce,
      eliminate or change the compliance requirements for these programs, such changes
      could have a materially adverse impact on the financial performance of the
      Trust’s investment in Ridgewood Providence.




**The
      Trust may become involved in litigation.**




The
      Trust faces an inherent business
      risk of exposure to various types of claims and lawsuits that may arise in
      the
      ordinary course of business. Although it is not possible to predict the timing,
      nature or outcome of such claims or lawsuits should they arise, we believe
      the
      chances that any claims or lawsuits arising and resulting, individually or
      in
      the aggregate, in a material impact on the Trust to be remote. However, the
      Trust could in the future incur judgments or enter into settlements of lawsuits
      and claims that could have a material adverse effect on the results of the
      Trust. In addition, while the Trust maintains insurance coverage with respect
      to
      certain claims, the Trust may not be able to obtain such insurance on acceptable
      terms in the future, if at all, and any such insurance may not provide adequate
      coverage against any such claims.




7




**RISKS
      RELATED TO THE NATURE OF THE TRUST’S SHARES**




The
      Trust’s shares have severe restrictions on
      transferability and liquidity and shareholders are required to hold the shares
      indefinitely.




The
      Trust’s shares are illiquid investments. There is currently no market for these
      shares and one is not likely to develop. Because there may be only a limited
      number of persons who purchase shares and because there are significant
      restrictions on the transferability of such shares under the Trust’s Declaration
      of Trust and under applicable federal and state securities laws, it is expected
      that no public market will develop. Moreover, neither the Trust nor the Managing
      Shareholder will provide any market for the shares. Shareholders are generally
      prohibited from selling or transferring their shares except in the circumstances
      permitted under the Declaration of Trust and applicable law, and all such sales
      or transfers require the Trust’s consent, which it may withhold at its sole
      discretion. Accordingly, shareholders have no assurance that an investment
      can
      be transferred and must be prepared to bear the economic risk of the investment
      indefinitely.




**Shareholders
      are not permitted to participate in the Trust’s management or operations and
      must rely exclusively on the Managing Shareholder.**




Shareholders
      have no right, power or authority to participate in the Trust’s management or
      decision making or in the management of the Trust’s projects. The Managing
      Shareholder has the exclusive right to manage, control and operate the Trust’s
      affairs and business and to make all decisions relating to its
      operation.




**The
      Trust’s assets are generally illiquid and any disposition of Trust assets is at
      the discretion of the Managing Shareholder.**




The
      Trust’s interest in projects is
      illiquid. However, if the Trust were to attempt to sell any such interest,
      a
      successful sale would depend upon, among other things, the operating history
      and
      prospects for the project or interest being sold, the number of potential
      purchasers and the economics of any bids made by them. The Managing Shareholder
      has full discretion to determine whether any project, or any partial interest,
      should be sold and the terms and conditions under which such project would
      be
      sold. Consequently, shareholders will depend on the Managing Shareholder
      for the decision to sell all or a portion of an asset, or retain it, for the
      benefit of the shareholders and for negotiating and completing the sale
      transaction.




**The
      Trust indemnifies its officers, as well as the Managing Shareholder and its
      employees, for certain actions taken on its behalf. Therefore, the Trust has
      limited recourse relative to these actions.**




The
      Declaration of Trust provides that
      the Trust’s officers and agents, the Managing Shareholder, the affiliates of the
      Managing Shareholder and their respective directors, officers and agents when
      acting on behalf of the Managing Shareholder or its affiliates on the Trust’s
      behalf, will be indemnified and held harmless by the Trust from any and all
      claims rising out of the Trust’s management, except for claims arising out of
      bad faith, gross negligence or willful misconduct or a breach of the Declaration
      of Trust. Therefore, the Trust may have difficulty sustaining an action against
      the Managing Shareholder, or its affiliates and their officers based on breach
      of fiduciary responsibility or other obligations to the
      shareholders.




**The
      Managing Shareholder is entitled to receive a management fee regardless of
      the
      Trust’s profitability and also receives cash
      distributions.**




The
      Managing Shareholder is entitled to receive an annual management fee from the
      Trust regardless of whether the Trust is profitable in that year. The annual
      fee, payable monthly, is equal to 2.5% of the Trust's prior year net asset
      value. In addition to its annual management fee, the Managing Shareholder,
      as
      compensation for its management services, will receive 20% of the Trust’s cash
      distributions to shareholders upon the shareholders having received a certain
      minimum level of distributions as set out in the Declaration of Trust, even
      though the Managing Shareholder has not contributed any cash to the Trust.
      Accordingly, shareholders contribute all of the cash utilized for the Trust’s
      investments and activities. If the Trust’s projects are unsuccessful, the
      shareholders may lose 100% of their investment while the Managing Shareholder
      will not suffer any investment losses because it did not contribute any capital.
      None of the compensation to be received by the Managing Shareholder has been
      derived as a result of arm’s length negotiations.




**Cash
      distributions are not guaranteed and may be less than anticipated or
      estimated.**




Distributions
      depend primarily on available cash from project operations. At times,
      distributions have been delayed to repay the principal and interest on project
      or Trust borrowings, if any, or to the Trust’s other costs. The Trust’s taxable
      income will be taxable to the shareholders in the year earned, even if cash
      is
      not distributed.




8




**Because
        the Managing Shareholder manages other electricity generation and infrastructure
        trusts, it may have conflicts of interest in its management of the Trust’s
        operations.**


Shareholders
      will not be involved in the management of the Trust’s operations. Accordingly,
      they must rely on the Managing Shareholder’s judgment in such matters. Inherent
      with the exercise of its judgment, the Managing Shareholder will be faced with
      conflicts of interest. While neither the Trust nor the Managing Shareholder
      have
      specific procedures in place in the event of any such conflicting
      responsibilities, the Managing Shareholder recognizes that it has fiduciary
      duties to the Trust in connection with its position and responsibilities as
      Managing Shareholder and it intends to abide by such fiduciary responsibilities
      in performing its duties. Therefore, the Managing Shareholder and its affiliates
      will attempt, in good faith, to resolve all conflicts of interest in a fair
      and
      equitable manner with respect to all parties affected by any such conflicts
      of
      interest. However, the Managing Shareholder is not liable to the Trust for
      how
      conflicts of interest are resolved unless it has acted in bad faith, or engaged
      in gross negligence or willful misconduct.




**TAX
      RISKS ASSOCIATED WITH AN INVESTMENT IN SHARES**




The
      Trust
      is organized as a Delaware trust and the Managing Shareholder has qualified
      the
      Trust as a partnership for federal tax purposes. The principal tax risks to
      shareholders are that:




·
            The
                Trust may recognize income taxable to the shareholders but may not
                distribute enough cash to cover the income taxes owed by shareholders
                on
                the Trust’s taxable income.




·
            The
                allocation of Trust items of income, gain, loss, and deduction may
                not be
                recognized for federal income tax
                purposes.




·
            All
                or a portion of the Trust’s expenses could be considered either investment
                expenses (which would be deductible by a shareholder only to the
                extent
                the aggregate of such expenses exceeded 2% of such shareholder’s adjusted
                gross income) or as nondeductible items that must be
                capitalized.




·
            All
                or a substantial portion of the Trust’s income could be deemed to
                constitute unrelated business taxable income, such that tax-exempt
                shareholders could be subject to tax on their respective portions
                of such
                income.




·
            If
                any Trust income is deemed to be unrelated business taxable income,
                a
                shareholder that is a charitable remainder trust could have all of
                its
                income from any source deemed to be
                taxable.




·
            All
                or a portion of the losses, if any, allocated to the shareholders
                will be
                passive losses and thus deductible by the shareholder only to the
                extent
                of passive income.




·
            The
                shareholders could have capital losses in excess of the amount that
                is
                allowable as a deduction in a particular
                year.




Although
      the Trust has obtained an opinion of counsel regarding the matters described
      in
      the preceding paragraph, it will not obtain a ruling from the IRS as to any
      aspect of the Trust’s tax status. The tax consequences of investing in the Trust
      could be altered at any time by legislative, judicial, or administrative
      action.





**If
      the IRS audits the Trust, it could require investors to amend or adjust their
      tax returns or result in an audit of their tax.**




The
      IRS
      may audit the Trust’s tax returns. Any audit issues will be resolved at the
      Trust level by the Managing Shareholder. If adjustments are made by the IRS,
      corresponding adjustments will be required to be made to the federal income
      tax
      returns of the shareholders, which may require payment of additional taxes,
      interest, and penalties. An audit of the Trust’s tax return may result in the
      examination and audit of a shareholder’s return that otherwise might not have
      occurred, and such audit may result in adjustments to items in the shareholder’s
      return that are unrelated to the Trust’s operations. Each shareholder bears the
      expenses associated with an audit of that shareholder’s return.




In
      the
      event that an audit of the Trust by the IRS results in adjustments to the tax
      liability of a shareholder, such shareholder will be subject to interest on
      the
      underpayment and may be subject to substantial penalties.




The
      tax
      treatment of the Trust cannot be guaranteed for the life of the Trust. Changes
      in laws or regulations may adversely affect any such tax
      treatment.


Deductions,
      credits or other tax consequences may not be available to shareholders.
      Legislative or administrative changes or court decisions could be forthcoming
      which would significantly change the statements herein. In some instances,
      these
      changes could have substantial effect on the tax aspects of the Trust. Any
      future legislative changes may or may not be retroactive with respect to
      transactions prior to the effective date of such changes. Bills have been
      introduced in Congress in the past and may be introduced in the future which,
      if
      enacted, would adversely affect some of the tax consequences of the
      Trust.


9




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**




Not
      applicable.




**ITEM
      2.PROPERTIES**




Information
      regarding the Trust’s properties is contained in Item 1. “Business”, under the
      heading “Projects and Properties”.




**ITEM
      3.  LEGAL PROCEEDINGS**




On
      August
      16, 2006, the Trust and several affiliated entities, including the Managing
      Shareholder, filed a lawsuit against the former independent registered public
      accounting firm for the Trust and several affiliated entities, Perelson Weiner
      LLP (“Perelson Weiner”), in New Jersey Superior Court. The suit alleged
      professional malpractice and breach of contract in connection with audit and
      accounting services performed for the Trust and the other plaintiffs by Perelson
      Weiner. On October 20, 2006, Perelson Weiner filed a counterclaim against the
      Trust and the other plaintiffs, alleging breach of contract due to unpaid
      invoices in the total amount of approximately $1,188,000. Discovery is ongoing
      and no trial date has been set.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**




None.





**PART
      II**





**ITEM
      5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
      SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES**




**Market
      Information**





There
      has never been an established
      public trading market for the Trust’s Investor Shares.





**Holders**





As
      of September 30, 2007 and December
      31, 2005, 2004 and 2003, there were 841, 831, 831 and 832 holders of Investor
      Shares, respectively.





**Dividends**





Trust
      distributions for the three
      years ended December 31, 2005 were as follows (in thousands, except per share
      data):





**2005**
            
            
            **2004**
            
            
            **2003**Distributions
                to Investors
            
            $
            1,929
            
            
            $
            2,155
            
            
            $
            1,176Distributions
                per Investor Share
            
            
            4,900
            
            
            
            5,500
            
            
            
            3,000Distributions
                to Managing Shareholder
            
            
            20
            
            
            
            22
            
            
            
            12





**ITEM
      6.SELECTED FINANCIAL DATA**





The
      following selected consolidated
      financial data should be read in conjunction with the Trust’s consolidated
      financial statements and related notes and Item 7. “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” of this Form
      10-K.


10


The
      consolidated statement of
      operations data for the years ended December 31, 2005, 2004 and 2003 and the
      consolidated balance sheet data as of December 31, 2005, 2004 and 2003, are
      derived from audited financial statements included in this Form 10-K. The
      consolidated statement of operations data for the years ended December 31,
      2002
      and 2001 and the consolidated balance sheet data as of December 31, 2002 and
      2001 are derived from audited consolidated financial statements that have not
      been restated, and as a result, may not be comparable to subsequent periods.
      For
      further discussion, see Note 2 to the Trust’s Consolidated Financial Statements
      included in this Form 10-K.


**December
                  31,***(in
                  thousands, except per share data)*
              
              **2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2002**
              
              
              **2001**(Restated)**Consolidated
                  Statement of Operations Data:**Revenues
              
              $
              4,205
              
              
              $
              5,594
              
              
              $
              5,909
              
              
              $
              7,849
              
              
              $
              6,383Net
                  income (loss)
              
              
              1,353
              
              
              
              1,817
              
              
              
              2,259
              
              
              
              (1,356
              )
              
              
              (1,482
              )Net
                  income (loss) per Investor Share
              
              
              3,418
              
              
              
              4,592
              
              
              
              5,707
              
              
              
              (3,462
              )
              
              
              (3,783
              )**Consolidated
                  Balance Sheet Data:**Plant
                  and equipment, net
              
              $
              3,594
              
              
              $
              4,585
              
              
              $
              5,016
              
              
              $
              6,632
              
              
              $
              7,863Total
                  assets
              
              
              13,739
              
              
              
              14,453
              
              
              
              14,875
              
              
              
              15,589
              
              
              
              17,481Total
                  liabilities
              
              
              107
              
              
              
              304
              
              
              
              372
              
              
              
              1,316
              
              
              
              1,851Shareholders'
                  equity
              
              
              13,632
              
              
              
              14,149
              
              
              
              14,503
              
              
              
              14,273
              
              
              
              15,630


Quarterly
      financial information is derived from unaudited financial data, which, in the
      opinion of management, reflects all adjustments, which are necessary to present
      fairly the results for such interim periods. It is suggested that the quarterly
      financial data be read in conjunction with the financial statements and the
      notes thereto included in this Form 10-K.







**Nine
                  Months Ended September 30,**
              
              
              **Three
                  Months Ended September 30,***(in
                  thousands, except per share data)*
              
              **2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**(Restated)
              
              
              (Restated)
              
              
              
              
              
              (Restated)
              
              
              (Restated)**Consolidated
                  Statement of Operations Data:**Revenues
              
              $
              4,068
              
              
              $
              4,269
              
              
              $
              4,843
              
              
              $
              1,750
              
              
              $
              1,791
              
              
              $
              2,137Net
                  income (loss)
              
              
              2,817
              
              
              
              2,314
              
              
              
              2,238
              
              
              
              2,349
              
              
              
              1,073
              
              
              
              (189
              )Net
                  income (loss) per Investor Share
              
              
              7,119
              
              
              
              5,847
              
              
              
              5,655
              
              
              
              5,936
              
              
              
              2,710
              
              
              
              (476
              )
 
 *(in
                    thousands)*
                
                **September
                    30,****2005**
                
                
                **2004**
                
                
                **2003****Consolidated
                    Balance Sheet Data:**
                
                
                
                
                (Restated)
                
                
                (Restated)Plant
                    and equipment, net
                
                $
                4,268
                
                
                $
                4,699
                
                
                $
                5,188Total
                    assets
                
                
                16,054
                
                
                
                15,648
                
                
                
                15,405Total
                    liabilities
                
                
                572
                
                
                
                315
                
                
                
                530Shareholders'
                    equity
                
                
                15,482
                
                
                
                15,333
                
                
                
                14,875
 
 **Six
                  Months Ended June 30,**
              
              
              **Three
                  Months Ended June 30,***(in
                  thousands, except per share data)*
              
              **2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**(Restated)
              
              
              (Restated)
              
              
              
              
              
              
              (Restated)
              
              
              (Restated)**Consolidated
                  Statement of Operations Data:**Revenues
              
              $
              2,318
              
              
              $
              2,478
              
              
              $
              2,706
              
              
              $
              1,354
              
              
              $
              1,380
              
              
              $
              1,742Net
                  income (loss)
              
              
              468
              
              
              
              1,241
              
              
              
              2,427
              
              
              
              (190
              )
              
              
              562
              
              
              
              1,390Net
                  income (loss) per Investor Share
              
              
              1,183
              
              
              
              3,136
              
              
              
              6,131
              
              
              
              (479
              )
              
              
              1,422
              
              
              
              3,547
 
 *(in
                      thousands)*
                  
                  **June
                      30,****2005**
                  
                  
                  **2004**
                  
                  
                  **2003****Consolidated
                      Balance Sheet Data:**
                  
                  
                  
                  
                  (Restated)
                  
                  
                  (Restated)Plant
                      and equipment, net
                  
                  $
                  4,373
                  
                  
                  $
                  4,807
                  
                  
                  $
                  6,098Total
                      assets
                  
                  
                  14,375
                  
                  
                  
                  15,772
                  
                  
                  
                  16,336Total
                      liabilities
                  
                  
                  846
                  
                  
                  
                  818
                  
                  
                  
                  877Shareholders'
                      equity
                  
                  
                  13,529
                  
                  
                  
                  14,954
                  
                  
                  
                  15,459
 11
  **Three
                    Months Ended March 31,***(in
                    thousands, except per share data)*
                
                **2005**
                
                
                **2004**
                
                
                **2003**(Restated)
                
                
                (Restated)**Consolidated
                    Statement of Operations Data:**Revenues
                
                $
                964
                
                
                $
                1,097
                
                
                $
                964Net
                    income
                
                
                658
                
                
                
                679
                
                
                
                1,037Net
                    income per Investor Share
                
                
                1,662
                
                
                
                1,712
                
                
                
                2,621*(in
                    thousands)*
                
                **March
                    31,****2005**
                
                
                **2004**
                
                
                **2003****Consolidated
                    Balance Sheet Data:**
                
                
                
                
                
                (Restated)
                
                
                (Restated)Plant
                    and equipment, net
                
                $
                4,479
                
                
                $
                4,910
                
                
                $
                6,243Total
                    assets
                
                
                14,831
                
                
                
                15,160
                
                
                
                15,192Total
                    liabilities
                
                
                717
                
                
                
                374
                
                
                
                728Shareholders'
                    equity
                
                
                14,114
                
                
                
                14,786
                
                
                
                14,464




**ITEM
      7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**




*The
        following discussion and analysis should be read in conjunction with the**Trust**’s Consolidated Financial Statements and Notes which
        appear elsewhere in this Annual Report on Form 10-K. This discussion
        contains forward-looking statements that involve risks, uncertainties and
        assumptions. The**Trust**’s actual results could differ
        materially from those anticipated in these forward-looking statements as
        a
        result of various factors, including those set forth in Part I,
        Item 1A. “Risk Factors” and elsewhere in this Annual Report on
        Form 10-K.*





**Restatement
      of Financial Statements**




As
      previously disclosed in its Form 8-K
      filed with the SEC on October 11, 2007, the consolidated financial statements
      of
      the Trust included in the Trust’s Quarterly Reports on Form 10-Q and the Trust’s
      Annual Report on Form 10-K for each of the periods beginning with the
      three-month period ended March 31, 2003 and continuing through the three and
      nine-month periods ended September 30, 2004 previously filed by the Trust with
      the SEC should no longer be relied upon and that those financial statements
      should be restated to conform to generally accepted accounting principles.
      The
      determination to restate these financial statements and selected financial
      data
      was made by the Trust and the Managing Shareholder of the Trust, as a result
      of
      the identification of accounting errors as more fully described in Note 2 to
      the
      Consolidated Financial Statements. Accordingly, this Annual Report on Form
      10-K
      contains restated financial statements for the periods mentioned
      above.




**Overview**





The
      Trust
      is a Delaware trust formed on December 6, 1993 to primarily make investments
      in
      projects and businesses in the energy and infrastructure sectors. Ridgewood
      Renewable Power LLC (“RRP” or the “Managing Shareholder”), a New Jersey limited
      liability company, is the Managing Shareholder. As the Managing Shareholder,
      RRP
      has direct and exclusive control over the management and operations of the
      Trust.




The
      Trust
      has focused primarily on projects fueled by natural gas and renewable sources
      of
      fuel. These projects allow the Trust to develop secure long-term positions
      in
      attractive specialty markets for products and services provided by its projects
      and companies. As
      of
      December 31, 2005, the projects in which the Trust had investments were located
      in the United States. As of that date, the Trust had investments in a landfill
      gas-fired electric generating project with total capacity of 13.8MW and in
      electric cogeneration projects with total capacity of 14.2MW.




The
      Trust’s consolidated financial
      statements include the Trust’s 35.7% interest in Ridgewood Providence, which is
      accounted for under the equity method of accounting as the Trust has the ability
      to exercise significant influence but does not control the operating and
      financial policies of the investment. The remaining 64.3% of Ridgewood
      Providence is owned by Trust IV.  12




**Critical
      Accounting Policies and Estimates**





The
      discussion and analysis of the
      Trust’s financial condition and results of operations are based upon the Trust’s
      consolidated financial statements, which have been prepared in conformity with
      accounting principles generally accepted in the United States of America. In
      preparing these financial statements, the Trust is required to make certain
      estimates, judgments and assumptions. These estimates, judgments and assumptions
      affect the reported amounts of the Trust’s assets and liabilities, including the
      disclosure of contingent assets and liabilities, at the date of the financial
      statements and the reported amounts of the Trust’s revenues and expenses during
      the periods presented. The Trust evaluates these estimates and assumptions
      on an
      ongoing basis. The Trust bases its estimates and assumptions on historical
      experience and on various other factors that the Trust believes to be reasonable
      at the time the estimates and assumptions are made. However, future events
      and
      their effects cannot be predicted with absolute certainty. Therefore, the
      determination of estimates requires the exercise of judgment. Actual results
      may
      differ from these estimates and assumptions under different circumstances or
      conditions, and such differences may be material to the financial statements.
      The Trust believes the following critical accounting policies affect the more
      significant estimates and judgments in the preparation of the Trust’s
      consolidated financial statements.





*Revenue
      Recognition*





Power
      generation revenue is recorded in the month of delivery, based on the estimated
      volumes sold to customers at rates stipulated in the electric power sales
      contract. Adjustments are made to reflect actual volumes delivered when the
      actual volumetric information subsequently becomes available. Billings to
      customers for power generation generally occurs during the month following
      deliveries. Final billings do not vary significantly from
      estimates.





*Accounts
      Receivable*





Accounts
      receivable are recorded at invoice price in the period the related revenues
      are
      earned, and do not bear interest. No allowance for bad debt expense was provided
      based upon historical write-off experience, evaluation of customer credit
      condition and the general economic status of the customers.





*Plant
      and Equipment*





Plant
      and
      equipment, consisting principally of electrical generating equipment, is stated
      at cost less accumulated depreciation. Renewals and betterments that increase
      the useful lives of the assets are capitalized. Repair and maintenance
      expenditures are expensed as incurred. Upon retirement or disposal of assets,
      the cost and related accumulated depreciation are removed from the consolidated
      balance sheets. The difference, if any, between the net asset value and any
      proceeds from such retirement or disposal is recorded as a gain or loss in
      the
      statement of operations.





Depreciation
      is recorded using the straight-line method over the useful lives of the assets,
      which ranges from 5 to 20 years.





*Impairment
      of Intangibles and Long-Lived Assets*





The
      Trust
      evaluates intangible assets and long-lived assets, such as plant and equipment,
      when events or changes in circumstances indicate that the carrying value of
      such
      assets may not be recoverable. The determination of whether impairment has
      occurred is made by comparing the carrying value of an asset to the estimated
      undiscounted cash flows attributable to that asset. If impairment has occurred,
      the impairment loss recognized is the amount by which the carrying value exceeds
      the estimated fair value of the asset, which is based on the estimated future
      cash flows discounted at the estimated cost of capital. The analysis requires
      estimates of the amount and timing of projected cash flows and, where
      applicable, judgments associated with, among other factors, the appropriate
      discount rate. Such estimates are critical in determining whether any impairment
      charge should be recorded and the amount of such charge if an impairment loss
      is
      deemed to be necessary.




*Gas Contracts*





In
        August
        2001, subsidiaries of the Trust entered into agreements to purchase natural
        gas,
        at fixed prices, over a five-year term in connection with entering into
        amendments fixing the sales price of electric power sales contracts for a
        similar term. These contracts were entered into in order to minimize the
        impact
        of fluctuating energy prices. The Trust has determined that these contracts
        are
        derivatives as defined under SFAS No. 133, "Accounting for Derivative
        Instruments and Hedging Activities", as amended. The Trust has designated
        these
        derivatives as non-hedge instruments. Accordingly, the value of the contracts
        based on the differences between contract prices and market value prices
        is
        recognized as an asset or a liability in the balance sheet. Changes in the
        carrying value of the contracts are reflected as a component of cost of revenues
        in the consolidated statements of operations.
 13
  *Management
        Fee*





The
      Trust
      is charged management fees from its Managing Shareholder. Unpaid management
      fees
      accrue interest at 10% per annum. The Managing Shareholder has periodically
      waived its right to receive a portion of the fees and related interest. Any
      waived management fees and interest are deemed capital contributions at the
      time
      of waiver.





*Income
      Taxes*





No
      provision is made for income taxes in the Trust’s consolidated financial
      statements as the income or losses of the Trust are passed through and included
      in the income tax returns of the individual shareholders of the
      Trust.





**Results
      of Operations and Changes in Financial Condition**





*Year
      ended December 31, 2005 compared to the year ended December 31,
      2004*





Revenues
      decreased approximately $1.4 million, or 24.8%, from $5.6 million in 2004 to
      $4.2 million in 2005. This decrease was primarily due to a decrease in
      revenues of $1.2 million from the Norcal projects and $0.2 million from two
      cogeneration facilities which were shut down in 2005 due to the expiration
      of
      their contracts.





Cost
      of
      revenues decreased by $1.6 million, or 37%, from $4.3 million in 2004 to $2.7
      million in 2005 primarily due to lower cost of revenues at the Norcals
      resulting from the derivative accounting for its gas contract as natural gas
      prices increased during the year, partially offset by higher maintenance
      expenses of $0.2 million and other related productions cost increases of $0.2
      million.





Gross
      profit increased by $0.2 million, or 15.3%, from $1.3 million in 2004 to $1.5
      million in 2005. This increase was primarily due to derivative accounting for
      its gas contracts as natural gas prices increased during the year.





General
      and administrative expenses increased by $85,000 from $0.2 million in 2004
      to
      $0.3 million in 2005. The increase was primarily attributable to an
      increase of $0.1 million in accounting fees during 2005.





In
      2005,
      the Trust recorded an impairment of $0.6 million related to its remaining
      co-generation projects purchased from EUA.  In 2004, the Trust
      recorded an impairment of $0.1 million related to its mobile power modules.
      The
      Trust records impairment of plant and equipment when events or changes in
      circumstances indicate that the carrying value of such assets may not be
      recoverable.





In
      2005,
      the Trust recorded equity income of $1 million from its investment in Ridgewood
      Providence compared to $1.2 million in 2004. The decrease in equity income
      of approximately $0.2 million was primarily due to lower revenue at Ridgewood
      Providence from less production in 2005.




Total
      assets at December 31, 2005 decreased by $0.8 million, from $14.5 million at
      December 31, 2004 to $13.7 million at December 31, 2005, primarily due to
      decreases of $1 million in plant and equipment and $0.4 million in
      investments.  The decrease in plant and equipment was due to the
      impairment of the remaining EUA projects of $0.6 million and depreciation
      of $0.4 million.  The decrease in investments was due to distributions
      from investments of $1.5 million, which exceeded equity in income of investments
      by approximately $0.4 million.  Total liabilities decreased $0.2
      million from $0.3 million at December 31, 2004 to $0.1 million at December
      31,
      2005, primarily due to decreases of $79,000 in due to affiliates and $0.1
      million in accounts payable and accrued expenses.





*Year
      ended December 31, 2004 compared to the year ended December 31,
      2003*


Revenues
      decreased $0.3 million, or 5.3%, to $5.6 million in 2004 compared to $5.9
      million in 2003. This decrease was primarily due to a decrease of $0.6 million
      in cogeneration revenues as a result of shutting down various cogeneration
      facilities, as well as decreases of $0.1 million in San Joaquin Project revenues
      and $22,000 in Byron Project revenues.





Cost
      of
      revenues for 2004 was $4.3 million as compared to $3.7 million for 2003, an
      increase of $0.6 million, or 14.8%. The increase was primarily due to the change
      in natural gas prices partially offset by an increase in cogeneration production
      costs.





Gross
      profit decreased by $0.9 million to $1.3 million in 2004 as compared to $2.2
      million in 2003. The decrease was due primarily to the decrease in revenue
      from
      2003 to 2004.  14




Other
      income for the year ended December 31, 2003 includes $0.2 million of proceeds
      from the sale of equipment from cogeneration projects that were previously
      written down to zero.





In
      2004,
      the Trust recorded equity income of $1.2 million from its investment in
      Ridgewood Providence compared to $0.6 million in 2003. The increase was
      primarily due to higher renewable attribute revenues for 2004 as compared to
      2003.





Total
      assets decreased approximately $0.4 million from $14.9 million at December
      31,
      2003 to $14.5 million at December 31, 2004. This decrease was primarily due
      to
      decreases of $0.5 million in assets held for sale related to the mobile power
      modules and $0.1 million in due from affiliates, partially offset by an increase
      of $1 million in gas forward contracts. Total liabilities decreased $68,000
      from
      $0.4 million at December 31, 2003 to $0.3 million at December 31, 2004,
      primarily due to a decrease of $55,000 in accounts payable and accrued
      expenses.




*Nine
      months ended September 30, 2005 compared to the nine months ended September
      30,
      2004*





Revenues
      decreased $0.2 million, or 4.7%, from $4.3 million for the nine months ended
      September 30, 2004 to $4.1 million for the same period in 2005. This decrease
      was primarily due to a decrease of $0.2 million in cogeneration
      revenues.





Cost
      of
      revenues for the nine months ended September 30, 2005 was $1.6 million as
      compared to $2.3 million for the same period in 2004, a decrease of $0.7
      million, or 29.6%. This decrease was primarily due to a decrease of $0.3 million
      in cogeneration facilities expenses, $0.1 million reduction in maintenance
      expense and a decrease of $0.1 million in fuel expense at the San Joaquin
      facility for the first nine months of 2005.





Gross
      profit increased approximately $0.4 million to $2.4 million for the nine months
      ended September 30, 2005 as compared to $2 million for the same period in
      2004.  This increase was due to decreased cogeneration facilities
      expenses, maintenance costs and fuel expenses.





Total
      assets at September 30, 2005 were $16.1 million, an increase of $1.6 million
      from the December 31, 2004 balance of $14.5 million. This increase was primarily
      due to the increase of $1.7 million in gas forward contracts arising from
      increased prices of natural gas, $0.4 million in investments, $0.3 million
      in
      accounts receivable, partially offset by a decrease of $0.3 million in plant
      and
      equipment due to annual depreciation of the assets. Total liabilities increased
      approximately $0.3 million from $0.3 million at December 31, 2004 to $0.6
      million at September 30, 2005 primarily due to increases of $0.1 million in
      due
      to affiliates and $0.1 million in accounts payable and accrued
      expenses.




*Nine
      months ended September 30, 2004 compared to the nine months ended September
      30,
      2003*





Revenues
      decreased approximately $0.5
      million, or 11.9%, from $4.8 million for the nine months ended September 30,
      2003 as compared to $4.3 million for the nine months ended September 30, 2004.
      This decrease was primarily due to a decrease of $0.9 million in cogeneration
      facilities revenues in the first nine months of 2004.





Cost
      of revenues for the nine months
      ended September 30, 2004 was $2.3 million as compared to $2.8 million for the
      same period in 2003.  The decrease of $0.5 million was primarily due
      to a decrease in cost of revenues at the Byron facility of $0.3 million,
      increased natural gas prices, the impact of which reduced cost of revenues
      by
      $0.4 million, and a decrease in cogeneration facilities expense of $0.3 million
      in 2004.





Gross
      profit decreased by $0.1 million from $2.1 million for the nine months ended
      September 30, 2003 as compared to $2 million for the same period in 2004. This
      decrease was primarily due to reduced cogeneration revenues in the 2004 period
      as compared to the 2003 period.




For
      the
      nine months ended September 30, 2004, the Trust recorded equity income of $0.9
      million from its investment in Ridgewood Providence as compared to $0.4 million
      in the 2003 period. The increase in equity income of $0.5 million was
      primarily due to higher renewable attribute revenues at Ridgewood
      Providence.





For
      the
      nine months ended September 30, 2003, the Trust recorded $0.2 million of other
      operating income resulting from the sale of cogeneration equipment that was
      previously written down to zero.





Total
      assets at September 30, 2004 were $15.6 million, an increase of approximately
      $0.7 million from the December 31, 2003 balance of $14.9 million. This increase
      was primarily due to increases of $1.7 million in gas forward contracts due
      to
      increased natural gas prices and $0.2 million in accounts receivable partially
      offset by decreases of $0.2 million in due from affiliates, $0.3 million in
      plant and equipment and $0.3 million in investments. Total liabilities decreased
      $57,000 from $0.4 million at December 31, 2003 to $0.3 million at September
      30,
      2004.




15




*Three
      months ended September 30, 2005 compared to the three months ended September
      30,
      2004*





Revenues
      decreased $41,000, or 2.3%, to $1.8 million in the third quarter of 2005 as
      compared to $1.8 million for the third quarter of 2004. This decrease was
      primarily due to a decrease of $66,000 in cogeneration facilities
      revenue.





Cost
      of
      revenues for the third quarter of 2005 was a credit of $0.5 million, a decrease
      of approximately $1.5 million as compared to $1 million in the third quarter
      of
      2004. The decrease was primarily due to a greater increase in natural gas
      prices in the third quarter of 2005 compared to the increase in the third
      quarter of 2004.





Gross
      profit increased approximately $1.4 million to $2.2 million for the three months
      ended September 30, 2005 as compared to $.0.8 million for the same period in
      2004.  This increase was due to increased natural gas prices in
      2005.





General
      and administrative expenses increased $36,000 to $47,000 in the third quarter
      of
      2005 as compared to $11,000 in the same period in 2004, primarily attributable
      to an increase in accounting fees.





For
      the
      three months ended September 30, 2005, the Trust recorded a decrease of $0.1
      million in equity income from $0.3 million from its investment in Ridgewood
      Providence as compared to $0.4 million for the three months ended September
      30,
      2004. The decrease in the equity in income was primarily due to decreased
      revenues and increased general and administrative expenses in the 2005 period
      as
      compared to the 2004 period.





*Three
      months ended September 30, 2004 compared to the three months ended September
      30,
      2003*





Revenues
      decreased $0.3 million, or
      16.2%, to $1.8 million in the third quarter of 2004 as compared to $2.1 million
      for the same quarter in 2003.  This decrease was primarily due to a
      decrease in cogeneration revenues.





Cost
      of
      revenues for the 2004 period was $1 million as compared to $2.3 million for
      the
      2003 period, a decrease of $1.3 million, or 57.1%. The decrease was primarily
      due to increased natural gas prices in the third quarter of 2004.





Gross
      profit increased by $0.9 million from a loss of $0.1 million for the three
      months ended September 30, 2003 as compared to profit of $0.8 million for the
      same period in 2004. This increase was primarily due to increased natural gas
      prices in 2004.





During
      the third quarter of 2003, the Trust recorded $88,000 of impairment of equipment
      related to the mobile power modules.





For
      the
      three months ended September 30, 2004, the Trust recorded equity income of
      $0.4
      million from its investment in Ridgewood Providence as compared to $0.1 million
      in the 2003 period. The increase in the equity income of $0.3 million was
      primarily due to the higher renewable attribute revenues at Ridgewood
      Providence.





*Six
      months ended June 30, 2005 compared to the six months ended June 30,
      2004*





Revenues
      decreased $0.2 million, or 6.5%, from $2.5 million for the six months ended
      June
      30, 2004 as compared to $2.3 million for the six months ended June 30, 2005.
      The
      decrease was primarily due to shutting down two cogeneration facilities as a
      result of the expiration of their sales contracts.





Cost
      of
      revenues increased approximately $0.8 million, or 54.8%, from $1.3 million
      for
      the six months ended June 30, 2004 as compared to $2.1 million for the six
      months ended June 30, 2005. The increase was primarily due to the rate of
increase
      in natural gas prices slowing in 2005. 
 Gross
        profit decreased by $0.9 million from $1.1 million for the six months ended
        June
        30, 2004 as compared to $0.2 million for the same period in 2005. This decrease
        was primarily due to increased cost of revenues arising from the rate of
        increase in natural gas prices slowing in 2005 compared to 2004.
 
 Total
        assets at June 30, 2005 were $14.4 million, a decrease of $0.1 million from
        the
        December 31, 2004 balance of $14.5 million. Total liabilities increased $0.5
        million from $0.3 million at December 31, 2004 to $0.8 million at June 30,
        2005.
        This increase was primarily the result of increases of $0.5 million in due
        to
        affiliates and $68,000 in accounts payable and accrued
        expenses.


16




*Six
      months ended June 30, 2004 compared to the six months ended June 30,
      2003*





Revenues
      decreased $0.2 million, or
      8.4%, to $2.5 million for the six months ended June 30, 2004 compared to $2.7
      million for the first six months of 2003. This decrease was primarily due to
      a
      decrease in cogeneration facilities revenues of $0.6 million in the first six
      months of 2004 as compared to the six months ended June 30, 2003.





Cost
      of
      revenues increased approximately $0.8 million to $1.3 million for the six months
      ended June 30, 2004 from $0.5 million for the same period in 2003. The increase
      was primarily due to higher natural gas prices.





Gross
      profit decreased by $1.1 million from $2.2 million for the six months ended
      June
      30, 2003 as compared to $1.1 million for the same period in 2004. This decrease
      was primarily due to decreased cogeneration facilities revenues of $0.6 million
      in 2004 and higher natural gas prices in 2004.





In
      the
      first half of 2004, the Trust recorded equity income of $0.5 million from its
      investment in Ridgewood Providence as compared to $0.3 million in the 2003
      period. The increase in equity income of $0.2 million was primarily due to
      the
      higher renewable attribute revenues at Ridgewood Providence in 2004 as compared
      to 2003.





Total
      assets at June 30, 2004 were $15.8 million, an increase of $0.9 million from
      the
      December 31, 2003 balance of $14.9 million. The increase was caused by increases
      in cash and cash equivalents of $0.4 million, $0.3 million in accounts
      receivable, $1.3 million increase in gas forward contracts due to increased
      natural gas prices and $0.5 million in investments, partially offset by
      decreases of $0.6 million in due from affiliates, $0.2 million in plant and
      equipment, and $0.5 million in assets held for sale. Total liabilities increased
      $0.4 million from $0.4 million at December 31, 2003 to $0.8 million at June
      30,
      2004, primarily due to an increase in due to affiliates of $0.5 million,
      partially offset by a decrease in accounts payable and accrued expenses of
      $14,000.





*Three
      months ended June 30, 2005 compared to the three months ended June 30,
      2004*





Revenues
      remained flat at $1.4 million for both the 2005 and 2004 periods.





Cost
      of
      revenues for the quarter ended June 30, 2005 increased approximately $0.7
      million to $1.6 million from $0.9 million in the 2004 period. The increase
      was
      primarily due to a temporary decline in natural gas prices during the 2005
      quarter.





Gross
      profit decreased by $0.7 million from $0.5 million for the six months ended
      June
      30, 2004 as compared to a loss of $0.2 million for the same period in 2005.
      This
      decrease was primarily due to increased cost of revenues arising from the rate
      of increase in natural gas prices slowing in 2005 as compared to
      2004.





*Three
      months ended June 30, 2004 compared to the three months ended June 30,
      2003*





Revenues
      decreased approximately $0.3
      million, or 20.8%, to $1.4 million in the second quarter of 2004 as compared
      to
      $1.7 million in the second quarter of 2003. This decrease was primarily due
      to
      the decrease in cogeneration facilities revenues.





Cost
      of
      revenues for the three months ended June 30, 2004 was $0.9 million compared
      to
      $0.3 million for the same period in 2003.  The increase of $0.6
      million was primarily due to the effect of the change in the market price of
      natural gas.





Gross
      profit decreased by $1.0 million from $1.4 million for the six months ended
      June
      30, 2003 as compared to approximately $0.4 million for the same period in 2004.
      This decrease was primarily due to a decrease in revenue of $0.4 million and
      by
      the effect of change in the market price of natural gas.


*Three
      months ended March 31, 2005 compared to the three months ended March 31,
      2004*





Revenues
      in the first quarter of 2005 of $1 million decreased by $0.1 million, or 12.1%,
      from revenues of $1.1 million in the first quarter of 2004.  This
      decrease was primarily due to a decrease in cogeneration facilities
      revenues.





Gross
      profit decreased by $0.2 million from $0.7 million for the three months ended
      March 31, 2004 as compared to $0.5 million for the same period in 2005. This
      decrease was primarily due to decreased cogeneration revenue and increased
      cost
      of revenues caused in turn by the rate of increase in natural gas prices slowing
      in 2005 as compared to 2004.




17




For
      the
      first quarter of 2005, the Trust recorded equity income of $343,000 from its
      investment in Ridgewood Providence as compared to $281,000 for the same period
      in 2004, an increase of $62,000, primarily due to a decrease of cost of revenues
      for Ridgewood Providence.





Total
      assets at March 31, 2005 were $14.8 million, an increase of approximately $0.3
      million from the December 31, 2004 balance of $14.5 million. Total liabilities
      increased $0.4 million from $0.3 million at December 31, 2004 to $0.7 million
      at
      March 31, 2005. This increase in total liabilities was primarily due to
      increases of $0.2 million in due to affiliates and $0.2 million in accounts
      payable and accrued expense.





*Three
      months ended March 31, 2004 compared to the three months ended March 31,
      2003*





Revenues
      increased $0.1 million, or 13.9%, to $1.1 million in the first quarter of 2004
      as compared to $1 million in the first quarter of 2003. The increase was
      primarily due to an increase of $0.3 million in Norcal revenue partially offset
      by a $0.2 million decrease in cogeneration facilities revenues.





Cost
      of
      revenues for the three months ended March 31, 2004 was $0.4 million as compared
      to $0.2 million for the same period in 2003. The increase of approximately
      $0.2
      million was primarily due to the effect of the change in the market price of
      natural gas.





Gross
      profit decreased by $0.1 million from $0.8 million for the three months ended
      March 31, 2003 as compared to $0.7 million for the same period in 2004. This
      decrease was primarily due to the decreased cost of revenues partially offset
      by
      an increase in revenues.





Total
      assets at March 31, 2004 were $15.2 million, an increase of $0.3 million from
      the December 31, 2003 balance of $14.9 million. This increase was primarily
      due
      to increases of $0.8 million in gas forward contracts due to increases in
      the price of natural gas and $0.3 million in investments, partially offset
      by a
      decrease in due from affiliates of $0.6 million. Total liabilities remained
      flat
      at $0.4 million at March 31, 2004 and December 31, 2003.





**Liquidity
      and Capital Resources**





*Year
      ended December 31, 2005 compared to the year ended December 31,
      2004*





At
      December 31, 2005, the Trust had cash and cash equivalents of $0.3 million,
      an
      increase of $0.2 million from December 31, 2004. The cash flows for 2005
      consisted of $2.1 million provided by operating activities and $1.9 million
      used
      in financing activities.





In
      2005,
      the Trust’s operating activities provided cash of $2.1 million as compared to
      $1.9 million in 2004, an increase of $0.2 million, primarily due to increased
      cash flows from ongoing operations.





In
      2005,
      investing activities provided $31,000 from collection from a note
      receivable.  In 2004, cash provided by investing activities was $0.4
      million, which is the net of proceeds of $0.4 million related to the sale of
      it
      mobile power modules, capital expenditures of $34,000 and collections from
      a
      note receivable of $45,000.





In
      2005,
      the Trust used $1.9 million in financing activities as compared to $2.2 million
      in 2004, both of which were cash distributions to shareholders.





*Year
      ended December 31, 2004 compared to the year ended December 31,
      2003*





At
      December 31, 2004, the Trust had cash and cash equivalents of $0.1 million,
      an
      increase of $74,000 from December 31, 2003. The cash flows for the year 2004
      consisted of $1.9 million provided by operating activities, $0.4 million provided
      by investing activities and $2.2 million used in financing
      activities.





In
      2004,
      the Trust’s operating activities provided cash of $1.9 million as compared to
      $0.5 million in 2003, an increase of approximately $1.4 million primarily due
      to
      a decrease in amounts used to pay down accounts payable of $0.6 million and
      due
      to affiliates of $0.9 million.





In
      2004,
      investing activities provided cash of $0.4 million compared to $0.3 million
      in
      2003, an increase of approximately $0.1 million. The increase in cash provided
      was primarily due to an increase in proceeds related to the sale of investments
      in 2004 as compared to 2003.





In
      2004,
      the Trust used $2.2 million in financing activities as compared to $1.2
      million in 2003, both of which were distributions to
      shareholders.  18




*Nine
      months ended September 30, 2005 compared to the nine months ended September
      30,
      2004*





At
      September 30, 2005, the Trust had cash and cash equivalents of $0.4 million,
      an
      increase of $0.3 million from December 31, 2004. The cash flows for the first
      nine months of 2005 were $1.8 million provided by operating activities and
      $1.5
      million used in financing activities.





Cash
      provided by operating activities for the nine months ended September 30, 2005
      was $1.8 million as compared to $1.3 million for the nine months ended September
      30, 2004. The increase in cash flow from operating activities in the first
      nine
      months of 2005 as compared to the same period in 2004 was primarily due to
      an
      increase of $0.7 million in net due to from affiliates.





Cash
      used
      in financing activities was $1.5 million for both the 2005 and 2004 periods,
      which was comprised of cash distributions to shareholders.





*Nine
      months ended September 30, 2004 compared to the nine months ended September
      30,
      2003*





At
      September 30, 2004, the Trust had cash and cash equivalents of $0.3 million,
      an
      increase of $0.3 million from December 31, 2003. The cash flows for the first
      nine months of 2004 were $1.3 million provided by operating activities, $0.4
      million used in investing activities and $1.5 million used in financing
      activities.





Cash
      provided by operating activities for the nine months ended September 30, 2004
      was $1.3 million as compared to $0.5 million for the nine months ended September
      30, 2003. The increase in cash flow was primarily due to a decrease in cash
      used
      to pay accounts payable of $0.6 million.





Cash
      provided by investing activities was $0.4 million during the first nine months
      of 2004 as compared to $0.2 million in the first nine months of
      2003.  The increase of approximately $0.2 million is primarily due to
      increased proceeds from sale of equipment.





Cash
      used
      in financing activities for the first nine months of 2004 was $1.5 million
      compared to $0.8 million for the first nine months of 2003. The increase in
      cash
      used in financing activities was due to increased distributions to
      shareholders.




*Six
      months ended June 30, 2005 compared to the six months ended June 30,
      2004*





At
      June
      30, 2005, the Trust had cash and cash equivalents of $0.3 million, an increase
      of approximately $0.2 million from December 31, 2004. The increase was the
      result of $1.2 million provided by operating activities and $1.1 million used
      in
      financing activities.





Cash
      provided by operating activities for the six months ended June 30, 2005 was
      $1.2
      million as compared to $0.8 million for the six months ended June 30, 2004.
      The
      increase in cash flow was primarily due to distributions from investments of
      $0.4 million in the six months ended June 30, 2005.





Cash
      used
      in financing activities for the first half of 2005 was $1.1 million as compared
      to $0.8 million for the first half of 2004, both of which were due to
      distributions to shareholders.





*Six
      months ended June 30, 2004 compared to the six months ended June 30,
      2003*





At
      June
      30, 2004, the Trust had cash and cash equivalents of $0.4 million, an increase
      of $0.4 million from December
      31, 2003. The increase was the result of $0.8 million provided by operating
      activities, $0.4 million provided by investing activities and $0.8 million
      used
      in financing activities. 
 Cash
        provided by operating activities for the six months ended June 30, 2004 was
        $0.8
        million as compared to cash used of $0.5 million for the six months ended
        June
        30, 2003. The increase in cash provided by operating activities was
        primarily due to an increase in due to from affiliates of $1 million and a
        decrease of $0.5 million in cash used to pay accounts payable.
 
 Cash
        provided by investing activities was $0.4 million during the first six months
        of
        2004 as compared to $0.1 million in the first six months of 2003. The increase
        in cash was primarily due to the disposal of the mobile power units in
        2004.


19




Cash
      used
      in financing activities for the first half of 2004 was $0.8 million as compared
      to $0.4 million in the first half of 2003, both of which were distributions
      to
      shareholders.





*Three
      months ended March 31, 2005 compared to the three months ended March 31,
      2004*





At
      March
      31, 2005, the Trust had cash and cash equivalents of $1,000, a decrease of
      $0.1
      million from December 31, 2004. The decrease was primarily the result of $0.6
      million provided by operating activities and $0.7 million used in financing
      activities.





Cash
      provided by operating activities for the three months ended March 31, 2005
      was
      $0.6 million as compared to cash provided of $0.4 million for the three months
      ended March 31, 2004. The increase in cash flow in the 2005 period compared
      to
      2004 period was primarily due to an increase in accounts payable.





Cash
      used
      in financing activities for the first quarter of 2005 was $0.7 million compared
      to $0.4 million in the first quarter of 2004. In the first quarter of each
      of
      2005 and 2004, cash used in financing activities represents cash distributions
      to shareholders.





*Three
      months ended March 31, 2004 compared to three months ended March 31,
      2003*





At
      March
      31, 2004, the Trust had cash and cash equivalents of $63,000, an increase of
      $17,000 from December 31, 2003. The increase was the result of $0.4 million
      provided by operating activities, $15,000 provided by investing activities
      and
      $0.4 million used in financing activities.





Cash
      provided by operating activities for the three months ended March 31, 2004 was
      $0.4 million compared to cash used of $0.3 million for the three months ended
      March 31, 2003. The increase of $0.7 million in cash flows from operating
      activities was primarily the result of increases in due to affiliates and
      accounts payable.





Cash
      used
      in financing activities for the first quarter of 2004 was $0.4 million compared
      to none in the first quarter of 2003. In the first quarter of 2004, cash used
      in
      financing activities represents cash distributions to shareholders.





**Off-Balance
      Sheet Arrangements**





In
      connection with the gas supply
      contracts at the Norcals, the Trust has issued two standby letters of credit
      totaling $350,000 at December 31, 2005. These letters of credit expired in
      August 2006.





**Contractual
      Obligations and Commitments**





At
      December 31, 2005, the Trust’s contractual obligations are as
      follows:




Payments
                  due by periodContractual
                  obligations
              
              Total
              
              
              Less
                  than 1 year
              
              
              2
                  -
                  3 years
              
              
              4
                  -
                  5 years
              
              
              More
                  than 5 yearsGround
                  operating leases
              
              $
              2,655
              
              
              $
              173
              
              
              $
              346
              
              
              $
              346
              
              
              $
              1,790Gas
                  forward contracts, net
              
              
              837
              
              
              
              837
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              $
              3,492
              
              
              $
              1,010
              
              
              $
              346
              
              
              $
              346
              
              
              $
              1,790




The
      gas
      forward contracts require the Norcals to purchase minimum quantities of natural
      gas through August 2006. Amounts reflected above are net of agreements to resell
      the purchased gas back to the Norcals’ supplier.


20




**Recent
      Accounting Pronouncements**





*SFAS
      143 and FIN 47*





In
      June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      143, *Accounting for Asset Retirement Obligations*, on the accounting for
      obligations associated with the retirement of long-lived assets. SFAS No. 143
      requires a liability to be recognized in the consolidated financial statements
      for retirement obligations meeting specific criteria. Measurement of the initial
      obligation is to approximate fair value, with an equivalent amount recorded
      as
      an increase in the value of the capitalized asset. The asset will be depreciated
      in accordance with normal depreciation policy and the liability will be
      increased for the time value of money, with a charge to the income statement,
      until the obligation is settled. SFAS No. 143 is effective for fiscal years
      beginning after June 15, 2002. Furthermore, in March 2005, the FASB issued
      FASB Interpretation No. 47 (“FIN 47”), *Accounting for Conditional Asset
      Retirement Obligations, an interpretation of FASB Statement No. 143*,
      which clarifies the term “conditional asset retirement obligation” as used in
      SFAS No. 143. Specifically, FIN 47 provides that an asset retirement
      obligation is conditional when the timing and/or method of settling the
      obligation is conditioned on a future event. Accordingly, an entity is required
      to recognize a liability for the fair value of a conditional asset retirement
      obligation if the fair value of the liability can be reasonably estimated.
      Uncertainty about the timing and/or method of settlement of a conditional asset
      retirement obligation should be factored into the measurement of the liability
      when sufficient information exists. This interpretation also clarifies when
      an
      entity would have sufficient information to reasonably estimate the fair value
      of an asset retirement obligation. FIN 47 is effective for fiscal years ending
      after December 15, 2005. The Trust adopted SFAS No. 143 effective January
      1, 2003, with no material impact on its consolidated financial
      statements.





*SFAS
      145*





In
      April
      2002, the FASB issued SFAS No. 145, *Rescission of FASB Statements
      No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
      Corrections*. SFAS No. 145 eliminates extraordinary accounting
      treatment for reporting gain or loss on debt extinguishment, and amends other
      existing authoritative pronouncements to make various technical corrections,
      clarify meanings, or describe their applicability under changed conditions.
      SFAS
      No. 145 is effective for interim periods beginning after May 15, 2002. The
      Trust
      adopted SFAS No. 145 effective January 1, 2003, with no material impact on
      its
      consolidated financial statements.





*SFAS
      146*





In
      June
      2002, the FASB issued SFAS No. 146, *Accounting for Costs Associated
      with Exit or Disposal Activities*. SFAS No. 146 requires recording
      costs associated with exit or disposal activities at their fair values when
      a
      liability has been incurred. SFAS No. 146 is effective for fiscal years ending
      after December 31, 2002. The Trust adopted SFAS No. 146 effective January 1,
      2003, with no material impact on its consolidated financial
      statements.





*FIN
      45*





In
      November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
*Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
      Indirect Guarantees and Indebtedness of Others*. FIN 45 elaborates on the
      disclosures to be made by the guarantor in its interim and annual financial
      statements about its obligations under certain guarantees that it has issued.
      It
      also requires that a guarantor recognize, at the inception of a guarantee,
      under
      certain circumstances a liability for the fair value of the obligation
      undertaken in issuing the guarantee. The initial recognition and measurement
      provisions of this interpretation are applicable on a prospective basis to
      guarantees issued or modified after December
      31, 2002; while the provisions of the disclosure requirements are effective
      for
      financial statements of interim or annual reports ending after December 15,
      2002. The Trust adopted FIN 45 during the fourth quarter of 2002 with no
      material impact to the consolidated financial statements.


*FIN
        46R*
 
 In
        January 2003, the FASB issued FASB Interpretation No. 46, *Consolidation of
        Variable Interest Entities* ("FIN 46") which changes the criteria by which
        one company includes another entity in its consolidated financial statements.
        FIN 46 requires a variable interest entity to be consolidated by a company
        if
        that company is subject to a majority of the risk of loss from the variable
        interest entity's activities or entitled to receive a majority of the entity's
        residual returns or both. The consolidation requirements of FIN 46 apply
        immediately to variable interest entities created after December 31, 2003,
        and
        apply in the first fiscal period ending after March 15, 2004, for variable
        interest entities created prior to January 1, 2004. The Trust adopted the
        disclosure provisions of FIN 46 effective December 31, 2003, with no material
        impact to the consolidated financial statements. In December 2003, the FASB
        issued a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions and to
        exempt certain entities from its requirements. The Trust implemented the
        full
        provisions of FIN 46R effective January 1, 2004, with no material impact
        on its
        consolidated financial statements.


21




*SFAS
      149*





In
      April
      2003, the FASB issued SFAS No. 149, *Amendment of Statement 133 on Derivative
      Instruments and Hedging Activities*. SFAS No. 149 amends and clarifies the
      accounting for derivative instruments, including certain derivative instruments
      embedded in other contracts, and for hedging activities under SFAS No. 133,
      "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
      is
      generally effective for contracts entered into or modified after June 30, 2003
      and for hedging relationships designated after June 30, 2003. The Trust adopted
      SFAS No. 149 effective July 1, 2003, with no material impact on its consolidated
      financial statements.





*SFAS
      150*





In
      May
      2003, the FASB issued SFAS No. 150, *Accounting for Certain Financial
      Instruments with Characteristics of both Liabilities and Equity*. SFAS
      No. 150 establishes standards for classifying and measuring certain
      financial instruments with characteristics of both liabilities and equity.
      SFAS
      No. 150 is effective for interim periods beginning after June 15, 2003. The
      Trust adopted SFAS No. 150 effective July 1, 2003, with no material impact
      on
      its consolidated financial statements.





*SFAS
      153*





In
      December 2004, the FASB issued SFAS No. 153, *Exchanges of Nonmonetary
      Assets—an amendment of APB Opinion No. 29.*The guidance in APB Opinion No.
      29, *Accounting for Nonmonetary Transactions*(“Opinion 29”)*,* is
      based on the principle that exchanges of nonmonetary assets should be measured
      based on the fair value of the assets exchanged. The guidance in Opinion 29,
      however, included certain exceptions to that principle. This Statement amends
      Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      nonmonetary assets that do not have commercial substance. A nonmonetary exchange
      has commercial substance if the future cash flows of the entity are expected
      to
      change significantly as a result of the exchange. The Trust adopted SFAS No.
      153
      effective June 15, 2005, with no material impact on its consolidated financial
      statements.





*SFAS
      154*





In
      May
      2005, the FASB issued SFAS No. 154, *Accounting Changes and Error
      Corrections*. SFAS No. 154 replaces APB Opinion No. 20, *Accounting
      Changes*, and SFAS No. 3, *Reporting Accounting Changes in Interim
      Financial Statements*. This statement changes the requirements for the
      accounting for, and reporting of, a change in accounting principle and applies
      to all voluntary changes in accounting principle, as well as changes pursuant
      to
      accounting pronouncements that do not include transition rules. Under SFAS
      No.
      154, changes in accounting principle must be applied retrospectively to prior
      periods’ financial statements, or the earliest practicable date, as the required
      method for reporting a change in accounting principle. The Trust adopted SFAS
      No. 154 effective December 15, 2005, and accordingly restated the consolidated
      financial statements, as described in Note 2 to the consolidated financial
      statements.





**ITEM
      7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





The
      disclosure required by this Item is omitted pursuant to Item 305(e) of
      Regulation S-K.





**ITEM
      8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA**


The
      consolidated financial statements
      of the Trust, including the notes thereto and the report thereon, are presented
      beginning at page F-1 of this Form 10-K.




**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE**




As
      reported on a Form 8-K filed with the SEC on June 14, 2006, the Managing
      Shareholder of the Trust dismissed Perelson Weiner as the Trust’s independent
      registered public accountants effective June 8, 2006. Perelson Weiner was
      engaged as the independent accountants of the Trust as of January 14, 2004
      after
      the Trust dismissed PricewaterhouseCoopers LLP (“PWC”) as its independent
      accountants, as reported on a Form 8-K filed by the Trust with the SEC on
      January 20, 2004.




For
      the
      period January 14, 2004 through June 8, 2006, there were no
      (1) disagreements with Perelson Weiner on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or
      procedures, which disagreements if not resolved to their satisfaction would
      have
      caused them to make reference to the subject matter of the disagreements in
      their report on the Trust’s financial statements, or (2) “reportable events,” as
      defined in Item 304(a)(1)(v) of Regulation S-K, other than as
      follows:


22




A.
      Disagreements




1.
            The
                Trust did not record the fair value of the thermal energy provided
                to a
                landlord pursuant to contractual arrangements. Perelson Weiner identified
                adjustments that would result in the Trust recording thermal sales
                for the
                thermal energy provided to the landlord for the year ended December
                31,
                2004, which Perelson Weiner estimated to have a market value of $546,642
                for such year, and recording a corresponding rent expense increase
                of the
                same amount. This change would have no impact on the net income of
                the
                Trust for the year ended December 31,
                2004.




2.
            The
                Trust recorded power generation revenue and fuel expense for certain
                pass-through arrangements between two subsidiaries of the Trust and
                the
                steam costs of two projects. Perelson Weiner identified adjustments
                which
                would eliminate the power generation revenue and fuel expense which
                the
                Trust recognized for these projects of $976,823 for the year ended
                December 31, 2004. This change would have no impact on the net income
                of
                the Trust for the year ended December 31,
                2004.




3.
            Perelson
                Weiner has identified an inconsistency relating to the Trust’s allocation
                in the consolidated financial statements of net income (loss) between
                the
                Managing Shareholder and other shareholders of the Trust and the
                terms of
                the Amended Declaration of Trust. This change would have no impact
                on the
                amount or location of cash distributions of the Trust to its
                shareholders.




B.
      Reportable Events




Perelson
      Weiner identified the following material deficiencies in disclosure controls
      and
      procedures, which are reportable events: (i) a lack of automation and
      integration in the Trust’s accounting and financial reporting software, which
      caused the Trust to be unable to timely comply with its financial reporting
      responsibilities, (ii) a lack of sufficient personnel with relevant experience
      to maintain and operate the Trust’s accounting and financial reporting software
      and to develop and administer additional disclosure controls and procedures
      to
      enable the Trust to comply on a timely basis with its financial reporting
      obligations, and (iii) disclosure controls and procedures that were insufficient
      to enable the Trust to meet its financial reporting and disclosure obligations
      in an accurate and timely manner.




See
      Note
      2 to the Trust’s consolidated financial statements appearing elsewhere in this
      Form 10-K for a discussion of restatements to its previously issued financial
      statements.





For
      the
      year ended December 31, 2002 and for the period through January 14, 2004, there
      were no (1) disagreements with PWC on any matter of accounting principles
      or practices, financial statement disclosure, or auditing scope or procedures,
      which disagreements if not resolved to their satisfaction would have caused
      them
      to make reference to the subject matter of the disagreements in their report
      on
      the Trust’s financial statements, or (2) “reportable events,” as defined in Item
      304(a)(1)(v) of Regulation S-K.




As
      reported on a Form 8-K filed on July 13, 2006, the
      Managing Shareholder of the Trust appointed Grant Thornton LLP as the Trust’s
      independent registered public accounting firm effective July 12,
      2006.




23




**ITEM
      9A. CONTROLS AND PROCEDURES**




In
      accordance with Rule 13a-15(b) under the Exchange Act, the Trust’s Chief
      Executive Officer and Chief Financial Officer evaluates the effectiveness of
      the
      Trust’s disclosure controls and procedures. A system of disclosure controls and
      procedures is designed to ensure that information required to be disclosed
      by a
      registrant in reports filed with the Exchange Act are recorded, processed,
      summarized and reported within the time periods specified in the applicable
      rules and forms. This includes disclosure controls and procedures designed
      to
      ensure that information required to be disclosed by a registrant is accumulated
      and communicated to senior management so as to allow timely decisions regarding
      required disclosure. A review of these controls and procedures was done by
      the
      Trust as of December 31, 2003 and for each quarter through September 30, 2004
      and such reviews revealed no material weaknesses in the Trust’s disclosure
      controls and procedures. Additional reviews were conducted as of the end of
      each
      of the periods ended December 31, 2004, March 31, 2005, June 30, 2005, September
      30, 2005 and December 31, 2005. These additional reviews indicated material
      weaknesses, of which the following continue to exist as material
      weaknesses:




(i)
            a
                lack of sufficient personnel with relevant experience to develop,
                administer and monitor disclosure controls and procedures to enable
                the
                Trust to comply efficiently, or on a timely basis, with its financial
                reporting obligations,




(ii)
            inadequate
                disclosure controls and procedures, including inadequate record retention
                and review policies, over both foreign and US operations, that would
                enable the Trust to meet its financial reporting and disclosure
                obligations in an efficient and timely
                manner.




As
      a
      result of these weaknesses, the Trust has not timely met its reporting
      obligations under the Exchange Act. Additionally, upon further examination
      of
      the Trust’s previously issued financial statements, various accounting errors
      were identified. As reported under Item 4.02 of the Form 8-K filed by the Trust
      on October 11, 2007, management of the Trust concluded that the Trust’s
      previously issued financial statements for the periods ended March 31, 2003
      and
      thereafter should no longer be relied upon and should be restated to correct
      for
      identified errors detected by management.




The
      primary cause of the above weaknesses was a lack of sufficiently qualified
      personnel. The Trust has implemented the following to address the above
      weaknesses:




·
            Increased
                the number of degreed accountants. Additional staff expansion is
                underway.




·
            Engaged
                a national accounting firm to evaluate procedures and controls over
                financial reporting. The firm made a report to the Managing Shareholder
                in
                May 2006, which has implemented some of the firm’s recommendations, and is
                in the process of evaluating the remaining
                recommendations.




·
            In
                August 2006, engaged a national accounting firm to supply accounting
                personnel to assist while personnel hiring is underway. The work
                performed
                by the firm is under the direct supervision of the Trust’s Chief Financial
                Officer and Controller.




·
            In
                May 2007, the Trust appointed a new Chief Financial Officer who is
                a
                Certified Public Accountant with approximately 29 years of professional
                accounting experience, including prior experiences as a financial
                officer
                of publicly traded companies.




The
      Trust
      believes that the completion of the expansion of the accounting and financial
      reporting staff and implementation of recommended procedures will mitigate
      the
      above weaknesses. However, due to the Trust’s delinquencies in meeting its
      filing deadlines under the Exchange Act, the Trust expects these deficiencies
      to
      continue to be material weaknesses at least until such time as the Trust is
      no
      longer delinquent in its Exchange Act filings.




The
      Trust
      also concluded as part of the reviews subsequent to September 30, 2004, that
      it
      had material weaknesses regarding system automation and identification of
      material transactions. The Trust also believes that as of December 31, 2005,
      it
      has implemented changes in internal control to address those weaknesses. As
      a
      result of the implemented controls, the Trust no longer considers those items
      to
      be material weaknesses.




The
      Trust’s Chief Executive Officer and Chief Financial Officer have evaluated the
      effectiveness of the Trust’s disclosure controls and procedures as of the end of
      each of the periods covered by this report pursuant to Rule 13a-15(b) under
      the
      Exchange Act and concluded that, as of the end of each of the periods covered
      by
      this report, because of the material weaknesses noted above, the Trust’s
      disclosure controls and procedures were not effective.


24




**ITEM
      9B. OTHER INFORMATION; UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF PROCEEDS; DEFAULTS UPON SENIOR
      SECURITIES**




None.





**PART
      III**




**ITEM10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
      REGISTRANT**




The
      Trust’s Managing Shareholder, Ridgewood Renewable Power, LLC, was originally
      founded in 1991. The Managing Shareholder has very broad authority, including
      the authority to elect executive officers of the Trust.




Each
      of
      the executive officers of the Trust also serves as an executive officer of
      the
      Managing Shareholder. The executive officers of the Trust are as
      follows:




**Name,
                Age and Position with Registrant**
            **Officer
                Since**Randall
                D. Holmes, 60President
                and Chief Executive Officer
            2004Robert
                E. Swanson, 60Chairman
            1997Jeffrey
                H. Strasberg, 50Executive
                Vice President and Chief Financial Officer (1)
            2007Daniel
                V. Gulino, 47Senior
                Vice President, General Counsel and Secretary
            2000Douglas
                R. Wilson, 48Executive
                Vice President and Chief Financial Officer (1)
            2005


(1)
      Mr.
      Strasberg replaced Mr. Wilson as Executive Vice President and Chief Financial
      Officer on May 2, 2007.




Set
      forth
      below is the name of and certain biographical information regarding the
      executive officers of the Trust:




**Randall
      D. Holmes** has served as President and Chief Executive Officer of the
      Trust since January 2006 and served as Chief Operating Officer of the Trust
      from
      January 2004 until January 2006. Mr. Holmes has also served as the President
      and
      Chief Operating Officer of the Managing Shareholder, and affiliated Power Trusts
      and LLCs since January 2004. Prior to such time, Mr. Holmes served as the
      primary outside counsel to and has represented the Managing Shareholder and
      its
      affiliates since 1991. Immediately prior to being appointed Chief Operating
      Officer, Mr. Holmes was counsel to Downs Rachlin Martin PLLC (“DRM”). DRM is one
      of the primary outside counsel to the Trust, the Managing Shareholder and its
      affiliates. He has maintained a minor consulting relationship with DRM in which
      he may act as a paid advisor to DRM on certain matters that are unrelated to
      Ridgewood. Such relationship will not require a significant amount of Mr.
      Holmes’ time and it is expected that such relationship will not adversely affect
      his duties as President and Chief Executive Officer. Mr. Holmes is a graduate
      of
      Texas Tech University and the University of Michigan Law School. He is a member
      of the New York State bar.




**Robert
      E. Swanson** has served as Chairman of the Trust, the Managing
      Shareholder and affiliated Power Trusts and LLCs since their inception. From
      their inception until January 2006, Mr. Swanson also served as their Chief
      Executive Officer. Mr. Swanson is the controlling member of the Managing
      Shareholder, as well as Ridgewood Energy and Ridgewood Capital, affiliates
      of
      the Trust. Mr. Swanson has been President and registered principal of Ridgewood
      Securities since its formation in 1982, has served as the Chairman of the Board
      of Ridgewood Capital since its organization in 1998 and has served as President
      and Chief Executive Officer of Ridgewood Energy since its inception in 1982.
      Mr.
      Swanson is a member of the New York State and New Jersey State Bars, the
      Association of the Bar of the City of New York and the New York State Bar
      Association. He is a graduate of Amherst College and Fordham University Law
      School.




**Jeffrey
      H. Strasberg** has served as Executive Vice President of the Trust, the
      Managing Shareholder, and affiliated Power Trusts and LLCs since May 2007.
      Mr.
      Strasberg also serves as Senior Vice President and Chief Financial Officer
      of
Ridgewood
      Capital and affiliated LLCs and Ridgewood Securities and has done so since
      April
      2005. Mr. Strasberg joined Ridgewood Capital in 1998 where his initial
      responsibilities were to serve as interim Chief Financial Officer of various
      portfolio companies in which Ridgewood Capital Trusts had interests. Mr.
      Strasberg is a Certified Public Accountant and a graduate of the University
      of
      Florida.


25




**Daniel
      V. Gulino** has served as Senior Vice President and General Counsel of
      the Trust, the Managing Shareholder and affiliated Power Trusts and LLCs since
      2000 and was appointed Secretary in February 2007. Mr. Gulino also serves as
      Senior Vice President and General Counsel of Ridgewood Energy, Ridgewood
      Capital, Ridgewood Securities and affiliated Trusts and LLCs and has done so
      since 2000. Mr. Gulino is a member of the New Jersey State and Pennsylvania
      State Bars. He is a graduate of Fairleigh Dickinson University and Rutgers
      University School of Law.




**Douglas
      R. Wilson** served as Executive Vice President and Chief Financial
      Officer of the Trust, the Managing Shareholder and affiliated Power Trusts
      and
      LLCs from April 2005 until May 2007. Mr. Wilson continues to serve the Managing
      Shareholder as Executive Vice President and Chief Development Officer. Mr.
      Wilson has been associated with the Ridgewood group of companies as a consultant
      and advisor since 1996 performing investment evaluation, structuring and
      execution services for the trusts and entities managed by Ridgewood Capital
      LLC.
      From May of 2002, until its sale in 2007, Mr. Wilson has served as a Director,
      CEO and Finance Director for CLPE Holdings. Mr. Wilson is a graduate of the
      University of Texas at Arlington and has an MBA from the Wharton School at
      the
      University of Pennsylvania.





**Board
      of Directors and Board Committees**




The
      Trust
      does not have its own board of directors or any board committees. The Trust
      relies upon the Managing Shareholder to perform the function that a board of
      directors or its committees would otherwise perform. Officers of the Trust
      are
      not directly compensated by the Trust, and all compensation matters are
      addressed by the Managing Shareholder, as described in Item 11. “Executive
      Compensation”. Because the Trust does not maintain a board of directors and
      because officers of the Trust are compensated by the Managing Shareholder,
      the
      Managing Shareholder believes that it is appropriate for the Trust to not have
      a
      nominating or compensation committee.




**Managing
      Shareholder**




The
      Trust’s management agreement with the Managing Shareholder details how the
      Managing Shareholder is to render management, administrative and investment
      advisory services to the Trust (the “Management Agreement”). Specifically, the
      Managing Shareholder performs (or may arrange for the performance of) the
      management and administrative services required for the operation of the Trust.
      Among other services, the Managing Shareholder administers the accounts and
      handles relations with shareholders, provides the Trust with office space,
      equipment and facilities and other services necessary for its operation, and
      conducts the Trust’s relations with custodians, depositories, accountants,
      attorneys, brokers and dealers, corporate fiduciaries, insurers, banks and
      others, as required.




The
      Managing Shareholder is also responsible for making investment and divestment
      decisions, subject to the provisions of the Declaration of Trust. The Managing
      Shareholder is obligated to pay the compensation of the personnel and
      administrative and service expenses necessary to perform the foregoing
      obligations. The Trust pays all other expenses of the Trust, including
      transaction expenses, valuation costs, expenses of preparing and printing
      periodic reports for shareholders and the SEC, postage for Trust mailings,
      SEC
      fees, interest, taxes, legal, accounting and consulting fees, litigation
      expenses and other expenses properly payable by the Trust. The Trust reimburses
      the Managing Shareholder for all such Trust expenses paid by the Managing
      Shareholder.




As
      compensation for the Managing Shareholder’s performance under the Management
      Agreement, the Trust is obligated to pay the Managing Shareholder an annual
      management fee described below in Item 13. “Certain Relationships and Related
      Transactions”.




Each
      investor in the Trust consented to the terms and conditions of the Management
      Agreement by subscribing to acquire Investor Shares in the Trust. The Management
      Agreement is subject to termination at any time on 60 days prior notice by
      a
      majority in interest of the shareholders or the Managing Shareholder. The
      Management Agreement is subject to amendment by the parties upon the approval
      of
      a majority in interest of the investors.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires the Trust’s
      executive officers and directors, and persons who own more than 10% of a
      registered class of the Trust’s equity securities, to file reports of ownership
      and changes in ownership with the SEC. Based on a review of the copies of
      reports furnished or otherwise available
      to the Trust, the Trust believes that the filing requirements were not met
      by
      Randall D. Holmes, Robert E. Swanson, Douglas R. Wilson, Daniel V. Gulino and
      Robert L. Gold during the years ended December 31, 2005, 2004 and 2003 as they
      each failed to timely file Form 3. All such required reports have since been
      filed with the SEC.




26




**Code
      of Ethics**




In
      March
      2004, the Managing Shareholder, for itself and for the Trust and its affiliates
      adopted a Code of Ethics applicable to the principal executive officer,
      principal financial officer, principal accounting officer or controller (or
      any
      persons performing similar functions), of each such entity. A copy of the Code
      of Ethics is filed as Exhibit 14 to this Annual Report on Form
      10-K.




**ITEM
      11. EXECUTIVE COMPENSATION**




The
      executive officers of the Trust do not receive compensation directly from the
      Trust or any of its subsidiaries. They provide managerial services to the
      Trust. The Managing Shareholder, or affiliated management companies, determines
      and pays the compensation of these officers. Each of the executive officers
      of
      the Trust also serves as an executive officer of the Managing Shareholder and
      other trusts managed by the Managing Shareholder and its
      affiliates.




The
      Managing Shareholder is entitled to receive management fees from the Trust
      and
      may determine to use a portion of the proceeds from the management fee to pay
      compensation to executive officers of the Trust. See Item 13. “Certain
      Relationships and Related Transactions” for more information regarding Managing
      Shareholder compensation and payments to affiliated entities.




**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED SECURITY HOLDER MATTERS**




The
      following table sets forth information with respect to the beneficial ownership
      of the Trust’s Investor Shares as of December 31, 2005 (no person owns more than
      5%) by:




·
            each
                executive officer (there are no directors) of the Trust;
                and


·
            all
                of the executive officers of the Trust as a
                group.





Beneficial
      ownership is determined in
      accordance with SEC rules and includes voting or investment power with respect
      to the securities. Except as indicated by footnote, and subject to applicable
      community property laws, the persons named in the table below have sole voting
      and investment power with respect to all Investor Shares shown as beneficially
      owned by them. Percentage of beneficial ownership is based on 391.8444 Investor
      Shares outstanding at December 31, 2005. Other than as set forth below, no
      officer of the Trust owns any shares of the Trust.





**Name
                of beneficial owner**
            **Number**
              **of
                shares (1)**
            **Percent**Ridgewood
                Renewable Power LLC (Managing Shareholder)
              Robert
                E. Swanson,  controlling member
            1
            *Executive
                officers as a group
            1
            *





*           Represents
      less than one percent.





(1)
            Does
                not include a Management Share in the Trust representing the beneficial
                interests and management rights of the Managing Shareholder in its
                capacity as the Managing Shareholder. The management share owned
                by the
                Managing Shareholder is the only issued and outstanding management
                share
                of the Trust. The management rights of the Managing Shareholder are
                described in further detail in Item 1. “Business”. Its beneficial interest
                in cash distributions of the Trust and its allocable share of the
                Trust’s
                net profits and net losses and other items attributable to the Management
                Share are described in further detail below at Item 13. “Certain
                Relationships and Related
                Transactions”.





**ITEM
      13.CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**




Under
      the
      terms of the Trust’s Management Agreement, the Managing Shareholder provides
      certain management, administrative and advisory services, and office space
      to
      the Trust. In return, the Trust is obligated to pay the Managing Shareholder
      an
      annual management fee equal to 2.5% of the Trusts’ prior year net asset value
      which equaled $354,000 $363,000 and $336,000 for the years ended December 31,
      2005, 2004 and 2003, respectively, as compensation for such services. The
      management fee is to be paid in monthly installments and, to the extent that
      the
      Trust does not pay the management fee on a timely basis, the Trust accrues
      interest at an annual rate of 10% on the unpaid balance.


27




For
      the
      years ended December 31, 2005, 2004 and 2003, the Trust accrued interest expense
      of $7,000, $6,000 and $5,000, respectively, on accrued but unpaid management
      fees. The interest accrued was waived by the Managing Shareholder and recorded
      as capital contribution in the period waived.  Additionally, the
      Managing Shareholder waived $72,000 of the 2005 management fee, which was also
      recorded as contributed capital.




Under
        the
        Management Agreement with the Managing Shareholder, Ridgewood Power Management
        (“RPM”), an entity related to the Managing Shareholder through common ownership,
        provides management, purchasing, engineering, planning and administrative
        services to the projects operated by the Fund. RPM charges the projects at
        its
        cost for these services and for the allocable amount of certain overhead
        items.
        Allocations of costs are on the basis of identifiable direct costs or in
        proportion to amounts invested in projects managed by RPM. During the years
        ended December 31, 2005, 2004 and  2003, RPM charged the projects
        approximately $250,000, $248,000 and $270,000, respectively, for overhead
        items
        allocated in proportion to the amount invested in projects managed. In addition,
        RPM charged the Trust projects approximately $3,669,000, $4,690,000 and
        $5,430,000, respectively, for all of the direct operating and non-operating
        expenses incurred during such periods.


The
      shareholders of the Trust other than the Managing Shareholder were allocated
      99%
      of each contribution and the Managing Shareholder was allocated 1% so that
      the
      amount of the contribution allocated offset the amount of the expense initially
      accrued.





Under
      the
      Declaration of Trust, the Managing Shareholder is entitled to receive,
      concurrently with the shareholders of the Trust other than the Managing
      Shareholder, 1% of all distributions from operations made by the Trust in a
      year
      until the shareholders have received distributions in that year equal to 14%
      of
      their equity contribution. Thereafter, the Managing Shareholder is entitled
      to
      receive 20% of the distributions for the remainder of the year. The Managing
      Shareholder is entitled to receive 1% of the proceeds from dispositions of
      Trust
      property until the shareholders other than the Managing Shareholder, have
      received cumulative distributions equal to their original investment (“Payout”).
      After Payout, the Managing Shareholder is entitled to receive 20% of all
      remaining distributions of the Trust. Distributions to the Managing Shareholder
      were $20,000, $22,000 and $12,000 for each of the three years ended December
      31,
      2005, 2004 and 2003, respectively. The Trust has not yet reached
      Payout.





Income
      is
      allocated to the Managing Shareholder until the profits so allocated equal
      distributions to the Managing Shareholder. Thereafter, income is allocated
      among
      the shareholders other than the Managing Shareholder in proportion to their
      ownership of Investor Shares. If the Trust has net losses for a fiscal period,
      the losses are allocated 99% to the shareholders other than the Managing
      Shareholder and 1% to the Managing Shareholder, subject to certain limitations
      as set forth in the Declaration of Trust. Amounts allocated to shareholders
      other than the Managing Shareholder are apportioned among them in proportion
      to
      their capital contributions.





Under
      the
      terms of the Declaration of Trust, if the Adjusted Capital Account (as defined
      in the Declaration of Trust) of a shareholder other than the Managing
      Shareholder would become negative using General Allocations (as defined in
      the
      Declaration of Trust), losses and expenses will be allocated to the Managing
      Shareholder. Should the Managing Shareholder’s Adjusted Capital Account become
      negative and items of income or gain occur, then such items of income or gain
      will be allocated entirely to the Managing Shareholder until such time as the
      Managing Shareholder’s Adjusted Capital Account becomes positive. This mechanism
      does not change the allocation of cash, as discussed above.





On
      June
      26, 2003, the Managing Shareholder entered into a Revolving Credit and Security
      Agreement with Wachovia Bank, National Association. The agreement, as amended,
      allows the Managing Shareholder to obtain loans and letters of credit of up
      to
      $6,000,000 for the benefit of the Trust and trusts that it manages. As part
      of
      the agreement, the Trust agreed to limitations on its ability to incur
      indebtedness, liens and to provide guarantees.





**ITEM
      14.PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**





The
      following table presents fees and services rendered by Grant Thornton LLP,
      the
      Trust’s principal accountant, for the years ended December 31, 2005, 2004 and
      2003 (in thousands).




2005
            
            
            2004
            
            
            2003Audit
                Fees*
            
            $
            167
            
            
            $
            133
            
            
            $
            133Audit-Related
                Fees
            
            
            -
            
            
            
            -
            
            
            
            -Tax
                Fees
            
            
            -
            
            
            
            -
            
            
            
            -All
                Other Fees
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            167
            
            
            $
            133
            
            
            $
            133*
              These fees are being borne by the Managing Shareholder.




The
      above
      table excludes fees for services rendered by Perelson Weiner LLP, the Trust’s
      original principal accountant for the Trust’s 2003 audit. Total fees for
      services rendered by Perelson Weiner LLP for the Trust’s original 2003 audit and
      for 2003 tax services total $35,000 and $38,000, respectively.


28




**Audit
      Committee Pre-Approval Policy**




The
      Managing Shareholder pre-approves on an annual basis all audit and permitted
      non-audit services that may be performed by the Trust’s independent registered
      public accounting firm, including the audit engagement terms and fees, and
      also
      pre-approves any detailed types of audit-related and permitted tax services
      to
      be performed during the year. The Managing Shareholder pre-approves permitted
      non-audit services on an engagement-by-engagement basis.




**PART
      IV**




**ITEM
      15.EXHIBITS AND FINANCIAL STATEMENT
      SCHEDULES**




(a)           **Financial
      Statements**




See
      the
      Index to Financial Statements on page F-1 of this report.





(b)           **Exhibits**





Exhibits
      required by Section 601 of Regulation S-K:





Exhibit
                No.
            
            Description3
            (i)(A)
            
            Certificate
                of Trust of the Registrant (incorporated by reference to the Registrant’s
                Registration Statement filed with the SEC on February 15,
                1994).3
            (i)(B)
            *
            Certificate
                of Amendment to the Certificate of Trust of the Registrant filed
                with
                Delaware Secretary of State on December 18, 2003.3
            (ii)(A)
            
            Declaration
                of Trust of the Registrant (incorporated by reference to the Registrant’s
                Registration Statement filed with the SEC on February 15,
                1994).3
            (ii)(B)
            *
            Declaration
                of Trust of the Registrant (as amended and restated).3
            (ii)(C)
            
            Amendment
                No. 1 to Declaration of Trust of the Registrant (incorporated by
                reference
                to Exhibit A of the Registrant’s Proxy Statement filed with the SEC on
                November 5, 2001, SEC File No. 814-00134)3
            (ii)(D)
            *
            Amendment
                to the Amended Declaration of Trust of the Registrant effective January
                1,
                2005.10.1
            
            #
            Management
                Agreement between the Trust and Managing Shareholder, dated January
                3,
                1994 (incorporated by reference to the Registrant’s Registration Statement
                filed with the SEC on February 15, 1994).10.2
            
            *
            Long-Term
                Energy and Capacity Power Purchase Agreement between Byron Power
                Partners
                and Pacific Gas and Electric Company dated April 1985 (as
                amended).10.3
            
            *
            Long-Term
                Energy and Capacity Power Purchase Agreement between JRW Associates
                L.P.,
                as successor in interest, and Pacific Gas and Electric Company dated
                December 1985 (as amended).10.4
            
            *
            Power
                Purchase Agreement between New England Power Company and Ridgewood
                Providence Power Partners, as successor in interest, dated November
                1987
                (as amended).


29




Exhibit
              No.
            
            Description14
            
            
            Code
                of Ethics, adopted on March 1, 2004 (incorporated by reference to
                the
                Annual Report on Form 10-K filed by The Ridgewood Power Growth Fund
                with
                the SEC on March 1, 2006).21
            
            *
            Subsidiaries
                of the Registrant.31.1
            
            *
            Certification
                of Randall D. Holmes, Chief Executive Officer of the Registrant,
                pursuant
                to Securities Exchange Act Rule 13a-14(a).31.2
            
            *
            Certification
                of Jeffrey H. Strasberg, Chief Financial Officer of the Registrant,
                pursuant to Securities Exchange Act Rule 13a-14(a).32
            
            *
            Certifications
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                The Sarbanes-Oxley Act of 2002, signed by Randall D. Holmes, Chief
                Executive Officer of the Registrant, and Jeffrey H. Strasberg, Chief
                Financial Officer of the Registrant.99.1
            
            *
            Financial
                statements of Ridgewood Providence Power Partners,
                L.P.


_____________________


*
            Filed
                herewith.





#
            A
                management contract or compensatory plan or arrangement required
                to be
                filed as an exhibit pursuant to Item 15(a)(3) of Form
                10-K.








(c)           **Financial
      Statement Schedules**





See
      Financial Statements and accompanying notes included in this
      report. 30


**SIGNATURES**





Pursuant
      to the requirements of the
      Securities Exchange Act of 1934, the registrant has duly caused this report
      to
      be signed on its behalf by the undersigned, thereunto duly
      authorized.




**RIDGEWOOD
                ELECTRIC POWER TRUST III**Date: December
                13,
                2007
            By:
            /s/
              Randall D.
              HolmesRandall
              D. HolmesChief
                Executive Officer(Principal
                Executive Officer)


Pursuant
      to the requirements of the
      Securities Exchange Act of 1934, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





**Signature**
            
            **Capacity**
            **Date**/s/
                Randall D. Holmes
            
            Chief
                Executive Officer
            December
                  13, 2007Randall
                D. Holmes
            
            (Principal
                Executive Officer)/s/
                Jeffrey H. Strasberg
            
            Executive
                Vice President and Chief Financial Officer
            December
                  13, 2007Jeffrey
                H. Strasberg
            
            (Principal
                Financial and Accounting Officer)**RIDGEWOOD
                RENEWABLE POWER LLC**
              (Managing
                Shareholder)
              
              By:
                /s/ Randall D. Holmes
            
            Chief
                  Executive Officer of Managing Shareholder
            December
                  13, 2007Randall
                D. Holmes





































31


**RIDGEWOOD
      ELECTRIC POWER TRUST III**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**








Report
                  of Independent Registered Public Accounting
                  Firm
              F-2Consolidated
                  Balance Sheets at December 31, 2005, 2004 and
                  2003
              F-3Consolidated
                  Statements of Operations for the three years ended
                  December 31, 2005
              F-4Consolidated
                  Statements of Changes in Shareholders’ Equity
                  (Deficit)for
                  the three years ended December 31, 2005
              F-5Consolidated
                  Statements of Cash Flows for the three years ended
                  December 31, 2005
              F-6Consolidated
                  Balance Sheets (unaudited) at September 30, 2005,
                  June 30, 2005,March
                  31, 2005
              F-7Consolidated
                  Balance Sheets (unaudited) at September 30, 2004,
                  June 30, 2004, March 31, 2004
              F-8Consolidated
                  Balance Sheets (unaudited) at September 30, 2003,
                  June 30, 2003, March 31, 2003
              F-9Consolidated
                  Statements of Operations (unaudited) for the nine
                  and three months endedSeptember
                  30, 2005, 2004 and 2003
              F-10Consolidated
                  Statements of Operations (unaudited) for the six
                  and three months endedJune
                  30, 2005, 2004 and 2003
              F-11Consolidated
                  Statements of Operations (unaudited) for the
                  three months endedMarch
                  31, 2005, 2004 and 2003
              F-12Consolidated
                  Statements of Changes in Shareholders’ Equity
                  (Deficit) (unaudited) for the three months,six
                  months and nine months ended March 31, June 30, September
                  30, for 2003, 2004 and 2005
              F-13Consolidated
                  Statements of Cash Flows (unaudited) for the nine
                  months ended September 30, 2005,2004
                  and 2003
              F-14Consolidated
                  Statements of Cash Flows (unaudited) for the six
                  months ended June 30, 2005,2004
                  and 2003
              F-15Consolidated
                  Statements of Cash Flows (unaudited) for the
                  three months ended March 31, 2005,2004
                  and 2003
              F-16Notes
                  to Consolidated Financial Statements
              F-17





F-1


**REPORT
      OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**








The
      Managing Shareholder and Shareholders


**Ridgewood
      Electric Power Trust III**








We
      have
      audited the accompanying consolidated balance sheets of Ridgewood Electric
      Power
      Trust III (a Delaware trust) and subsidiaries as of December 31, 2005, 2004
      and
      2003, and the related consolidated statements of operations, changes in
      shareholders’ equity (deficit), and cash flows for each of the three years in
      the period ended December 31, 2005. These consolidated financial statements
      are
      the responsibility of the Trust’s management. Our responsibility is to express
      an opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the consolidated financial statements are free of material
      misstatement.  The Trust is not required to have, nor were we engaged
      to perform an audit of its internal control over financial reporting. Our audits
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the Trust’s
      internal control over financial reporting. Accordingly, we express no such
      opinion. An audit also includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements, assessing the
      accounting principles used and significant estimates made by management, 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 Ridgewood Electric
      Power Trust III as of December 31, 2005, 2004, and 2003, and the results of
      its
      operations and its cash flows for each of the three years in the period ended
      December 31, 2005 in conformity with accounting principles generally accepted
      in
      the United States of America.





The
      accompanying consolidated financial statements as of and for the year ended
      December 31, 2003 have been restated as discussed in Note 2 to the consolidated
      financial statements.








/s/
      GRANT
      THORNTON LLP


Edison,
      New Jersey


December
      13, 2007












F-2




**RidgewoodElectric
        Power Trust III**


**Consolidated
        Balance Sheets**
 *(in
        thousands, except share data)*


**December
                  31,****2005**
              
              
              **2004**
              
              
              **2003**(Restated)**ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              303
              
              
              $
              120
              
              
              $
              46Accounts
                  receivable
              
              
              894
              
              
              
              504
              
              
              
              457Notes
                  receivable - current portion
              
              
              70
              
              
              
              54
              
              
              
              60Due
                  from affiliates
              
              
              670
              
              
              
              745
              
              
              
              860Assets
                  held for sale
              
              
              -
              
              
              
              -
              
              
              
              484Gas
                  forward contract - current portion
              
              
              2,482
              
              
              
              1,269
              
              
              
              575Other
                  current assets
              
              
              89
              
              
              
              115
              
              
              
              104Total
                  current assets
              
              
              4,508
              
              
              
              2,807
              
              
              
              2,586Investment
              
              
              4,633
              
              
              
              5,070
              
              
              
              5,489Plant
                  and equipment, net
              
              
              3,594
              
              
              
              4,585
              
              
              
              5,016Intangibles,
                  net
              
              
              1,004
              
              
              
              1,076
              
              
              
              1,148Notes
                  receivable - noncurrent portion
              
              
              -
              
              
              
              47
              
              
              
              86Gas
                  forward contract - noncurrent portion
              
              
              -
              
              
              
              854
              
              
              
              536Other
                  assets
              
              
              -
              
              
              
              14
              
              
              
              14**Total
                  assets**
              
              $
              13,739
              
              
              $
              14,453
              
              
              $
              14,875**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              103
              
              
              $
              221
              
              
              $
              276Due
                  to affiliates
              
              
              4
              
              
              
              83
              
              
              
              96Total
                  current liabilities
              
              
              107
              
              
              
              304
              
              
              
              372Commitments
                  and contingenciesShareholders’
                  equity (deficit):Shareholders’
                  equity (391.8444 Investor Shares issued andoutstanding)
              
              
              13,827
              
              
              
              14,339
              
              
              
              14,689Managing
                  shareholder’s accumulated deficit(1
                  management share issued and outstanding)
              
              
              (195
              )
              
              
              (190
              )
              
              
              (186
              )Total
                  shareholders’ equity
              
              
              13,632
              
              
              
              14,149
              
              
              
              14,503**Total
                  liabilities and shareholders’ equity**
              
              $
              13,739
              
              
              $
              14,453
              
              
              $
              14,875





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


F-3




**RidgewoodElectric
        Power Trust III**
 **Consolidated
        Statement of Operations**
 *(in
        thousands, except per share data)*


**Years
                  Ended December 31,****2005**
              
              
              **2004**
              
              
              **2003**(Restated)Revenues
              
              $
              4,205
              
              
              $
              5,594
              
              
              $
              5,909Cost
                  of revenues
              
              
              2,705
              
              
              
              4,293
              
              
              
              3,740Gross
                  profit
              
              
              1,500
              
              
              
              1,301
              
              
              
              2,169Operating
                  expenses:General
                  and administrative expenses
              
              
              251
              
              
              
              166
              
              
              
              246Impairment
                  of plant and equipment
              
              
              550
              
              
              
              100
              
              
              
              143Management
                  fee to the Managing Shareholder
              
              
              354
              
              
              
              363
              
              
              
              336Total
                  operating expenses
              
              
              1,155
              
              
              
              629
              
              
              
              725Income
                  from operations
              
              
              345
              
              
              
              672
              
              
              
              1,444Other
                  income (expense):Interest
                  income
              
              
              7
              
              
              
              7
              
              
              
              13Interest
                  expense
              
              
              (15
              )
              
              
              (6
              )
              
              
              (16
              )Equity
                  in income from investment
              
              
              1,021
              
              
              
              1,150
              
              
              
              574Other
                  (expense) income, net
              
              
              (5
              )
              
              
              (6
              )
              
              
              244Total
                  other income, net
              
              
              1,008
              
              
              
              1,145
              
              
              
              815Net
                  income
              
              $
              1,353
              
              
              $
              1,817
              
              
              $
              2,259Managing
                  Shareholder - Net income
              
              $
              14
              
              
              $
              18
              
              
              $
              23Shareholders
                  - Net income
              
              
              1,339
              
              
              
              1,799
              
              
              
              2,236Net
                  income per Investor Share
              
              
              3,418
              
              
              
              4,592
              
              
              
              5,707







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


F-4




**RidgewoodElectric
      Power Trust III**


**Consolidated
      Statements of Changes in Shareholders' Equity (Deficit)**


**Years
      Ended December 31, 2005, 2004 and 2003**


*(in
      thousands)*


**Managing**
              
              
              **Total
                  Shareholders'****Shareholders**
              
              
              **Shareholder**
              
              
              **Equity**Shareholders'
                  balance January 1, 2003,  restated
              
              $
              13,624
              
              
              $
              (197
              )
              
              $
              13,427Net
                  income, restated
              
              
              2,236
              
              
              
              23
              
              
              
              2,259Distributions
              
              
              (1,176
              )
              
              
              (12
              )
              
              
              (1,188
              )Capital
                  contributions
              
              
              5
              
              
              
              -
              
              
              
              5Shareholders'
                  balance December 31, 2003, restated
              
              
              14,689
              
              
              
              (186
              )
              
              
              14,503Net
                  income
              
              
              1,799
              
              
              
              18
              
              
              
              1,817Distributions
              
              
              (2,155
              )
              
              
              (22
              )
              
              
              (2,177
              )Capital
                  contributions
              
              
              6
              
              
              
              -
              
              
              
              6Shareholders'
                  balance December 31, 2004
              
              
              14,339
              
              
              
              (190
              )
              
              
              14,149Net
                  income
              
              
              1,339
              
              
              
              14
              
              
              
              1,353Distributions
              
              
              (1,929
              )
              
              
              (20
              )
              
              
              (1,949
              )Capital
                  contributions
              
              
              78
              
              
              
              1
              
              
              
              79Shareholders'
                  balance December 31, 2005
              
              $
              13,827
              
              
              $
              (195
              )
              
              $
              13,632













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


F-5




**RidgewoodElectric
        Power Trust III**
 **Consolidated
        Statements of Cash Flows**
 *(in
        thousands)*


**Years
                  Ended December 31,****2005**
              
              
              **2004**
              
              
              **2003**(Restated)Cash
                  flows from operating activities:Net
                  income
              
              $
              1,353
              
              
              $
              1,817
              
              
              $
              2,259Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              512
              
              
              
              532
              
              
              
              644Impairment
                  of plant and equipment
              
              
              550
              
              
              
              100
              
              
              
              143Equity
                  in income from investment
              
              
              (1,021
              )
              
              
              (1,150
              )
              
              
              (574
              )Distributions
                  from investment
              
              
              1,458
              
              
              
              1,569
              
              
              
              676Gas
                  forward contract
              
              
              (359
              )
              
              
              (1,011
              )
              
              
              (1,924
              )Waiver of management fees and related interest
              
              
              79
              
              
              
              6
              
              
              
              5Loss
                  on disposal of equipment
              
              
              -
              
              
              
              4
              
              
              
              -Change
                  in operating assets and liabilities:Restricted
                  cash
              
              
              -
              
              
              
              -
              
              
              
              100Accounts
                  receivable
              
              
              (390
              )
              
              
              (47
              )
              
              
              24Due
                  to/from affiliates, net
              
              
              (4
              )
              
              
              101
              
              
              
              (766
              )Other
                  current assets
              
              
              28
              
              
              
              (11
              )
              
              
              34Other
                  assets
              
              
              14
              
              
              
              -
              
              
              
              556Accounts
                  payable and accrued expenses
              
              
              (119
              )
              
              
              (54
              )
              
              
              (668
              )Total
                  adjustments
              
              
              748
              
              
              
              39
              
              
              
              (1,750
              )Net
                  cash provided by operating activities
              
              
              2,101
              
              
              
              1,856
              
              
              
              509Cash
                  flows from investing activities:Proceeds
                  from the sale of equipment
              
              
              -
              
              
              
              384
              
              
              
              266Proceeds
                  from notes receivable
              
              
              31
              
              
              
              45
              
              
              
              79Capital
                  expenditures
              
              
              -
              
              
              
              (34
              )
              
              
              -Net
                  cash provided by investing activities
              
              
              31
              
              
              
              395
              
              
              
              345Cash
                  flows from financing activities:Cash
                  distributions to shareholders
              
              
              (1,949
              )
              
              
              (2,177
              )
              
              
              (1,188
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              183
              
              
              
              74
              
              
              
              (334
              )Cash
                  and cash equivalents, beginning of year
              
              
              120
              
              
              
              46
              
              
              
              380Cash
                  and cash equivalents, end of year
              
              $
              303
              
              
              $
              120
              
              
              $
              46Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              15
              
              
              $
              6
              
              
              $
              16








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





F-6




**RidgewoodElectric
        Power Trust III**
 **Consolidated
        Balance Sheets (unaudited)**
 *(in
        thousands, except share data)*


**2005****September**
              
              
              **June
                  30**
              
              
              **March
                  31****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              424
              
              
              $
              280
              
              
              $
              1Accounts
                  receivable
              
              
              796
              
              
              
              710
              
              
              
              472Notes
                  receivable - current portion
              
              
              76
              
              
              
              57
              
              
              
              52Due
                  from affiliates
              
              
              -
              
              
              
              282
              
              
              
              307Gas
                  forward contract - current portion
              
              
              3,857
              
              
              
              1,659
              
              
              
              1,897Other
                  current assets
              
              
              114
              
              
              
              23
              
              
              
              94Total
                  current assets
              
              
              5,267
              
              
              
              3,011
              
              
              
              2,823Investment
              
              
              5,483
              
              
              
              5,203
              
              
              
              5,413Plant
                  and equipment, net
              
              
              4,268
              
              
              
              4,373
              
              
              
              4,479Intangibles,
                  net
              
              
              1,022
              
              
              
              1,040
              
              
              
              1,058Notes
                  receivable - noncurrent portion
              
              
              -
              
              
              
              26
              
              
              
              36Gas
                  forward contract - noncurrent portion
              
              
              -
              
              
              
              708
              
              
              
              1,008Other
                  assets
              
              
              14
              
              
              
              14
              
              
              
              14**Total
                  assets**
              
              $
              16,054
              
              
              $
              14,375
              
              
              $
              14,831**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              344
              
              
              $
              289
              
              
              $
              399Due
                  to affiliates
              
              
              228
              
              
              
              557
              
              
              
              318Total
                  current liabilities
              
              
              572
              
              
              
              846
              
              
              
              717Commitments
                  and contingenciesShareholders’
                  equity (deficit):Shareholders’
                  equity (391.8444 Investor Shares issued andoutstanding)
              
              
              15,658
              
              
              
              13,725
              
              
              
              14,304Managing
                  shareholder’s accumulated deficit(1
                  management share issued and outstanding)
              
              
              (176
              )
              
              
              (196
              )
              
              
              (190
              )Total
                  shareholders’ equity
              
              
              15,482
              
              
              
              13,529
              
              
              
              14,114**Total
                  liabilities and shareholders’ equity**
              
              $
              16,054
              
              
              $
              14,375
              
              
              $
              14,831







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


F-7




**RidgewoodElectric
        Power Trust III**
 **Consolidated
        Balance Sheets (unaudited)**
 *(in
        thousands, except share data)*


**2004****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**(Restated)
              
              
              (Restated)
              
              
              (Restated)**ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              301
              
              
              $
              429
              
              
              $
              63Accounts
                  receivable
              
              
              698
              
              
              
              716
              
              
              
              449Notes
                  receivable - current portion
              
              
              38
              
              
              
              43
              
              
              
              47Due
                  from affiliates
              
              
              639
              
              
              
              121
              
              
              
              266Assets
                  held for sale
              
              
              -
              
              
              
              -
              
              
              
              384Gas
                  forward contract - current portion
              
              
              1,509
              
              
              
              802
              
              
              
              857Other
                  current assets
              
              
              145
              
              
              
              84
              
              
              
              99Total
                  current assets
              
              
              3,330
              
              
              
              2,195
              
              
              
              2,165Investment
              
              
              5,199
              
              
              
              6,013
              
              
              
              5,770Plant
                  and equipment, net
              
              
              4,699
              
              
              
              4,807
              
              
              
              4,910Intangibles,
                  net
              
              
              1,094
              
              
              
              1,112
              
              
              
              1,130Notes
                  receivable - noncurrent portion
              
              
              65
              
              
              
              70
              
              
              
              83Gas
                  forward contract - noncurrent portion
              
              
              1,247
              
              
              
              1,561
              
              
              
              1,088Other
                  assets
              
              
              14
              
              
              
              14
              
              
              
              14**Total
                  assets**
              
              $
              15,648
              
              
              $
              15,772
              
              
              $
              15,160**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              228
              
              
              $
              262
              
              
              $
              247Due
                  to affiliates
              
              
              87
              
              
              
              556
              
              
              
              127Total
                  current liabilities
              
              
              315
              
              
              
              818
              
              
              
              374Commitments
                  and contingenciesShareholders’
                  equity (deficit):Shareholders’
                  equity (391.8444 Investor Shares issued andoutstanding)
              
              
              15,511
              
              
              
              15,135
              
              
              
              14,969Managing
                  shareholder’s accumulated deficit(1
                  management share issued and outstanding)
              
              
              (178
              )
              
              
              (181
              )
              
              
              (183
              )Total
                  shareholders’ equity
              
              
              15,333
              
              
              
              14,954
              
              
              
              14,786**Total
                  liabilities and shareholders’ equity**
              
              $
              15,648
              
              
              $
              15,772
              
              
              $
              15,160








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


F-8




**Ridgewood
        Electric Power Trust III**
 **Consolidated
        Balance Sheets (unaudited)**
 *(in
        thousands, except share data)*


**2003****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**(Restated)
              
              
              (Restated)
              
              
              (Restated)**ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              280
              
              
              $
              54
              
              
              $
              111Restricted
                  cash
              
              
              16
              
              
              
              16
              
              
              
              16Accounts
                  receivable
              
              
              866
              
              
              
              830
              
              
              
              245Notes
                  receivable - current portion
              
              
              59
              
              
              
              71
              
              
              
              82Due
                  from affiliates
              
              
              311
              
              
              
              272
              
              
              
              359Assets
                  held for sale
              
              
              678
              
              
              
              -
              
              
              
              -Gas
                  forward contract - current portion
              
              
              266
              
              
              
              529
              
              
              
              311Other
                  current assets
              
              
              155
              
              
              
              36
              
              
              
              140Total
                  current assets
              
              
              2,631
              
              
              
              1,808
              
              
              
              1,264Investment
              
              
              5,473
              
              
              
              5,873
              
              
              
              5,801Plant
                  and equipment, net
              
              
              5,188
              
              
              
              6,098
              
              
              
              6,243Intangibles,
                  net
              
              
              1,166
              
              
              
              1,184
              
              
              
              1,202Notes
                  receivable - noncurrent portion
              
              
              97
              
              
              
              104
              
              
              
              112Gas
                  forward contract - noncurrent portion
              
              
              280
              
              
              
              699
              
              
              
              -Other
                  assets
              
              
              570
              
              
              
              570
              
              
              
              570**Total
                  assets**
              
              $
              15,405
              
              
              $
              16,336
              
              
              $
              15,192**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              243
              
              
              $
              427
              
              
              $
              176Due
                  to affiliates
              
              
              287
              
              
              
              450
              
              
              
              420Total
                  current liabilities
              
              
              530
              
              
              
              877
              
              
              
              596Gas
                  forward contract
              
              
              -
              
              
              
              -
              
              
              
              132Total
                  liabilities
              
              
              530
              
              
              
              877
              
              
              
              728Commitments
                  and contingenciesShareholders’
                  equity (deficit):Shareholders’
                  equity (391.8444 Investor Shares issued andoutstanding)
              
              
              15,057
              
              
              
              15,635
              
              
              
              14,651Managing
                  shareholder’s accumulated deficit(1
                  management share issued and outstanding)
              
              
              (182
              )
              
              
              (176
              )
              
              
              (187
              )Total
                  shareholders’ equity
              
              
              14,875
              
              
              
              15,459
              
              
              
              14,464**Total
                  liabilities and shareholders’ equity**
              
              $
              15,405
              
              
              $
              16,336
              
              
              $
              15,192








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


F-9




**Ridgewood****Electric
      Power Trust
      III** **Consolidated
      Statements of Operations (unaudited)***(in
      thousands, except per share data)*




**Nine
                  Months Ended September 30,**
              
              
              **Three
                  Months Ended September 30,****2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**(Restated)
              
              
              (Restated)
              
              
              
              
              
              (Restated)
              
              
              (Restated)Revenues
              
              $
              4,068
              
              
              $
              4,269
              
              
              $
              4,843
              
              
              $
              1,750
              
              
              $
              1,791
              
              
              $
              2,137Cost
                  of revenues
              
              
              1,630
              
              
              
              2,314
              
              
              
              2,754
              
              
              
              (451
              )
              
              
              970
              
              
              
              2,259Gross
                  profit (loss)
              
              
              2,438
              
              
              
              1,955
              
              
              
              2,089
              
              
              
              2,201
              
              
              
              821
              
              
              
              (122
              )Operating
                  expenses:General
                  and administrative expenses
              
              
              205
              
              
              
              154
              
              
              
              178
              
              
              
              47
              
              
              
              11
              
              
              
              44Impairment
                  of plant and equipment
              
              
              -
              
              
              
              100
              
              
              
              88
              
              
              
              -
              
              
              
              -
              
              
              
              88Management
                  fee to the Managing Shareholder
              
              
              265
              
              
              
              276
              
              
              
              252
              
              
              
              88
              
              
              
              92
              
              
              
              84Total
                  operating expenses
              
              
              470
              
              
              
              530
              
              
              
              518
              
              
              
              135
              
              
              
              103
              
              
              
              216Income
                  (loss) from operations
              
              
              1,968
              
              
              
              1,425
              
              
              
              1,571
              
              
              
              2,066
              
              
              
              718
              
              
              
              (338
              )Other
                  income (expense):Interest
                  income
              
              
              6
              
              
              
              9
              
              
              
              9
              
              
              
              1
              
              
              
              2
              
              
              
              2Interest
                  expense
              
              
              -
              
              
              
              -
              
              
              
              (11
              )
              
              
              -
              
              
              
              -
              
              
              
              (1
              )Equity
                  in income from investment
              
              
              839
              
              
              
              929
              
              
              
              430
              
              
              
              280
              
              
              
              405
              
              
              
              148Other
                  income (expense), net
              
              
              4
              
              
              
              (49
              )
              
              
              239
              
              
              
              2
              
              
              
              (52
              )
              
              
              -Total
                  other income, net
              
              
              849
              
              
              
              889
              
              
              
              667
              
              
              
              283
              
              
              
              355
              
              
              
              149Net
                  income (loss)
              
              $
              2,817
              
              
              $
              2,314
              
              
              $
              2,238
              
              
              $
              2,349
              
              
              $
              1,073
              
              
              $
              (189
              )Managing
                  Shareholder - Net income (loss)
              
              $
              28
              
              
              $
              23
              
              
              $
              22
              
              
              $
              23
              
              
              $
              11
              
              
              $
              (2
              )Shareholders
                  - Net income (loss)
              
              
              2,789
              
              
              
              2,291
              
              
              
              2,216
              
              
              
              2,326
              
              
              
              1,062
              
              
              
              (187
              )Net
                  income (loss) per Investor Share
              
              
              7,119
              
              
              
              5,847
              
              
              
              5,655
              
              
              
              5,936
              
              
              
              2,710
              
              
              
              (476
              )







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


F-10





Ridgewood
        Electric Power Trust
        III **Consolidated
          Statements of Operations (unaudited)** *(in
            thousands, except per share data)*
  **Six
                  Months Ended June 30,**
              
              
              **Three
                  Months Ended June 30,****2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**(Restated)
              
              
              (Restated)
              
              
              
              
              
              (Restated)
              
              
              (Restated)Revenues
              
              $
              2,318
              
              
              $
              2,478
              
              
              $
              2,706
              
              
              $
              1,354
              
              
              $
              1,380
              
              
              $
              1,742Cost
                  of revenues
              
              
              2,081
              
              
              
              1,344
              
              
              
              496
              
              
              
              1,585
              
              
              
              927
              
              
              
              315Gross
                  profit (loss)
              
              
              237
              
              
              
              1,134
              
              
              
              2,210
              
              
              
              (231
              )
              
              
              453
              
              
              
              1,427Operating
                  expenses:General
                  and administrative expenses
              
              
              158
              
              
              
              144
              
              
              
              133
              
              
              
              88
              
              
              
              47
              
              
              
              23Impairment
                  of plant and equipment
              
              
              -
              
              
              
              100
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Management
                  fee to the Managing Shareholder
              
              
              177
              
              
              
              184
              
              
              
              168
              
              
              
              88
              
              
              
              92
              
              
              
              84Total
                  operating expenses
              
              
              335
              
              
              
              428
              
              
              
              301
              
              
              
              176
              
              
              
              139
              
              
              
              107(Loss)
                  income from operations
              
              
              (98
              )
              
              
              706
              
              
              
              1,909
              
              
              
              (407
              )
              
              
              314
              
              
              
              1,320Other
                  income (expense):Interest
                  income
              
              
              5
              
              
              
              7
              
              
              
              6
              
              
              
              1
              
              
              
              2
              
              
              
              2Interest
                  expense
              
              
              -
              
              
              
              -
              
              
              
              (10
              )
              
              
              -
              
              
              
              -
              
              
              
              (5
              )Equity
                  in income from investment
              
              
              559
              
              
              
              524
              
              
              
              282
              
              
              
              216
              
              
              
              243
              
              
              
              73Other
                  income, net
              
              
              2
              
              
              
              4
              
              
              
              240
              
              
              
              -
              
              
              
              3
              
              
              
              -Total
                  other income, net
              
              
              566
              
              
              
              535
              
              
              
              518
              
              
              
              217
              
              
              
              248
              
              
              
              70Net
                  income (loss)
              
              $
              468
              
              
              $
              1,241
              
              
              $
              2,427
              
              
              $
              (190
              )
              
              $
              562
              
              
              $
              1,390Managing
                  Shareholder - Net income (loss)
              
              $
              5
              
              
              $
              12
              
              
              $
              24
              
              
              $
              (2
              )
              
              $
              6
              
              
              $
              14Shareholders
                  - Net income (loss)
              
              
              463
              
              
              
              1,229
              
              
              
              2,403
              
              
              
              (188
              )
              
              
              556
              
              
              
              1,376Net
                  income (loss) per Investor Share
              
              
              1,183
              
              
              
              3,136
              
              
              
              6,131
              
              
              
              (479
              )
              
              
              1,422
              
              
              
              3,547










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


F-11




**Ridgewood
        Electric Power Trust III**


**Consolidated
        Statements of Operations (unaudited)** *(in
          thousands, except per share data)*


**Three
                  Months Ended March 31,****2005**
              
              
              **2004**
              
              
              **2003**(Restated)
              
              
              (Restated)Revenues
              
              $
              964
              
              
              $
              1,097
              
              
              $
              964Cost
                  of revenues
              
              
              496
              
              
              
              417
              
              
              
              181Gross
                  profit
              
              
              468
              
              
              
              680
              
              
              
              783Operating
                  expenses:General
                  and administrative expenses
              
              
              71
              
              
              
              97
              
              
              
              110Impairment
                  of plant and equipment
              
              
              -
              
              
              
              100
              
              
              
              -Management
                  fee to the Managing Shareholder
              
              
              88
              
              
              
              92
              
              
              
              84Total
                  operating expenses
              
              
              159
              
              
              
              289
              
              
              
              194Income
                  from operations
              
              
              309
              
              
              
              391
              
              
              
              589Other
                  income (expense):Interest
                  income
              
              
              3
              
              
              
              5
              
              
              
              4Interest
                  expense
              
              
              -
              
              
              
              -
              
              
              
              (5
              )Equity
                  in income from investment
              
              
              343
              
              
              
              281
              
              
              
              209Other
                  income, net
              
              
              3
              
              
              
              2
              
              
              
              240Total
                  other income, net
              
              
              349
              
              
              
              288
              
              
              
              448Net
                  income
              
              $
              658
              
              
              $
              679
              
              
              $
              1,037Managing
                  Shareholder - Net income
              
              $
              7
              
              
              $
              7
              
              
              $
              10Shareholders
                  - Net income
              
              
              651
              
              
              
              672
              
              
              
              1,027Net
                  income per Investor Share
              
              
              1,662
              
              
              
              1,712
              
              
              
              2,621










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


F-12




**Ridgewood
        Electric Power Trust III**
 **Consolidated
          Statement of Changes in Shareholders' Equity
          (Deficit)**
 **Three
          Months, Six Months and Nine Months Ended March, June and September for
          2003,
          2004 and 2005 (unaudited)**
 *(in
            thousands)*


**Managing**
              
              
              **Total
                  Shareholders'****Shareholders**
              
              
              **Shareholder**
              
              
              **Equity****Three
                  months ended 03/31/03:**Shareholders'
                  balance January 1, 2003,  restated
              
              $
              13,624
              
              
              $
              (197
              )
              
              $
              13,427Net
                  income, restated
              
              
              1,027
              
              
              
              10
              
              
              
              1,037Shareholders'
                  balance March 31, 2003, restated
              
              $
              14,651
              
              
              $
              (187
              )
              
              $
              14,464**Six
                  months ended 06/30/03:**Shareholders'
                  balance January 1, 2003,  restated
              
              $
              13,624
              
              
              $
              (197
              )
              
              $
              13,427Net
                  income, restated
              
              
              2,403
              
              
              
              24
              
              
              
              2,427Distributions
              
              
              (392
              )
              
              
              (3
              )
              
              
              (395
              )Shareholders'
                  balance June 30, 2003, restated
              
              $
              15,635
              
              
              $
              (176
              )
              
              $
              15,459**Nine
                  months ended 09/30/03:**Shareholders'
                  balance January 1, 2003,  restated
              
              $
              13,624
              
              
              $
              (197
              )
              
              $
              13,427Net
                  income, restated
              
              
              2,216
              
              
              
              22
              
              
              
              2,238Distributions
              
              
              (783
              )
              
              
              (7
              )
              
              
              (790
              )Shareholders'
                  balance September 30, 2003, restated
              
              $
              15,057
              
              
              $
              (182
              )
              
              $
              14,875**Three
                  months ended 03/31/04:**Shareholders'
                  balance January 1, 2004,  restated
              
              $
              14,689
              
              
              $
              (186
              )
              
              $
              14,503Net
                  income, restated
              
              
              672
              
              
              
              7
              
              
              
              679Distributions
              
              
              (392
              )
              
              
              (4
              )
              
              
              (396
              )Shareholders'
                  balance March 31, 2004, restated
              
              $
              14,969
              
              
              $
              (183
              )
              
              $
              14,786**Six
                  months ended 06/30/04:**Shareholders'
                  balance January 1, 2004,  restated
              
              $
              14,689
              
              
              $
              (186
              )
              
              $
              14,503Net
                  income, restated
              
              
              1,229
              
              
              
              12
              
              
              
              1,241Distributions
              
              
              (783
              )
              
              
              (7
              )
              
              
              (790
              )Shareholders'
                  balance June 30, 2004, restated
              
              $
              15,135
              
              
              $
              (181
              )
              
              $
              14,954**Nine
                  months ended 09/30/04:**Shareholders'
                  balance January 1, 2004,  restated
              
              $
              14,689
              
              
              $
              (186
              )
              
              $
              14,503Net
                  income, restated
              
              
              2,291
              
              
              
              23
              
              
              
              2,314Distributions
              
              
              (1,469
              )
              
              
              (15
              )
              
              
              (1,484
              )Shareholders'
                  balance September 30, 2004, restated
              
              $
              15,511
              
              
              $
              (178
              )
              
              $
              15,333**Three
                  months ended 03/31/05:**Shareholders'
                  balance January 1, 2005
              
              $
              14,339
              
              
              $
              (190
              )
              
              $
              14,149Net
                  income
              
              
              651
              
              
              
              7
              
              
              
              658Distributions
              
              
              (686
              )
              
              
              (7
              )
              
              
              (693
              )Shareholders'
                  balance March 31, 2005
              
              $
              14,304
              
              
              $
              (190
              )
              
              $
              14,114**Six
                  months ended 06/30/05:**Shareholders'
                  balance January 1, 2005
              
              $
              14,339
              
              
              $
              (190
              )
              
              $
              14,149Net
                  income
              
              
              463
              
              
              
              5
              
              
              
              468Distributions
              
              
              (1,077
              )
              
              
              (11
              )
              
              
              (1,088
              )Shareholders'
                  balance June 30, 2005
              
              $
              13,725
              
              
              $
              (196
              )
              
              $
              13,529**Nine
                  months ended 09/30/05:**Shareholders'
                  balance January 1, 2005
              
              $
              14,339
              
              
              $
              (190
              )
              
              $
              14,149Net
                  income
              
              
              2,789
              
              
              
              28
              
              
              
              2,817Distributions
              
              
              (1,470
              )
              
              
              (14
              )
              
              
              (1,484
              )Shareholders'
                  balance September 30, 2005
              
              $
              15,658
              
              
              $
              (176
              )
              
              $
              15,482




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


F-13


**Ridgewood
        Electric Power Trust III**
 **Consolidated
        Statements of Cash Flows (unaudited)**
 *(in
        thousands)*


**Nine
                  Months Ended September 30,****2005**
              
              
              **2004**
              
              
              **2003**(Restated)
              
              
              (Restated)Cash
                  flows from operating activities:Net
                  income
              
              $
              2,817
              
              
              $
              2,314
              
              
              $
              2,238Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              371
              
              
              
              374
              
              
              
              486Impairment
                  of plant and equipment
              
              
              -
              
              
              
              100
              
              
              
              88Equity
                  in income from investment
              
              
              (839
              )
              
              
              (929
              )
              
              
              (430
              )Distributions
                  from investment
              
              
              426
              
              
              
              1,219
              
              
              
              549Gas
                  forward contract
              
              
              (1,734
              )
              
              
              (1,645
              )
              
              
              (1,359
              )Change
                  in operating assets and liabilities:Restricted
                  cash
              
              
              -
              
              
              
              -
              
              
              
              84Accounts
                  receivable
              
              
              (292
              )
              
              
              (241
              )
              
              
              (385
              )Due
                  to/from affiliates, net
              
              
              890
              
              
              
              212
              
              
              
              (26
              )Other
                  current assets
              
              
              1
              
              
              
              (41
              )
              
              
              -Other
                  assets
              
              
              -
              
              
              
              -
              
              
              
              (17
              )Accounts
                  payable and accrued expenses
              
              
              123
              
              
              
              (60
              )
              
              
              (701
              )Total
                  adjustments
              
              
              (1,054
              )
              
              
              (1,011
              )
              
              
              (1,711
              )Net
                  cash provided by operating activities
              
              
              1,763
              
              
              
              1,303
              
              
              
              527Cash
                  flows from investing activities:Proceeds
                  from the sale of equipment
              
              
              -
              
              
              
              398
              
              
              
              95Proceeds
                  from notes receivable
              
              
              25
              
              
              
              43
              
              
              
              68Capital
                  expenditures
              
              
              -
              
              
              
              (5
              )
              
              
              -Net
                  cash provided by investing activities
              
              
              25
              
              
              
              436
              
              
              
              163Cash
                  flows from financing activities:Cash
                  distributions to shareholders
              
              
              (1,484
              )
              
              
              (1,484
              )
              
              
              (790
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              304
              
              
              
              255
              
              
              
              (100
              )Cash
                  and cash equivalents, beginning of period
              
              
              120
              
              
              
              46
              
              
              
              380Cash
                  and cash equivalents, end of period
              
              $
              424
              
              
              $
              301
              
              
              $
              280Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              -
              
              
              $
              -
              
              
              $
              11










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


F-14




**Ridgewood
        Electric Power Trust III**


**Consolidated
        Statements of Cash Flows (unaudited)**
 *(in
          thousands)*


**Six
                  Months Ended June 30,****2005**
              
              
              **2004**
              
              
              **2003**(Restated)
              
              
              (Restated)Cash
                  flows from operating activities:Net
                  income
              
              $
              468
              
              
              $
              1,241
              
              
              $
              2,427Adjustments
                  to reconcile net income to net cashprovided
                  by (used in) operating activities:Depreciation
                  and amortization
              
              
              248
              
              
              
              249
              
              
              
              313Impairment
                  of plant and equipment
              
              
              -
              
              
              
              100
              
              
              
              -Equity
                  in income from investment
              
              
              (559
              )
              
              
              (524
              )
              
              
              (282
              )Distributions
                  from investment
              
              
              426
              
              
              
              -
              
              
              
              -Gas
                  forward contract
              
              
              (244
              )
              
              
              (1,253
              )
              
              
              (2,041
              )Change
                  in operating assets and liabilities:Restricted
                  cash
              
              
              -
              
              
              
              -
              
              
              
              84Accounts
                  receivable
              
              
              (206
              )
              
              
              (259
              )
              
              
              (337
              )Due
                  to/from affiliates, net
              
              
              937
              
              
              
              1,199
              
              
              
              175Other
                  current assets
              
              
              92
              
              
              
              20
              
              
              
              102Accounts
                  payable and accrued expenses
              
              
              68
              
              
              
              (14
              )
              
              
              (517
              )Total
                  adjustments
              
              
              762
              
              
              
              (482
              )
              
              
              (2,503
              )Net
                  cash provided by (used in) operating activities
              
              
              1,230
              
              
              
              759
              
              
              
              (76
              )Cash
                  flows from investing activities:Proceeds
                  from the sale of equipment
              
              
              -
              
              
              
              384
              
              
              
              95Proceeds
                  from notes receivable
              
              
              18
              
              
              
              33
              
              
              
              50Capital
                  expenditures
              
              
              -
              
              
              
              (3
              )
              
              
              -Net
                  cash provided by investing activities
              
              
              18
              
              
              
              414
              
              
              
              145Cash
                  flows from financing activities:Cash
                  distributions to shareholders
              
              
              (1,088
              )
              
              
              (790
              )
              
              
              (395
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              160
              
              
              
              383
              
              
              
              (326
              )Cash
                  and cash equivalents, beginning of period
              
              
              120
              
              
              
              46
              
              
              
              380Cash
                  and cash equivalents, end of period
              
              $
              280
              
              
              $
              429
              
              
              $
              54Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              -
              
              
              $
              -
              
              
              $
              10






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




F-15


**Ridgewood
          Electric Power Trust III**
 **Consolidated
          Statements of Cash Flows (unaudited)** *(in
            thousands)*
 **Three
                    Months Ended March 31,****2005**
                
                
                **2004**
                
                
                **2003**(Restated)
                
                
                (Restated)Cash
                    flows from operating activities:Net
                    income
                
                $
                658
                
                
                $
                679
                
                
                $
                1,037Adjustments
                    to reconcile net income to net cashprovided
                    by (used in) operating activities:Depreciation
                    and amortization
                
                
                124
                
                
                
                125
                
                
                
                162Impairment
                    of plant and equipment
                
                
                -
                
                
                
                100
                
                
                
                -Equity
                    in income from investment
                
                
                (343
                )
                
                
                (281
                )
                
                
                (209
                )Gas
                    forward contract
                
                
                (782
                )
                
                
                (833
                )
                
                
                (992
                )Change
                    in operating assets and liabilities:Restricted
                    cash
                
                
                -
                
                
                
                -
                
                
                
                84Accounts
                    receivable
                
                
                32
                
                
                
                8
                
                
                
                236Due
                    to/from affiliates, net
                
                
                673
                
                
                
                624
                
                
                
                58Other
                    current assets
                
                
                21
                
                
                
                5
                
                
                
                49Accounts
                    payable and accrued expenses
                
                
                179
                
                
                
                (29
                )
                
                
                (769
                )Total
                    adjustments
                
                
                (96
                )
                
                
                (281
                )
                
                
                (1,381
                )Net
                    cash provided by (used in) operating activities
                
                
                562
                
                
                
                398
                
                
                
                (344
                )Cash
                    flows from investing activities:Proceeds
                    from the sale of equipment
                
                
                -
                
                
                
                -
                
                
                
                45Proceeds
                    from notes receivable
                
                
                12
                
                
                
                15
                
                
                
                30Net
                    cash provided by investing activities
                
                
                12
                
                
                
                15
                
                
                
                75Cash
                    flows from financing activities:Cash
                    distributions to shareholders
                
                
                (693
                )
                
                
                (396
                )
                
                
                -Net
                    (decrease) increase in cash and cash equivalents
                
                
                (119
                )
                
                
                17
                
                
                
                (269
                )Cash
                    and cash equivalents, beginning of period
                
                
                120
                
                
                
                46
                
                
                
                380Cash
                    and cash equivalents, end of period
                
                $
                1
                
                
                $
                63
                
                
                $
                111Supplemental
                    disclosure of cash flow information:Interest
                    paid
                
                $
                -
                
                
                $
                -
                
                
                $
                5
  The
        accompanying notes are an integral part of
        these financial statements.
  
 F-16




**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)




**1.   
        **DESCRIPTION
        OF BUSINESS****


Ridgewood
      Electric Power Trust III (the “Trust”) was formed as a Delaware trust on
      December 6, 1993. The Trust began offering shares in January 1994 and concluded
      its offering in May 1995. The objective of the Trust is to provide benefits
      to
      its shareholders through a combination of distributions of operating cash flow
      and capital appreciation. The Managing Shareholder of the Trust is Ridgewood
      Renewable Power LLC (“RRP” or the “Managing Shareholder”). The
      Trust
      has been organized to invest primarily in power generation facilities located
      in
      the US. The projects of the Trusts have characteristics that qualify the
      projects for government incentives.




The
      Trust’s accompanying consolidated financial statements include the financial
      statements of its wholly-owned subsidiaries. The
      Trust’s consolidated financial statements also include the Trust’s 35.7% limited
      partnership interest in Ridgewood Providence Power Partners, L.P. (“Ridgewood
      Providence”) which is accounted for under the equity method of accounting as the
      Trust has the ability to exercise significant influence but does not control
      the
      investment’s operating and financial policies.





The
      Managing Shareholder performs (or arranges for the performance of) the operation
      and maintenance of the projects invested in by the Trust and the management
      and
      administrative services required for Trust operations. Among other services,
      the
      Managing Shareholder administers the accounts and handles relations with the
      shareholders, including tax and other financial information. The Managing
      Shareholder also provides the Trust with office space, equipment and facilities
      and other services necessary for its operation.




**2.   
        **RESTATEMENT
        OF FINANCIAL STATEMENTS****




The
      Trust
      has identified a series of adjustments, including adjustments related to
      amortization of power purchase agreements, accrual of royalties, adjustments
      related to investments, accounting for professional services, accounting for
      gain on gas purchase contracts, overaccrual of revenues and cost of revenues,
      accounting for management fees and accounting for the waiver of related
      interest, which have resulted in the restatement of the previously issued
      financial statements for the quarters ended March 31, June 30, and September
      30,
      2003 and 2004, and for the year ended December 31, 2003.





The
      tables below present the changes in financial statement line items between
      the
      Trust’s previously reported and restated balance sheets and statements of
      operations.  These restatements did not have a significant impact on
      the Trust’s statements of cash flows. Explanatory comments follow the
      tables.




**Balance
                Sheet****December
                  31,**ASSETS
              
              **2003**Investment
              
              $
              (181
              )
              **(A)**Gas
                  forward contract - current portion
              
              
              16
              
              **(C)**Gas
                  forward contract - noncurrent portion
              
              
              (159
              )
              **(C)**Total
                  assets
              
              $
              (324
              )LIABILITIES
                  AND SHAREHOLDERS' EQUITYAccounts
                  payable and accrued expenses
              
              $
              (51
              )
              **(B)**Due
                  to affiliates
              
              
              (67
              )
              **(E)(F)**Shareholders’
                  equity
              
              
              (206
              )
              **(F)**Total
                  liabilities and shareholders' equity
              
              $
              (324
              )


F-17


**Ridgewood Electric
        Power Trust III**
 **Notes
        To Consolidated Financial Statements**
 (dollar
        amounts in thousands, except per share data)


**Statement
                of Operations****December
                  31,****2003**Revenues,
                  decrease
              
              $
              1,349
              
              **(D)(F)**Cost
                  of revenues, decrease
              
              
              (3,259
              )
              **(C)(D)(F)**General
                  and administrative expenses, increase
              
              
              12
              
              **(B)**Management
                  fee to the Managing Shareholder, decrease
              
              
              (21
              )
              **(E)**Loss
                  from operations, increase
              
              
              (1,919
              )Interest
                  expense, increase
              
              
              6
              
              **(E)**Equity
                  in income from investment, decrease
              
              
              55
              
              **(A)**Other
                  income (expense), net, increase
              
              
              1,223
              
              **(F)**Net
                  income, decrease
              
              $
              (635
              )Managing
                  Shareholder - Net income, decrease
              
              $
              (6
              )Shareholders
                  - Net income, decrease
              
              
              (629
              )Net
                  income per Investor Share, decrease
              
              
              (1,605
              )


**(A)**
            Originally,
                Ridgewood Providence did not properly account for amortization of
                a power
                purchase agreement as the Trust failed to properly accrue royalty
                expenses. The Trust recorded an adjustment to decrease its investment
                in
                Ridgewood Providence and shareholders’ equity by $126 at the beginning of
                2003. In addition, the Trust recorded an adjustment to decrease its
                investment in Ridgewood Providence and equity income by $55 for the
                year
                ended December 31, 2003.





**(B)**
            ****In
                the previously issued financial statements, the Trust incorrectly
                accrued
                professional service fees in the period to be audited or reviewed
                rather
                than during the period in which the services were performed. As a
                result,
                the Trust overaccrued $52 of professional fees for the year ended
                December
                31, 2003. The 2003 overaccrual was adjusted by recording a decrease
                to
                accrued expenses of $51 and an increase to general and administrative
                expenses and beginning shareholders’ equity of $13 and $65,
                respectively.





**(C)**
            Originally,
                the Trust did not properly recognize the market value related to
                its gas
                forward contracts. As a result, the Trust recorded a liability value
                of
                $813 at the beginning of 2003 with a corresponding decrease to beginning
                shareholders’ equity. Additionally, the Trust did not properly
                record changes in the value of the contracts that occurred during
                2003, and as a result the Trust recorded a gain of $672 as a component
                of
                cost of revenues.





**(D)**
            The
                Trust incorrectly accounted for electricity generated for two of its
                customers in its previously issued financial statements. The Trust
                was
                provided materials by these customers to produce electricity, which
                when
                produced, was sold to these same customers. In its previously issued
                financial statements, the Trust recorded the provided materials as
                a cost
                of revenues with a corresponding increase to revenues. While not
                affecting
                net operating results, the Trust has determined that this accounting
                was
                not proper and that revenues and cost of revenues were overstated
                by the
                value of the supplied materials.  The Trust adjusted the
                overstatement by reducing revenues and cost of revenues by $877 for
                the
                year ended December 31, 2003.





**(E)**
            ****Originally,
                the Trust did not properly record the accrual of management fees
                (including the associated interest thereon) due by the Trust to the
                Managing Shareholder. The Trust made adjustments by recording an
                accrual
                of the management fee expense in the period to which the accrual
                applied
                and any waiver or forgiveness of interest on unpaid management fees
                was
                treated as a capital contribution to the Trust by the Managing
                Shareholder. The contribution of the Managing Shareholder was also
                reallocated to the shareholders of the Trust in such a way as to
                keep the
                capital accounts of the shareholders in the Trust in the same relationship
                to each other as they had been prior to the contribution of the management
                fee by the Managing Shareholder. In 2003, the Trust recorded this
                adjustment by increasing interest expense and shareholders’ equity by $6
                and decreasing due to affiliates and management fee by $21.


**(F)**
            Certain
                items in the previously issued financial statements for the years
                ended
                December 31, 2003 have been reclassified to conform to the current
                year presentation. These reclassifications had no effect on net
                income.


F-18


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


The
      Trust
      restated 2002 amounts by decreasing the Trust’s beginning shareholders’ equity
      as of January 1, 2003 by $798. The adjustments recorded that were made to the
      Trust’s equity as of January 1, 2003 consisted of an
      understatement of accumulated amortization of electric power sales contract
      of
      $126 and valuation of gas forward contracts of $672.





**Quarterly
                  Balance Sheets (unaudited)**
              
              2004September
                  30
              
              
              June
                  30
              
              
              March
                  31ASSETSCash
                  and cash equivalents
              
              $
              -
              
              
              $
              9
              
              
              $
              -
              
              **(F)**Investment
              
              
              (151
              )
              
              
              (141
              )
              
              
              (169
              )
              **(A)**Gas
                  forward contract - current portion
              
              
              (439
              )
              
              
              254
              
              
              
              356
              
              **(C)**Gas forward
                  contract - noncurrent portion
              
              
              (197
              )
              
              
              (499
              )
              
              
              (264
              )
              **(C)**Total
                  assets
              
              $
              (787
              )
              
              $
              (377
              )
              
              $
              (77
              )LIABILITIES
                  AND SHAREHOLDERS' EQUITYAccounts
                  payable and accrued expenses
              
              $
              (23
              )
              
              $
              4
              
              
              $
              2
              
              **(B)**Due
                  to affiliates
              
              
              (63
              )
              
              
              (55
              )
              
              
              (63
              )
              **(D)(E)(F)**Shareholders’
                  equity
              
              
              (701
              )
              
              
              (326
              )
              
              
              (16
              )
              **(F)**Total
                  liabilities and shareholders’ equity
              
              $
              (787
              )
              
              $
              (377
              )
              
              $
              (77
              )





2003September
                  30
              
              
              June
                  30
              
              
              March
                  31ASSETSDue
                  from affiliates
              
              $
              -
              
              
              $
              9
              
              
              $
              5
              
              **(E)(F)**Investment
              
              
              (138
              )
              
              
              (139
              )
              
              
              (128
              )
              **(A)**Gas
                    forward contract - current portion
              
              
              (130
              )
              
              
              529
              
              
              
              311
              
              **(C)**Gas forward
                    contract - noncurrent portion
              
              
              24
              
              
              
              699
              
              
              
              -
              
              **(C)**Total
                  assets
              
              $
              (244
              )
              
              $
              1,098
              
              
              $
              188LIABILITIES
                  AND SHAREHOLDERS' EQUITYAccounts
                  payable and accrued expenses
              
              $
              (26
              )
              
              $
              (13
              )
              
              $
              1
              
              **(B)**Due
                  to affiliates
              
              
              (57
              )
              
              
              (43
              )
              
              
              (42
              )
              **(D)(E)(F)**Loss
                  on gas purchase contract - noncurrent portion
              
              
              -
              
              
              
              -
              
              
              
              132
              
              **(C)**Shareholders’
                  equity
              
              
              (161
              )
              
              
              1,154
              
              
              
              97
              
              **(F)**Total
                  liabilities and shareholders’ equity
              
              $
              (244
              )
              
              $
              1,098
              
              
              $
              188


F-19


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


**Quarterly
                  Statements of Operations (unaudited)**
              
              Nine
                  Months Ended September 30,
              
              
              Three
                  Months Ended September 30,2004
              
              
              2003
              
              
              2004
              
              
              2003Revenues,
                  decrease
              
              $
              (729
              )
              
              $
              (1,100
              )
              
              $
              (226
              )
              
              $
              (229
              )
              **(D)(F)**Cost
                  of revenues, decrease (increase)
              
              
              2,367
              
              
              
              2,455
              
              
              
              617
              
              
              
              (451
              )
              **(C)(D)(F)**General
                  and administrative expenses, (increase) decrease
              
              
              (47
              )
              
              
              (31
              )
              
              
              17
              
              
              
              8
              
              **(B)(F)**Management
                  fee to the Managing Shareholder, increase
              
              
              -
              
              
              
              16
              
              
              
              -
              
              
              
              5
              
              **(E)**Income
                  (loss) from operations, (decrease) increase
              
              
              1,591
              
              
              
              1,340
              
              
              
              408
              
              
              
              (667
              )Gain
                  on gas purchase contract, decrease
              
              
              (2,137
              )
              
              
              (653
              )
              
              
              (783
              )
              
              
              (653
              )
              **(C)(F)**Equity
                  in income from investment, increase (decrease)
              
              
              30
              
              
              
              (12
              )
              
              
              (10
              )
              
              
              1
              
              **(A)**Other
                  income (expense), net, decrease
              
              
              21
              
              
              
              8
              
              
              
              11
              
              
              
              3
              
              **(F)**Net
                  (loss) income, (decrease) increase
              
              $
              (495
              )
              
              $
              683
              
              
              $
              (374
              )
              
              $
              (1,316
              )Managing
                  Shareholder - Net (loss) income, (decrease) increase
              
              $
              (5
              )
              
              $
              6
              
              
              $
              (4
              )
              
              $
              (13
              )Shareholders
                  - Net (loss) income, (decrease) increase
              
              
              (490
              )
              
              
              677
              
              
              
              (370
              )
              
              
              (1,303
              )Net
                  (loss) income per Investor Share, (decrease) increase
              
              
              (1,250
              )
              
              
              1,727
              
              
              
              (943
              )
              
              
              (3,326
              )




Six
                    Months Ended June 30,
              
              
              Six
                  Months Ended June 30,2004
              
              
              2003
              
              
              2004
              
              
              2003Revenues,
                  decrease
              
              $
              (503
              )
              
              $
              (870
              )
              
              $
              (235
              )
              
              $
              (187
              )
              **(D)(F)**Cost
                  of revenues, decrease (increase)
              
              
              1,749
              
              
              
              2,905
              
              
              
              655
              
              
              
              1,233
              
              **(C)(D)(F)**General
                  and administrative expenses, (increase) decrease
              
              
              (65
              )
              
              
              (38
              )
              
              
              (7
              )
              
              
              12
              
              **(B)(F)**Management
                  fee to the Managing Shareholder, decrease
              
              
              -
              
              
              
              10
              
              
              
              -
              
              
              
              5
              
              **(E)**Income
                  from operations, increase
              
              
              1,181
              
              
              
              2,007
              
              
              
              413
              
              
              
              1,063Gain
                  on gas purchase contract, decrease
              
              
              (1,354
              )
              
              
              -
              
              
              
              (755
              )
              
              
              -
              
              **(C)(F)**Equity
                  in income from investment, increase (decrease)
              
              
              40
              
              
              
              (13
              )
              
              
              28
              
              
              
              (11
              )
              **(A)**Other
                  income (expense), net, increase
              
              
              11
              
              
              
              6
              
              
              
              5
              
              
              
              2
              
              **(F)**Net
                  (loss) income, (decrease) increase
              
              $
              (122
              )
              
              $
              2,000
              
              
              $
              (309
              )
              
              $
              1,054Managing
                  Shareholder - Net (loss) income, (decrease) increase
              
              $
              (1
              )
              
              $
              20
              
              
              $
              (3
              )
              
              $
              11Shareholders
                  - Net (loss) income, (decrease) increase
              
              
              (121
              )
              
              
              1,980
              
              
              
              (306
              )
              
              
              1,043Net
                  (loss) income per Investor Share, (decrease) increase
              
              
              (310
              )
              
              
              5,053
              
              
              
              (782
              )
              
              
              2,662





F-20


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


Three
                  Months Ended March 31,2004
              
              
              2003Revenues,
                  decrease
              
              $
              (268
              )
              
              $
              (684
              )
              **(D)(F)**Cost
                  of revenues, decrease
              
              
              1,095
              
              
              
              1,672
              
              **(C)(D)(F)**General
                  and administrative expenses, increase
              
              
              (57
              )
              
              
              (51
              )
              **(B)(F)**Management
                  fee to the Managing Shareholder, decrease
              
              
              -
              
              
              
              5
              
              **(E)**Income
                  (loss) from operations, increase (decrease)
              
              
              770
              
              
              
              942Gain
                  on gas purchase contract, decrease
              
              
              (598
              )
              
              
              -
              
              **(C)(F)**Equity
                  in income from investment, increase (decrease)
              
              
              12
              
              
              
              (2
              )
              **(A)**Other
                  income (expense), net, increase
              
              
              7
              
              
              
              4
              
              **(F)**Net
                  income, increase
              
              $
              191
              
              
              $
              944Managing
                  Shareholder - Net income, increase
              
              $
              2
              
              
              $
              9Shareholders
                  - Net income, increase
              
              
              189
              
              
              
              935Net
                  income per Investor Share, increase
              
              
              482
              
              
              
              2,386





**(A)**
            The
                Trust did not properly account for amortization of a power purchase
                agreement and failed to properly accrue royalty expenses for Ridgewood
                Providence. As a result, the Trust recorded the following adjustments
                (unaudited):




2004
              
              
              20039/30
              
              
              
              6/30
              
              
              
              3/31
              
              
              
              9/30
              
              
              
              6/30
              
              
              
              3/31Equity
                  in income from investments - increase (decrease)
              
              $
              30
              
              
              $
              40
              
              
              $
              12
              
              
              $
              (12
              )
              
              $
              (13
              )
              
              $
              (2
              )Beginning
                  Shareholders' equity, decrease
              
              
              (181
              )
              
              
              (181
              )
              
              
              (181
              )
              
              
              (126
              )
              
              
              (126
              )
              
              
              (126
              )Investments,
                  decrease
              
              
              (151
              )
              
              
              (141
              )
              
              
              (169
              )
              
              
              (138
              )
              
              
              (139
              )
              
              
              (128
              )




**(B)**
            The
                Trust corrected the method of recording professional service fees
                to
                record the fees in the periods during which the services were performed.
                As a result, the Trust recorded the following adjustments
                (unaudited):




2004
              
              
              20039/30
              
              
              
              6/30
              
              
              
              3/31
              
              
              
              9/30
              
              
              
              6/30
              
              
              
              3/31Accounts
                  payable and accrued expenses, (decrease) increase
              
              $
              (23
              )
              
              $
              4
              
              
              $
              2
              
              
              $
              (26
              )
              
              $
              (13
              )
              
              $
              -Beginning
                  Shareholders' equity, increase
              
              
              52
              
              
              
              52
              
              
              
              52
              
              
              
              48
              
              
              
              48
              
              
              
              48General
                  and administrative expenses, increase
              
              
              29
              
              
              
              56
              
              
              
              54
              
              
              
              22
              
              
              
              35
              
              
              
              48




**(C)**
            The
                Trust did not properly account for the changes in the value of gas
                forward
                contracts. As a result, the Trust recorded the following adjustments
                (unaudited):




2004
              
              
              20039/30
              
              
              
              6/30
              
              
              
              3/31
              
              
              
              9/30
              
              
              
              6/30
              
              
              
              3/31Gas
                  forward contract - current portion
              
              $
              (876
              )
              
              $
              255
              
              
              $
              356
              
              
              $
              (130
              )
              
              $
              529
              
              
              $
              311Gas
                  forward contract - noncurrent portion, increase (decrease)
              
              
              240
              
              
              
              (499
              )
              
              
              (264
              )
              
              
              (23
              )
              
              
              699
              
              
              
              (132
              )Beginning
                  Shareholders' equity - (decrease) increase
              
              
              (143
              )
              
              
              (143
              )
              
              
              (143
              )
              
              
              (813
              )
              
              
              (813
              )
              
              
              (813
              )Revenues,
                  decrease
              
              
              (729
              )
              
              
              (503
              )
              
              
              (268
              )
              
              
              (628
              )
              
              
              (399
              )
              
              
              (212
              )Cost
                  of goods sold - (decrease) increase
              
              
              (2,373
              )
              
              
              (1,756
              )
              
              
              (1,101
              )
              
              
              (1,941
              )
              
              
              (2,440
              )
              
              
              (1,204
              )Gas
                  forward contract, decrease
              
              
              (2,137
              )
              
              
              (1,354
              )
              
              
              (598
              )
              
              
              (653
              )
              
              
              -
              
              
              
              -




F-21


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)




**(D)**
              The
                  Trust incorrectly accounted for capital contributions and related
                  expenses. As a result, the Trust recorded the following adjustments
                  (unaudited):




2004
              
              
              20039/30
              
              
              
              6/30
              
              
              
              3/31
              
              
              
              9/30
              
              
              
              6/30
              
              
              
              3/31Due
                  to affiliates, decrease
              
              $
              (41
              )
              
              $
              (41
              )
              
              $
              (41
              )
              
              $
              (41
              )
              
              $
              (41
              )
              
              $
              (41
              )Beginning
                  Shareholders' equity, decrease
              
              
              45
              
              
              
              45
              
              
              
              45
              
              
              
              45
              
              
              
              45
              
              
              
              45Cost
                  of revenues, increase
              
              
              4
              
              
              
              4
              
              
              
              4
              
              
              
              4
              
              
              
              4
              
              
              
              4




**(E)**
            Originally,
                the Trust did not properly record management fees and interest accrued
                on
                unpaid management fees to the Managing Shareholder. As a result, the
                Trust recorded the following adjustments
                (unaudited):




2004
              
              
              20039/30
              
              
              
              6/30
              
              
              
              3/31
              
              
              
              9/30
              
              
              
              6/30
              
              
              
              3/31Due
                  from  affiliates, decrease
              
              $
              (21
              )
              
              $
              (21
              )
              
              $
              (21
              )
              
              $
              (16
              )
              
              $
              (10
              )
              
              $
              (5
              )Beginning
                  Shareholders' equity, decrease
              
              
              21
              
              
              
              21
              
              
              
              21
              
              
              
              -
              
              
              
              -
              
              
              
              -Management
                  fee to the Managing Shareholders, decrease
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (16
              )
              
              
              (10
              )
              
              
              (5
              )




**(F)**
            Certain
                items in the previously issued financial statements for quarters
                ended
                September 30, June 30 and March 31, 2004 and 2003 have been reclassified
                to conform to the current quarters’ presentation. These reclassifications
                had no effect on net loss.




2004
                
                
                20039/30
                
                
                
                6/30
                
                
                
                3/31
                
                
                
                9/30
                
                
                
                6/30
                
                
                
                3/31Due
                    from affiliates - (decrease) increase
                
                $
                5
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Due
                    to affiliates (decrease) increase
                
                
                5
                
                
                
                9
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2
                )Cash
                    and cash equivalents, (decrease) increase
                
                
                -
                
                
                
                9
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Accounts
                    payable and accrued expenses - (decrease)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2Cost
                    of goods sold - (decrease) increase
                
                
                2
                
                
                
                2
                
                
                
                2
                
                
                
                -
                
                
                
                2
                
                
                
                1General
                    and administrative expenses - increase (decrease)
                
                
                18
                
                
                
                9
                
                
                
                4
                
                
                
                9
                
                
                
                3
                
                
                
                3Other
                    income (expense) - increase (decrease)
                
                
                20
                
                
                
                11
                
                
                
                6
                
                
                
                9
                
                
                
                5
                
                
                
                4




**3.   
        **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES****





*a)
      Principles of Consolidation*





The
      consolidated financial statements include the accounts of the Trust and its
      wholly-owned subsidiaries.  All material intercompany transactions
      have been eliminated in consolidation.





The
      Trust
      uses the equity method of accounting for its investment in Ridgewood Providence
      since it is less than 50% owned and the Trust has the ability to exercise
      significant influence over its operating and financial policies. The Trust’s
      share of the operating results of Ridgewood Providence is included in the
      consolidated statements of operations.





*b)
      Use of Estimates*





The
      preparation of consolidated financial statements in accordance with accounting
      principles generally accepted in the United States of America requires the
      Trust
      to make estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosure of contingent assets
      and liabilities. On an ongoing basis, the Trust evaluates its estimates,
      including accounts receivable, investments, recoverable value of plant and
      equipment, intangibles and recordable liabilities for litigation and other
      contingencies. The Trust bases its estimates on historical experience, current
      and expected conditions and various other assumptions that are believed to
      be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.


F-22


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


*c)
      Revenue Recognition*





Power
      generation revenue is recorded in the month of delivery, based on the estimated
      volumes sold to customers at rates stipulated in the power sales contract.
      Adjustments are made to reflect actual volumes delivered when the actual
      information subsequently becomes available. Billings to customers for power
      generation generally occurs during the month following delivery. Final billings
      do not vary significantly from estimates.





*d)
      Cash and Cash Equivalents*





The
      Trust
      considers all highly liquid investments with maturities, when purchased, of
      three months or less as cash and cash equivalents.  Cash and cash
      equivalents at December 31, 2005 consist of funds deposited in bank accounts.
      Cash balances with banks as of December 31, 2005, 2004 and 2003 exceed insured
      limits by approximately $203, $20 and $0, respectively.





*e)
      Accounts Receivable*





Accounts
      receivable are recorded at invoice price in the period the related revenues
      are
      earned, and do not bear interest. No allowance for bad debt expense was provided
      based upon historical write-off experience, evaluation of customer credit
      condition and the general economic status of the customer.





*f)
      Plant and Equipment*





Plant
      and
      equipment, consisting principally of electrical generating machinery and
      power generation facilities, are stated at cost less accumulated depreciation.
      Renewals and betterments that increase the useful lives of the assets are
      capitalized.  Repair and maintenance expenditures are expensed as
      incurred.  Upon retirement or disposal of assets, the cost and related
      accumulated depreciation are removed from the consolidated balance
      sheets.  The difference, if any, between the net asset value and any
      proceeds from such retirement or disposal is recorded as a gain or loss in
      the
      statement of operations.





Depreciation
      is recorded using the straight-line method over the estimated useful lives
      of
      the assets.





Building
            20
                yearsMachinery
                and equipment
            5
                to 7 years





*g)
      Impairment of Long-Lived Assets and Intangibles*





The
      Trust
      evaluates intangible assets and long-lived assets, such as plant and equipment,
      when events or changes in circumstances indicate that the carrying value of
      such
      assets may not be recoverable. The determination of whether an impairment
      has occurred is made by comparing the carrying value of an asset to the
      estimated undiscounted cash flows attributable to that asset. If an impairment
      has occurred, the impairment loss recognized is the amount by which the carrying
      value exceeds the estimated fair value of the asset, which is based on the
      estimated future cash flows discounted at the estimated cost of
      capital.  The analysis requires estimates of the amount and timing of
      projected cash flows and, where applicable, judgments associated with, among
      other factors, the appropriate discount rate.  Such estimates are
      critical in determining whether any impairment charge should be recorded and
      the
      amount of such charge if an impairment loss is deemed to be
      necessary.





*h)
      Income Taxes*





No
      provision is made for income taxes in the accompanying consolidated financial
      statements as the income or losses of the Trust are passed through and included
      in the income tax returns of the individual shareholders of the
      Trust.





*i)
      Comprehensive Income (Loss)*




The
      Trust's comprehensive income (loss) consists only of net income
      (loss).


F-23


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


*j)
      Significant Customer and Supplier*





During
      2005, 2004 and 2003, the Trust's largest customer accounted for 82%, 87% and
      75%
      respectively, of total revenues. During 2005, 2004 and 2003, the Trust purchased
      substantially all of its gas supply from one supplier.





*k)
      Fair Value of Financial Instruments*





For
      the
      years ended December 31, 2005, 2004 and 2003, the carrying values of the Trust’s
      cash and cash equivalents, accounts and notes receivable, and accounts payable
      and accrued expenses approximate their fair values.





*l)
      Gas Contracts*




In
        August
        2001, subsidiaries of the Trust entered into agreements to purchase natural
        gas,
        at fixed prices, over a five-year term in connection with entering into
        amendments fixing the sales price of electric power sales contracts for a
        similar term. These contracts were entered into in order to minimize the
        impact
        of fluctuating energy prices. The Trust has determined that these contracts
        are
        derivatives as defined under SFAS No. 133, "Accounting for Derivative
        Instruments and Hedging Activities", as amended. The Trust has designated
        these
        derivatives as non-hedge instruments. Accordingly, the value of the contracts
        based on the differences between contract prices and market value prices
        is
        recognized as an asset or a liability in the balance sheet. Changes in the
        carrying value of the contracts are reflected as a component of cost of revenues
        in the consolidated statements of operations.





*m)
      Unaudited Interim Results*




The
      unaudited interim consolidated financial statements included herein have been
      prepared on the same basis as the annual consolidated statements and, in the
      opinion of management, reflect all adjustments, which include only normal
      recurring adjustments, necessary to present fairly the Trust’s financial
      position and its results of operations and cash flows for each of the interim
      periods presented. The financial data and other information disclosed in these
      notes to the consolidated financial statements related to such interim periods
      are also unaudited.





*n)
      Recent Accounting Pronouncements*





*SFAS
      143 and FIN 47*





In
      June
      2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143,
*Accounting for Asset Retirement Obligations*, on the accounting for
      obligations associated with the retirement of long-lived assets. SFAS No. 143
      requires a liability to be recognized in the consolidated financial statements
      for retirement obligations meeting specific criteria. Measurement of the initial
      obligation is to approximate fair value, with an equivalent amount recorded
      as
      an increase in the value of the capitalized asset. The asset will be depreciated
      in accordance with normal depreciation policy and the liability will be
      increased for the time value of money, with a charge to the income statement,
      until the obligation is settled. SFAS No. 143 is effective for fiscal years
      beginning after June 15, 2002. Furthermore, in March 2005, the FASB issued
      FASB Interpretation No. 47 (“FIN 47”), *Accounting for Conditional Asset
      Retirement Obligations, an interpretation of FASB Statement No. 143*,
      which clarifies the term “conditional asset retirement obligation” as used in
      SFAS No. 143. Specifically, FIN 47 provides that an asset retirement
      obligation is conditional when the timing and/or method of settling the
      obligation is conditioned on a future event. Accordingly, an entity is required
      to recognize a liability for the fair value of a conditional asset retirement
      obligation if the fair value of the liability can be reasonably estimated.
      Uncertainty about the timing and/or method of settlement of a conditional asset
      retirement obligation should be factored into the measurement of the liability
      when sufficient information exists. This interpretation also clarifies when
      an
      entity would have sufficient information to reasonably estimate the fair value
      of an asset retirement obligation. FIN 47 is effective for fiscal years ending
      after December 15, 2005.  The Trust adopted SFAS No. 143
      effective January 1, 2003, with no material impact on the consolidated financial
      statements.





*SFAS
      145*





In
      April
      2002, the FASB issued SFAS No. 145, *Rescission of FASB Statements
      No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
      Corrections*. SFAS No. 145 eliminates extraordinary accounting
      treatment for reporting gain or loss on debt extinguishment, and amends other
      existing authoritative pronouncements to make various technical corrections,
      clarify meanings, or describe their applicability under changed conditions.
      SFAS
      No. 145 is effective for interim periods beginning after May 15,
      2002.  The Trust adopted SFAS No. 145 effective January
      1, 2003, with no material impact on the consolidated financial
      statements.


F-24


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)




*SFAS
      146*





In
      June
      2002, the FASB issued SFAS No. 146, *Accounting for Costs Associated
      with Exit or Disposal Activities*. SFAS No. 146 requires recording
      costs associated with exit or disposal activities at their fair values when
      a
      liability has been incurred.  SFAS No. 146 is effective for fiscal
      years ending after December 31, 2002.  The Trust adopted SFAS No. 146
      effective January 1, 2003, with no material impact on the consolidated financial
      statements.





*FIN
      45*





In
      November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
*Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
      Indirect Guarantees and Indebtedness of Others*. FIN 45 elaborates on the
      disclosures to be made by the guarantor in its interim and annual financial
      statements about its obligations under certain guarantees that it has issued.
      It
      also requires that a guarantor recognize, at the inception of a guarantee,
      under
      certain circumstances, a liability for the fair value of the obligation
      undertaken in issuing the guarantee. The initial recognition and measurement
      provisions of this interpretation are applicable on a prospective basis to
      guarantees issued or modified after December 31, 2002; while the provisions
      of
      the disclosure requirements are effective for financial statements of interim
      or
      annual reports ending after December 15, 2002. The Trust adopted FIN 45 during
      the fourth quarter of 2002 with no material impact to the consolidated financial
      statements.





*FIN
      46R*





In
      January 2003, the FASB issued FASB Interpretation No. 46, *Consolidation of
      Variable Interest Entities* ("FIN 46") which changes the criteria by which
      one company includes another entity in its consolidated financial statements.
      FIN 46 requires a variable interest entity to be consolidated by a company
      if
      that company is subject to a majority of the risk of loss from the variable
      interest entity's activities or entitled to receive a majority of the entity's
      residual returns or both. The consolidation requirements of FIN 46 apply
      immediately to variable interest entities created after December 31, 2003,
      and
      apply in the first fiscal period ending after March 15, 2004, for variable
      interest entities created prior to January 1, 2004. The Trust adopted the
      disclosure provisions of FIN 46 effective December 31, 2003, with no material
      impact to the consolidated financial statements.  In
      December 2003, the FASB issued a revision to FIN 46 (“FIN 46R”) to clarify
      some of the provisions and to exempt certain entities from its
      requirements.  The Trust implemented the full provisions of FIN 46R
      effective January 1, 2004, with no material impact on the consolidated financial
      statements.





*SFAS
      149*





In
      April
      2003, the FASB issued SFAS No. 149, *Amendment of Statement 133 on Derivative
      Instruments and Hedging Activities*. SFAS No. 149 amends and clarifies the
      accounting for derivative instruments, including certain derivative instruments
      embedded in other contracts, and for hedging activities under SFAS No. 133,
      "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149
      is
      generally effective for contracts entered into or modified after June 30, 2003
      and for hedging relationships designated after June 30, 2003. The Trust adopted
      SFAS No. 149 effective July 1, 2003, with no material impact on the consolidated
      financial statements.





*SFAS
      150*





In
      May
      2003, the FASB issued SFAS No. 150, *Accounting for Certain Financial
      Instruments with Characteristics of both Liabilities and Equity*. SFAS
      No. 150 establishes standards for classifying and measuring certain
      financial instruments with characteristics of both liabilities and
      equity.  SFAS No. 150 is effective for interim periods beginning
      after June 15, 2003.  The Trust adopted SFAS No. 150 effective
      July 1, 2003, with no material impact on the consolidated financial
      statements.





*SFAS
      153*





In
      December 2004, the FASB issued SFAS No. 153, *Exchanges of Nonmonetary
      Assets—an amendment of APB Opinion No. 29.*The guidance in APB Opinion No.
      29, *Accounting for Nonmonetary Transactions*(“*Opinion
      29*”)*,*is
      based
      on the principle that exchanges of nonmonetary assets should be measured based
      on the fair value of the assets exchanged. The guidance in Opinion 29, however,
      included certain exceptions to that principle. This Statement amends Opinion
      29
      to eliminate the exception for nonmonetary exchanges of similar productive
      assets and replaces it with a general exception for exchanges of nonmonetary
      assets that do not have commercial substance. A nonmonetary exchange has
      commercial substance if the future cash flows of the entity are expected to
      change significantly as a result of the exchange. The Trust adopted SFAS No.
      153
      effective June 15, 2005, with no material impact on the consolidated financial
      statements*.*


F-25


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)




*SFAS
      154*





In
      May
      2005, the FASB issued SFAS No. 154, *Accounting Changes and Error
      Corrections*.  SFAS No. 154 replaces APB Opinion No. 20,
*Accounting Changes*, and SFAS No. 3, *Reporting Accounting Changes in
      Interim Financial Statements*. This statement changes the requirements for
      the accounting for, and reporting of, a change in accounting principle and
      applies to all voluntary changes in accounting principle, as well as changes
      pursuant to accounting pronouncements that do not include transition
      rules.   Under SFAS No. 154, changes in accounting principle must
      be applied retrospectively to prior periods’ financial statements, or the
      earliest practicable date, as the required method for reporting a change in
      accounting principle.  The Trust adopted SFAS No. 154 effective
      December 15, 2005, and accordingly restated the consolidated financial
      statements, as described in Note 2.




**4.   
        **PROJECTS
        AND IMPAIRMENT OF LONG-LIVED ASSETS****





**JRW
      Associates, L.P.**





In
      January 17, 1995, the Trust acquired 100% of the existing partnership interests
      of JRW Associates, L.P. (“San Joaquin”) which owns and operates an 8.5 megawatt
      (“MW”) electric cogeneration facility, located in Atwater,
      California.  The aggregate purchase price was $4,900, including
      transaction costs.





The
      acquisition of San Joaquin was accounted for as a purchase and the results
      of
      operations of San Joaquin have been included in the Trust's consolidated
      financial statements since the acquisition date. The purchase price was
      allocated to the net assets acquired, based on their respective fair
      values.  Of the purchase price, $1,400, was allocated to the Electric
      Power Sales Contract and is being amortized over the life of the contract (25
      years).





**Byron
      Power Partners, L.P.**





In
      January 1995, the Trust caused the formation of Byron Power Partners, L.P.
      (“Byron”) in which the Trust owns 100% of the partnership
      interests.  On January 17, 1995, Byron acquired a 5.7MW electric
      cogeneration facility, located in Byron, California. The aggregate purchase
      price was $2,509, including transaction costs. The purchase price was allocated
      to the net assets acquired, based on their respective fair values.  Of
      the purchase price, $420 was allocated to the Electric Power Sales Contract
      and
      is being amortized over the life of the contract (25 years).





**Ridgewood
      Mobile Power III, LLC**




In
        the
        third quarter of 1999, the Trust purchased for $1,700, five mobile electric
        power generating units. During the third quarter of 2003, the Trust classified
        the mobile electric power generating units as held for sale and recorded
        $88 of
        impairment of equipment. The Trust sold one unit in the fourth quarter of
        2003
        for proceeds of $171. In 2004, the Trust recorded an impairment of $100 related
        to its electric power generating units. The remaining units were sold for
        proceeds of $384. The impairments were recorded to adjust the carrying value
        of
        the mobile electric power generating units to reflect their current estimated
        fair value.





**Ridgewood
      AES Power Partners, LLC**





In
      September 1997, the Trust formed a joint partnership, Ridgewood/AES Power
      Partners, L.P. with AES-NJ Cogen, Inc. (“AES-NJ”) to develop cogeneration
      projects. During 2003, The Trust sold its interest in the joint partnership
      for
      $100,000 cash, a $150,000 interest bearing promissory note ("promissory note"),
      and a $74,000 interest free note ("interest free note"). The promissory note
      bore interest at a rate of 10% per annum, and was fully paid monthly over a
      four
      year term. The interest free note was repaid over a six month
      term.


F-26


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


**On-site
      Cogeneration Projects**





In
      1995,
      the Trust acquired a portfolio of 35 projects from affiliates of Eastern
      Utilities Associates ("EUA"), which sell electricity and thermal energy to
      industrial and commercial customers. The projects were held in eight limited
      partnerships of which the Trust is the sole limited partner and is the sole
      owner of each of the general partners.  In the aggregate, the projects
      had 13.7MW of base load and 5.7MW of backup and standby capacity.  The
      Trust paid a total of $11,300 for the projects and invested additional amounts
      for capital repairs and improvements and for working capital. All the projects
      were gas-fired cogeneration projects located in California, Connecticut,
      Massachusetts, Rhode Island or New York. Their energy service agreements had
      terms expiring between September 1996 and 2011. The acquisition of the projects
      was accounted for as a purchase and the results of operations of the projects
      have been included in the Trust's consolidated financial statements since the
      acquisition date.





The
      Trust
      shut down all but two of the projects from 2001 through 2003. The Trust
      performed an impairment assessment in 2003 using a discounted cash flow
      valuation methodology, and noted the carrying value of the projects exceeded
      their estimated fair value. As a result, the Trust recorded an impairment charge
      of $56. During the fourth quarter of 2005, based on a subsequent assessment,
      the
      Trust recorded an additional impairment charge of $550 to adjust for the
      carrying value of the projects to reflect their current estimated
      fair value. The remaining projects ceased operations in the fourth quarter
      of 2006.





In
      2003,
      the Trust sold the assets of the Globe cogeneration project located in Fall
      River, Massachusetts for $240. The Trust had no basis in the project in 2003,
      as
      a result this amount was recognized as a gain.




**5.   
        **INVESTMENT****


**Ridgewood
      Providence Power Partners, L.P.**





In
      1996,
      Ridgewood Providence was formed as a Delaware limited partnership which acquired
      a 12.3MW electrical generating station, located at the Central Landfill in
      Johnston, Rhode Island.  In 1997, the capacity was increased to
      13.8MW. The Trust invested $7,100, in return for a 35.7% limited partnership
      interest in Ridgewood Providence and its general partner.





The
      project is fueled by methane gas produced and collected from the landfill.
      The
      electricity generated is sold pursuant to a long-term contract. The remaining
      64.3% of Ridgewood Providence is owned by Ridgewood Electric Power Trust IV
      ("Trust IV"), whose managing partner is also Ridgewood Renewable Power
      LLC.





The
      Trust's accounts for its investment in Ridgewood Providence under the equity
      method of accounting.





Summarized
      balance sheet data for Ridgewood Providence at December 31, 2005, 2004 and
      2003
      is as follows:





**2005**
            
            
            **2004**
            
            
            **2003**(Restated)Current
                assets
            
            $
            2,675
            
            
            $
            2,151
            
            
            $
            2,672Non-current
                assets
            
            
            12,214
            
            
            
            13,596
            
            
            
            14,694Total
                assets
            
            $
            14,889
            
            
            $
            15,747
            
            
            $
            17,366Current
                liabilities
            
            $
            1,912
            
            
            $
            1,546
            
            
            $
            1,991Equity
            
            
            12,977
            
            
            
            14,201
            
            
            
            15,375Total
                liabilities and equity
            
            $
            14,889
            
            
            $
            15,747
            
            
            $
            17,366Trust
                share of equity
            
            $
            4,633
            
            
            $
            5,070
            
            
            $
            5,489





F-27


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


Summarized
      statements of operations data for Ridgewood Providence for the years ended
      December 31, 2005, 2004 and 2003 is as follows:





**2005**
            
            
            **2004**
            
            
            **2003**(Restated)Revenues
            
            $
            11,916
            
            
            $
            12,205
            
            
            $
            8,585Cost
                of revenues
            
            
            9,050
            
            
            
            8,972
            
            
            
            6,856Other
                expenses
            
            
            5
            
            
            
            13
            
            
            
            121Total
                expenses
            
            
            9,055
            
            
            
            8,985
            
            
            
            6,977Net
                income
            
            $
            2,861
            
            
            $
            3,220
            
            
            $
            1,608Trust
                share of net income
            
            $
            1,021
            
            
            $
            1,150
            
            
            $
            574





Quarterly
      summarized statements of operations data for Ridgewood Providence is as follows
      (unaudited):





**Nine
                  Months Ended September 30,**
              
              
              **Three
                  Months Ended September 30,****2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003****(Restated)**
              
              
              **(Restated)**
              
              
              
              
              
              **(Restated)**
              
              
              **(Restated)**Revenues
              
              $
              8,825
              
              
              $
              9,105
              
              
              $
              6,153
              
              
              $
              2,860
              
              
              $
              2,954
              
              
              $
              1,960Cost
                  of revenues
              
              
              6,396
              
              
              
              6,467
              
              
              
              4,991
              
              
              
              2,032
              
              
              
              1,819
              
              
              
              1,678Other
                  expenses (income)
              
              
              80
              
              
              
              35
              
              
              
              (42
              )
              
              
              45
              
              
              
              -
              
              
              
              (133
              )Total
                  expenses
              
              
              6,476
              
              
              
              6,502
              
              
              
              4,949
              
              
              
              2,077
              
              
              
              1,819
              
              
              
              1,545Net
                  income
              
              $
              2,349
              
              
              $
              2,603
              
              
              $
              1,204
              
              
              $
              783
              
              
              $
              1,135
              
              
              $
              415Trust
                  share of net income
              
              $
              839
              
              
              $
              929
              
              
              $
              430
              
              
              $
              280
              
              
              $
              405
              
              
              $
              148
  
 **Six
                  Months Ended June 30,**
              
              
              **Three
                  Months Ended June 30,****2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003****(Restated)**
              
              
              **(Restated)**
              
              
              
              
              
              
              **(Restated)**
              
              
              **(Restated)**Revenues
              
              $
              5,965
              
              
              $
              6,151
              
              
              $
              4,193
              
              
              $
              2,875
              
              
              $
              3,013
              
              
              $
              1,905Cost
                  of revenues
              
              
              4,364
              
              
              
              4,648
              
              
              
              3,313
              
              
              
              2,249
              
              
              
              2,328
              
              
              
              1,655Other
                  expenses
              
              
              35
              
              
              
              35
              
              
              
              91
              
              
              
              21
              
              
              
              8
              
              
              
              43Total
                  expenses
              
              
              4,399
              
              
              
              4,683
              
              
              
              3,404
              
              
              
              2,270
              
              
              
              2,336
              
              
              
              1,698Net
                  income
              
              $
              1,566
              
              
              $
              1,468
              
              
              $
              789
              
              
              $
              605
              
              
              $
              677
              
              
              $
              207Trust
                  share of net income
              
              $
              559
              
              
              $
              524
              
              
              $
              282
              
              
              $
              216
              
              
              $
              243
              
              
              $
              73


F-28


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


**Three
                  Months Ended March 31,****2005**
              
              
              **2004**
              
              
              **2003****(Restated)**
              
              
              **(Restated)**Revenues
              
              $
              3,090
              
              
              $
              3,138
              
              
              $
              2,288Cost
                  of revenues
              
              
              2,115
              
              
              
              2,320
              
              
              
              1,658Other
                  expenses
              
              
              14
              
              
              
              27
              
              
              
              48Total
                  expenses
              
              
              2,129
              
              
              
              2,347
              
              
              
              1,706Net
                  income
              
              $
              961
              
              
              $
              791
              
              
              $
              582Trust
                  share of net income
              
              $
              343
              
              
              $
              281
              
              
              $
              209





**6.  PLANT
      AND EQUIPMENT**





At
      December 31, 2005, 2004 and 2003, plant and equipment at cost and accumulated
      depreciation were:




**2005**
              
              
              **2004**
              
              
              **2003**(Restated)Building
              
              $
              319
              
              
              $
              319
              
              
              $
              166Machinery
                  and equipment
              
              
              8,478
              
              
              
              9,029
              
              
              
              9,5178,797
              
              
              
              9,348
              
              
              
              9,683Less:
                  accumulated depreciation
              
              
              (5,203
              )
              
              
              (4,763
              )
              
              
              (4,667
              )$
              3,594
              
              
              $
              4,585
              
              
              $
              5,016




For
      the
      years ended December 31, 2005, 2004 and 2003, depreciation expense was $440,
      $460 and $572, respectively, which is included in cost of revenues.





Quarterly
      plant and equipment and related depreciation expense were as follows
      (unaudited):





**2005****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**Building
              
              $
              319
              
              
              $
              319
              
              
              $
              319Machinery
                  and equipment
              
              
              9,031
              
              
              
              9,030
              
              
              
              9,0299,350
              
              
              
              9,349
              
              
              
              9,348Less:
                  accumulated depreciation
              
              
              (5,082
              )
              
              
              (4,976
              )
              
              
              (4,869
              )$
              4,268
              
              
              $
              4,373
              
              
              $
              4,479




Depreciation
      expense for the 2005 year-to-date periods ended September 30, June 30, and
      March
      31, was $319, $2,131 and $106, respectively.





**2004****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**(Restated)
              
              
              (Restated)
              
              
              (Restated)Building
              
              $
              319
              
              
              $
              319
              
              
              $
              319Machinery
                  and equipment
              
              
              9,027
              
              
              
              9,010
              
              
              
              9,0109,346
              
              
              
              9,329
              
              
              
              9,329Less:
                  accumulated depreciation
              
              
              (4,647
              )
              
              
              (4,522
              )
              
              
              (4,419
              )$
              4,699
              
              
              $
              4,807
              
              
              $
              4,910




Restated
        depreciation expense for the 2004 year-to-date periods ended September 30,
        June
        30, and March 31, was $312, $213 and $106, respectively.


F-29


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)





**2003****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**(Restated)
              
              
              (Restated)
              
              
              (Restated)Building
              
              $
              319
              
              
              $
              319
              
              
              $
              319Machinery
                  and equipment
              
              
              9,531
              
              
              
              10,298
              
              
              
              10,2989,850
              
              
              
              10,617
              
              
              
              10,617Less:
                  accumulated depreciation
              
              
              (4,662
              )
              
              
              (4,519
              )
              
              
              (4,374
              )$
              5,188
              
              
              $
              6,098
              
              
              $
              6,243




Restated
      depreciation expense for the 2003 year-to-date periods ended September 30,
      June
      30, and March 31, was $432, $277 and $144, respectively.




**7.   
        **INTANGIBLE
        ASSETS****


A
      portion
      of the purchase price of the San Joaquin and Byron were assigned to electric
      power sales contracts and are being amortized over the lives of the contracts
      on
      a straight-line basis. The electric power sales contracts are reviewed for
      impairment whenever events or changes in circumstances indicate that the
      carrying amount of the assets may not be recoverable.





Gross
      and
      net amounts of intangible assets and related amortization expense at December
      31, 2005, 2004 and 2003 were as follows:





**2005**
              
              
              **2004**
              
              
              **2003**(Restated)Electricity
                  sales contract - gross
              
              $
              1,794
              
              
              $
              1,794
              
              
              $
              1,794Less:
                  accumulated amortization
              
              
              (790
              )
              
              
              (718
              )
              
              
              (646
              )Intangibles,
                  net
              
              $
              1,004
              
              
              $
              1,076
              
              
              $
              1,148




During
      2005, 2004 and 2003, the Trust recorded amortization expense of $72 per
      year.





Future
      amortization expenses as of December 31, 2005 are as follows:





**Years
                ended December 31,**
            
            **Amortization**2006
            
            $
            722007
            
            
            722008
            
            
            722009
            
            
            722010
            
            
            72Thereafter
            
            
            644




Quarterly
      gross and net amounts of intangible assets and related amortization expense
      were
      asfollows
      (unaudited):




**2005****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**Electricity
                  sales contract - gross
              
              $
              1,794
              
              
              $
              1,794
              
              
              $
              1,794Less:
                  accumulated amortization
              
              
              (772
              )
              
              
              (754
              )
              
              
              (736
              )Intangibles,
                    net
              
              $
              1,022
              
              
              $
              1,040
              
              
              $
              1,058


Amortization
        expense for the 2005 year-to-date periods ended September 30, June 30 and
        March
        31, was $54, $36 and $18, respectively.


F-30


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)





**2004****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**(Restated)
              
              
              (Restated)
              
              
              (Restated)Electricity
                  sales contract - gross
              
              $
              1,794
              
              
              $
              1,794
              
              
              $
              1,794Less:
                  accumulated amortization
              
              
              (700
              )
              
              
              (682
              )
              
              
              (664
              )Intangibles,
                    net
              
              $
              1,094
              
              
              $
              1,112
              
              
              $
              1,130




Restated
      amortization expense for the 2004 year-to-date periods ended September 30,
      June
      30 and March 31, was $54, $36 and $18, respectively.




**2003****September
                  30**
              
              
              **June
                  30**
              
              
              **March
                  31**(Restated)
              
              
              (Restated)
              
              
              (Restated)Electricity
                  sales contract - gross
              
              $
              1,794
              
              
              $
              1,794
              
              
              $
              1,794Less:
                  accumulated amortization
              
              
              (628
              )
              
              
              (610
              )
              
              
              (592
              )Intangibles,
                      net
              
              $
              1,166
              
              
              $
              1,184
              
              
              $
              1,202




Restated
      amortization expense for the 2003 year-to-date periods ended September 30,
      June
      30 and March 31, was $54, $36 and $18, respectively.





**8.  TRANSACTIONS
      WITH MANAGING SHAREHOLDER AND AFFILIATES**





The
      Trust
      operates pursuant to the terms of a Management Agreement with the Managing
      Shareholder, under which the Managing Shareholder renders certain management,
      administrative and advisory services and provides office space and other
      facilities to the Trust. The Trust pays the Managing Shareholder an annual
      management fee, which is payable in equal monthly installments, equal to 2.5%
      of
      the Trust’s shareholders’ equity as of the beginning of the
      year.  During 2005, 2004 and 2003, the Trust paid management fees to
      the Managing Shareholder of $282, $363, and $336, respectively. The management
      fee is to be paid in monthly installments and, to the extent that this includes
      the amount waived, the Trust does not pay the management fee on a timely basis,
      the Trust accrues interest at an annual rate of 10% on the unpaid
      balance.





For
      the
      years ended December 31, 2005, 2004 and 2003, the Trust accrued interest expense
      of $7, $6 and $5 respectively, on accrued but unpaid management fees. The
      interest accrued was waived by the Managing Shareholder in the fourth quarter
      of
      2005 and recorded as capital contribution in the period waived. Additionally,
      the Managing Shareholder waived $72 of the 2005 management fee, which was also
      recorded as contributed capital.




Under
        the
        Management Agreement with the Managing Shareholder, Ridgewood Power Management
        ("RPM"), an entity related to the Managing Shareholder through common ownership,
        provides management, purchasing, engineering, planning and administrative
        services to the projects operated by the Fund. RPM charges the projects at
        its
        cost for these services and for the allocable amount of certain overhead
        items.
        Allocations of costs are on the basis of identifiable direct costs or in
        proportion to amounts invested in projects managed by RPM. During the years
        ended December 31, 2005, 2004 and 2003, RPM charged the Trust projects $250,
        $248 and $270, respectively, for overhead items allocated in proportion to
        the
        amount invested in projects managed. In addition, RPM charged the Trust projects
        $3,669, $4,690 and $5,430, respectively, for all of the direct operating
        and
        non-operating expenses incurred during such periods.


Under
      the
      Declaration of Trust, the Managing Shareholder receives 100% of current year
      operating profits until cumulative profits equal cumulative losses allocated
      to
      the Managing Shareholder.  The Managing Shareholder then receives 1%
      of operating profits until the shareholders have received 14% per annum of
      their
      equity contribution (“Payout”).  After Payout, the Managing
      Shareholder is entitled to receive 20% of the distributions for the remainder
      of
      the year.  Losses incurred in any given year are allocated 1% to the
      Managing Shareholder, provided the allocation of losses to the shareholders
      shall be limited to prevent the shareholder from having a negative capital
      account. These allocations do not affect the allocation of cash distributions
      discussed below.





The
      Managing Shareholder is also entitled to receive 1% of all annual distributions
      made by the Trust (other than those derived from the disposition of Trust
      property) until Payout.  Once Payout is reached, the Managing Shareholder
      is entitled to receive 20% of all future distributions. During 2005, 2004,
      and
      2003, distributions to the Managing Shareholder were $20, $22, and $12,
      respectively. The Trust has not yet reached Payout.


F-31


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)




The
      Managing Shareholder owns one investor share. The Trust granted the Managing
      Shareholder a single Management Share representing the Managing Shareholder's
      management rights and rights to distributions of cash flow.




In
      June
      26, 2003, the Managing Shareholder entered into a Revolving Credit and Security
      Agreement with Wachovia Bank, National Association.  The agreement, as
      amended, allows the Managing Shareholder to obtain loans and letters of credit
      of up to $6,000 for the benefit of the trusts and funds that it manages. 
As part of the agreement, the Trust agreed to limitations on its ability to
      incur indebtedness, and liens and to provide guarantees. The Managing
      Shareholder and Wachovia Bank agreed to extend the Managing Shareholder’s line
      of credit, through May 31, 2008. In October 2003, the Trust obtained from its
      bank, two standby letters of credit, to secure the gas purchases for the Byron
      and San Joaquin projects. The Trust used its credit facility to collateralize
      the letters of credit. These two standby letters of credit expired in August
      2006 and at December 31, 2005 were a combined total of $350.





The
      Trust
      records short-term payables and receivables from other affiliates in the
      ordinary course of business. The amounts payable and receivable with the other
      affiliates do not bear interest. At December 31, 2005, 2004 and 2003 the Trust
      had outstanding payables and receivables as follows:





December
                  31,
              
              
              December
                  31,2005
              
              
              2004
              
              
              2003
              
              
              2005
              
              
              2004
              
              
              2003Due
                  from
              
              
              Due
                  to(Restated)
              
              
              
              
              
              
              
              
              (Restated)RPM
              
              $
              311
              
              
              $
              284
              
              
              $
              290
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -RRP
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4
              
              
              
              81
              
              
              
              87Trust
                  II
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              9Providence
              
              
              354
              
              
              
              461
              
              
              
              570
              
              
              
              -
              
              
              
              1
              
              
              
              -Other
                  affiliates
              
              
              5
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              -Total
              
              $
              670
              
              
              $
              745
              
              
              $
              860
              
              
              $
              4
              
              
              $
              83
              
              
              $
              96




The
      Trust
      had the following quarterly outstanding payables and receivables with the
      following affiliates (unaudited):





2005September
                  30
              
              
              June
                  30
              
              
              March
                  31
              
              
              September
                  30
              
              
              June
                  30
              
              
              March
                  31Due
                  from
              
              
              Due
                  toRPM
              
              $
              369
              
              
              $
              278
              
              
              $
              303
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -RRP
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              224
              
              
              
              436
              
              
              
              82Providence
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              377
              
              
              
              121
              
              
              
              236Other
                  affiliates
              
              
              4
              
              
              
              4
              
              
              
              4
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              $
              373
              
              
              $
              282
              
              
              $
              307
              
              
              $
              601
              
              
              $
              557
              
              
              $
              318


F-32


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


2004September
                  30
              
              
              June
                  30
              
              
              March
                  31
              
              
              September
                  30
              
              
              June
                  30
              
              
              March
                  31Due
                  from
              
              
              Due
                  to(Restated)
              
              
              (Restated)
              
              
              (Restated)
              
              
              (Restated)
              
              
              (Restated)
              
              
              (Restated)RPM
              
              $
              300
              
              
              $
              121
              
              
              $
              266
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -RRP
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              87
              
              
              
              116
              
              
              
              116Trust
                  II
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10
              
              
              
              10Providence
              
              
              339
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              430
              
              
              
              1Total
              
              $
              639
              
              
              $
              121
              
              
              $
              266
              
              
              $
              87
              
              
              $
              556
              
              
              $
              127
 
 2003September
                  30
              
              
              June
                  30
              
              
              March
                  31
              
              
              September
                  30
              
              
              June
                  30
              
              
              March
                  31Due
                  from
              
              
              Due
                  to(Restated)
              
              
              (Restated)
              
              
              (Restated)
              
              
              (Restated)
              
              
              (Restated)
              
              
              (Restated)RPM
              
              $
              311
              
              
              $
              263
              
              
              $
              336
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -RRP
              
              
              -
              
              
              
              9
              
              
              
              23
              
              
              
              32
              
              
              
              -
              
              
              
              -Trust
                  II
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10
              
              
              
              10
              
              
              
              10Providence
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              243
              
              
              
              436
              
              
              
              407Other
                  affiliates
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              4
              
              
              
              3Total
              
              $
              311
              
              
              $
              272
              
              
              $
              359
              
              
              $
              287
              
              
              $
              450
              
              
              $
              420




**9.  COMMITMENTS
      AND CONTINGENCIES**





The
      Trust, through certain of its subsidiaries, has two long-term operating ground
      leases with future minimum lease payments as of December 31, 2005 as
      follows:





**Years
                Ended December 31,**2006
            
            $
            1732007
            
            
            1732008
            
            
            1732009
            
            
            1732010
            
            
            173Thereafter
            
            
            2,627Total
            
            $
            3,492





Rent
      expense for the years ended December 31, 2005, 2004 and 2003 was $185, $186
      and
      $220, respectively.





The
      San
      Joaquin and Byron projects have long-term agreements to purchase natural gas
      from their supplier at a fixed price throughout the term, which expired in
      August 2006.  At December 31, 2005, future minimum purchases under the
      agreements, net of resale agreements, totaled $837, all of which occurred in
      2006.





During
      the years ended December 31, 2005, 2004 and 2003, the Trust recorded, as a
      component of cost of revenues, gains from changes in its gas supply
      contracts of $359, $1,011 and $1,924 , respectively.





The
      Trust
      is subject to legal proceedings involving ordinary and routine claims related
      to
      its business. The ultimate legal and financial liability with respect to
      such matters cannot be estimated with certainty and requires the use of
      estimates in recording liabilities for potential litigation settlements.
      Estimates for losses from litigation are disclosed if considered reasonably
      possible and accrued if considered probable after consultation with outside
      counsel. If estimates of potential losses increase or the related facts and
      circumstances change in the future, the Trust may be required to record
      additional litigation expense.


F-33


**Ridgewood Electric
      Power Trust III**


**Notes
      To Consolidated Financial Statements**


(dollar
      amounts in thousands, except per share data)


**10.    RENEWABLE
      ATTRIBUTE REVENUE**





In
      1997,
      Massachusetts enacted the Electric Restructuring Act of 1997 (the “Restructuring
      Act”). Among other things, the Restructuring Act requires that all retail
      electricity suppliers in Massachusetts (i.e., those entities supplying electric
      energy to retail end-use customers in Massachusetts) purchase a minimum
      percentage of their electricity supplies from qualified new renewable generation
      units powered by one of several renewable fuels, such as solar, biomass or
      landfill gas. Beginning in 2003, each such retail supplier must obtain at least
      one (1%) percent of its supply from qualified new renewable generation units.
      Each year thereafter, the requirement increases one-half of one percentage
      point
      until 2009, when the requirement equals four (4%) percent of each retail
      supplier’s sales in that year. Subsequent to 2009, the increase in the
      percentage requirement will be determined and set by the Massachusetts Division
      of Energy Resources (“DOER”).





On
      January 17, 2003, Ridgewood Providence received a “Statement of Qualification”
from the DOER pursuant to the renewable portfolio standards (“RPS”) adopted by
      Massachusetts. Since Ridgewood Providence has now become qualified, it is able
      to sell to retail electric suppliers the RPS Attributes associated with its
      electrical energy. Retail electric suppliers need to purchase RPS Attributes
      associated with renewable energy and not necessarily the energy itself. Thus,
      electrical energy and RPS Attributes are separable products and need not be
      sold
      or purchased as a bundled product. Retail electric suppliers in Massachusetts
      will then use the purchase of such RPS Attributes to demonstrate compliance
      with
      the Restructuring Act and RPS regulations.





During
      2004, Ridgewood Providence became qualified to sell RPS Attributes in
      Connecticut under a similar RPS program, except that the Connecticut program
      does not have a “vintage” prohibition, which in Massachusetts disqualifies the
      amount of a facility’s generation measured by its average output during the
      period 1995 through 1997. Thus, Ridgewood Providence can sell the 86,000
      megawatt hours (“MWhs”) that are ineligible under Massachusetts standards into
      the Connecticut market. During 2004, Ridgewood Providence sold its “vintage” RPS
      Attributes pursuant to agreements with various power marketers.





Similar
      agreements have committed Ridgewood Providence to sell its 2005 and 2006
“vintage” RPS Attributes to such designated parties at certain fixed quantities
      and prices. Pursuant to the terms of the agreement, Ridgewood Providence
      is only required to deliver the specified RPS Attributes it generates and
      is not obligated to produce, nor is it subject to penalty if it is unable to
      produce, contracted quantities.




**11.** **SELECTED
        UNAUDITED QUARTERLY FINANCIAL DATA**


2005
                  Quarters1st
              
              
              2nd
              
              
              3rd
              
              
              4thRevenues
              
              $
              964
              
              
              $
              1,354
              
              
              $
              1,750
              
              
              $
              137Gross
                  profit (loss)
              
              
              468
              
              
              
              (231
              )
              
              
              2,201
              
              
              
              (938
              )Income
                  (loss) from operations
              
              
              309
              
              
              
              (407
              )
              
              
              2,066
              
              
              
              (1,623
              )Net
                  income (loss)
              
              
              658
              
              
              
              (190
              )
              
              
              2,349
              
              
              
              (1,464
              )Net
                  income (loss) per Investor Share
              
              
              1,662
              
              
              
              (479
              )
              
              
              5,936
              
              
              
              (3,701
              )
 
 2004
                  Quarters1st
              
              
              2nd
              
              
              3rd
              
              
              4th(Restated)
              
              
              (Restated)
              
              
              (Restated)Revenues
              
              $
              1,097
              
              
              $
              1,380
              
              
              $
              1,791
              
              
              $
              1,326Gross
                  profit (loss)
              
              
              680
              
              
              
              453
              
              
              
              821
              
              
              
              (653
              )Income
                  (loss) from operations
              
              
              391
              
              
              
              314
              
              
              
              718
              
              
              
              (751
              )Net
                  income (loss)
              
              
              679
              
              
              
              562
              
              
              
              1,073
              
              
              
              (497
              )Net
                  income (loss) per Investor Share
              
              
              1,712
              
              
              
              1,422
              
              
              
              2,710
              
              
              
              (1,252
              )
  F-34
 **Ridgewood Electric
          Power Trust III**
 **Notes
          To Consolidated Financial Statements**
 (dollar
          amounts in thousands, except per share data)
 2003
                  Quarters1st
              
              
              2nd
              
              
              3rd
              
              
              4th(Restated)
              
              
              (Restated)
              
              
              (Restated)
              
              
              (Restated)Revenues
              
              $
              964
              
              
              $
              1,742
              
              
              $
              2,137
              
              
              $
              1,066Gross
                  profit (loss)
              
              
              783
              
              
              
              1,427
              
              
              
              122
              
              
              
              (163
              )Income
                  (loss) from operations
              
              
              589
              
              
              
              1,320
              
              
              
              (338
              )
              
              
              (127
              )Net
                  income (loss)
              
              
              1,037
              
              
              
              1,390
              
              
              
              (189
              )
              
              
              21Net
                  income (loss) per Investor Share
              
              
              2,621
              
              
              
              3,547
              
              
              
              (476
              )
              
              
              15


**12.   SUBSEQUENT
      EVENTS**





On
      August
      16, 2006, the Managing Shareholder of the Trust and affiliates of the Trust,
      filed lawsuits against the former independent registered public accounting
      firm
      for the Trust, Perelson Weiner, LLP (“Perelson Weiner”), in New Jersey Superior
      Court.  The suits alleged professional malpractice and breach of contract
      in connection with audit and accounting services performed by Perelson Weiner.
      On October 26, 2006, Perelson Weiner filed a counterclaim against the Trust,
      and
      its affiliates alleging breach of contract due to unpaid invoices. Discovery
      is
      ongoing and no trial date has been set. The costs and expenses of the litigation
      are being paid for by the Managing Shareholder and affiliated management
      companies and not the underlying investment funds, including the
      Trust.









F-35