Table
      of Contents





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, 2006


or





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.  x





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   o                                                                
Accelerated 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
      December 31, 2007 was 391.8444.








Table
          of Contents


FORM
      10-K




TABLE
      OF CONTENTS





PART
      I





Item
                1.
            Business
            1Item
                1A.
            Risk
                Factors
            6Item
                1B.
            Unresolved
                Staff Comments
            9Item
                2.
            Properties
            9Item
                3.
            Legal
                Proceedings
            9Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            10PART
                IIItem
                5.
            Market
                for Registrant’s Common Equity, Related Security Holder
                Matters and
              Issuer
                Purchases of Equity Securities
            10Item
                6.
            Selected
                Financial Data
            10Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and
                Results of Operations
            11Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            15Item
                8.
            Financial
                Statements and Supplementary Data
            15Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            15Item
                9A.
            Controls
                and Procedures
            15Item
                9B.
            Other
                Information
            16PART
                IIIItem
                10.
            Directors,
                Executive Officers and Corporate
                Governance
            16Item
                11.
            Executive
                Compensation
            18Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            18Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            19Item
                14.
            Principal
                Accountant Fees and Services
            20PART
                IVItem
                15.
            Exhibits
                and Financial Statement Schedules
            20SIGNATURES
            22




Table
          of Contents


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 Ridgewood Electric Power Trust
      III’s (the “Trust”) 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 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 primarily to 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, 2006, 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
      December 31, 2007, the Trust had 391.8444 Investor Shares outstanding, held
      by
      839 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 investments, RRP locates
      potential projects, conducts appropriate due diligence and negotiates and
      completes the transactions in which the investments are made by the
      Trust.





In
      addition, RRP 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,
      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.




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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 Trust's prior year net asset value 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, such 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, 2006, all of the Trust’s projects are owned through investment
      vehicles that the Trust co-owns with certain affiliated investment trusts or
      are
      managed by the Managing Shareholder.




Projects
      and Properties




The
      following table is a summary of the Trust’s investment portfolio as of December
      31, 2006 detailing the nature of the business, the portion of the investment
      owned by the Trust and the number of projects in each investment.




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.





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.


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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 their 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
      ability of the Norcals to operate profitably is largely dependent on the price
      of natural gas. If natural gas prices are at a level where operating costs
      exceed the revenues the plants can generate, the plants may temporarily close.
      Because of increased natural gas prices, the Norcals suspended operations in
      November 2007 and are expected to remain closed until at least May
      2008.




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.
      Ridgewood Providence 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 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.





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 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.


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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 (“MWhs”) 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
      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 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
      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 receivable 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.





Significant
      Customers and Supplier





During
      2006, 2005 and 2004, the Trust’s largest customer, Pacific Gas and Electric
      Company, accounted for 97%, 82% and 87%, respectively, of total revenues. During
      2006, 2005 and 2004, 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.


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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 its 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.





On
      January 17, 2003, Ridgewood Providence received a “Statement of Qualification”
from the DOER pursuant to the RPS adopted by Massachusetts.  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
      MWhs that are ineligible under Massachusetts standards into the Connecticut
      market.





Since
      Ridgewood Providence has been qualified, they have sold to retail electric
      suppliers the RPS Attributes associated with their 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 and
      Connecticut will then use the purchase of such RPS Attributes to
      demonstrate compliance with the Restructuring Act and RPS
      regulations.




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 is 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’s
      principal office is located at 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
      Securities and Exchange Commission (“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.


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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. RISKFACTORS




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.




The
      Trust’s Ridgewood Providence business depends on the production of landfill
      methane from the landfill sites on which they operate 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.





Certain
      of the Trust’s projects sell all or a portion of their electricity output at
      open market prices and could be adversely affected should prices fall
      substantially.




Portions
      of the Trust’s revenues come from open market pricing and the reliance on this
      pricing will be increasing over the next few years. Should the price of
      electricity fall substantially, the Trust would be adversely affected and it
      is
      possible that the projects affected could not be operated
      profitably.





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.


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The
      operations of the Trust may experience competitive price pressure and
      competition for project development opportunities.




Competition
      for new project opportunities is based largely on price, service and
      reliability. While it is difficult to displace the existing projects of the
      Trust from their customers, competition exists for new projects and this
      competition may, in some circumstances, drive down the prices of the products
      and services offered by the Trust’s projects or drive up the costs of its
      feedstock resources.




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 includes mechanical fuel handling systems,
      circulating fluidized bed boilers, turbine generator sets, reciprocating engine
      generator sets and hydroelectric generating equipment. This equipment 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.





The
      Ridgewood Providence project 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 the Ridgewood Providence
      project.




The
        Trust is, and may in the future become, involved in litigation that may be
        resolved unfavorably.
 
 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, any such claims or proceedings, or any claim or proceeding
        discussed herein under Item 3. “Legal Proceedings”, may be disposed of
        unfavorably to the Trust. An unfavorable ruling could include money damages
        or
        injunctive relief and could result in a material adverse impact on the Trust's
        business or financial condition. Generally, for accounting purposes, the
        Trust's
        results of operations would be impacted for the period in which the matter
        is
        ultimately resolved unfavorably to the Trust or an unfavorable outcome becomes
        probable and reasonably estimable. 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.
  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.


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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’s 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.




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.


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·
            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 returns.




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.




ITEM
      1B.  UNRESOLVEDSTAFF 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.  LEGALPROCEEDINGS




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.




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ITEM
      4.  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY
      HOLDERS




None.





PART
      II





ITEM
      5.  MARKETFOR 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
      December 31, 2007 and 2006, there were 839 and 841 holders of Investor
      Shares, respectively.




Dividends




Trust
      distributions for the years ended December 31, 2006 and 2005 were as
      follows (in thousands, except per share data):




2006
            
            
            2005Distributions
                to Investors
            
            $
            1,651
            
            
            $
            1,929Distributions
                per Investor Share
            
            
            4,200
            
            
            
            4,900Distributions
                to Managing Shareholder
            
            
            17
            
            
            
            20





ITEM
      6.  SELECTEDFINANCIAL 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.





The
      consolidated statement of operations data for the years ended December 31,
      2006,
      2005 and 2004 and the consolidated balance sheet data as of December 31, 2006
      and 2005, are derived from audited financial statements included in this Form
      10-K. The consolidated statement of operations data for the years ended December
      31, 2003 and 2002 and the consolidated balance sheet data as of December 31,
      2004, 2003 and 2002 are derived from audited consolidated financial statements
      not included in this Form 10-K.  The consolidated statement of
      operations and the consolidated balance sheet data for the year ended December
      31, 2002 are derived from audited consolidated financial statements that have
      not been restated, and as a result, may not be comparable to subsequent
      periods.





December
                31,(in
                thousands, except per share data)
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Consolidated
                Statement of Operations Data:Revenues
            
            $
            3,768
            
            
            $
            4,205
            
            
            $
            5,594
            
            
            $
            5,909
            
            
            $
            7,849Net
                (loss) income
            
            
            (1,127
            )
            
            
            1,353
            
            
            
            1,817
            
            
            
            2,259
            
            
            
            (1,356
            )Net
                (loss) income per Investor Share
            
            
            (2,849
            )
            
            
            3,418
            
            
            
            4,592
            
            
            
            5,707
            
            
            
            (3,462
            )Consolidated
                Balance Sheet Data:Plant
                and equipment, net
            
            
            3,233
            
            
            
            3,594
            
            
            
            4,585
            
            
            
            5,016
            
            
            
            6,632Total
                assets
            
            
            11,096
            
            
            
            13,739
            
            
            
            14,453
            
            
            
            14,875
            
            
            
            15,589Shareholders' equity
            
            
            10,938
            
            
            
            13,632
            
            
            
            14,149
            
            
            
            14,503
            
            
            
            14,273




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ITEM
      7.  MANAGEMENT’SDISCUSSION 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.




Overview





The
      Trust
      is a Delaware trust formed on December 6, 1993 primarily to make investments
      in
      projects and businesses in the energy and infrastructure sectors. RRP, 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, 2006, 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.





In
      connection with the Trust’s 2008 annual budget cycle, which is part of its 2007
      year-end financial closing process, the Trust performed a cash flow analysis
      of
      the Norcals and determined that effective December 31, 2007, the remaining
      net
      book value of its plant and equipment, and its intangibles assets, will be
      fully
      impaired with a resulting impairment expense recorded in the fourth quarter
      of
      2007. Based on the Trust’s accounting for its investments, all recorded plant
      and equipment and intangible assets relate to the Norcals ($4.2 million at
      December 31, 2006). As a result, at December 31, 2007, the Trust’s balance sheet
      will be materially reduced and operating results for periods subsequent to
      December 31, 2007 will not have depreciation and amortization expense.
      Additionally, due to increased fuel costs, the Norcals suspended operations
      in
      November 2007 and they are expected to remain closed until at least May
      2008.





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
      delivery. Final billings do not vary significantly from estimates.





Renewable
      attribute revenue is derived from the sale of the RPS Attributes. Qualified
      renewable electric generation facilities produce RPS Attributes when they
      generate electricity. Renewable attribute revenue is recorded in the month
      in
      which the RPS Attributes are produced as Ridgewood Providence has substantially
      completed its obligations for entitled benefits, represented by the underlying
      generation of power within specific environmental requirements.





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
      consolidated statement of operations.




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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 Contract





In
      August
      2001, the Norcals entered into agreements to purchase natural gas, at fixed
      prices, over a five-year term in connection with entering into an amendment
      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 Statement of Financial Accounting Standards (“SFAS”) No. 133,
      "Accounting for Derivative Instruments and Hedging Activities"(“SFAS 133”), as
      amended. The Trust has designated the derivatives as non-hedge instruments.
      Accordingly, the values of the contracts are based on the differences between
      contract prices and market value prices and recognized as an asset or a
      liability in the consolidated balance sheets. Changes in the carrying value
      of
      the contracts are reflected as a component of cost of revenues in the
      consolidated statements of operations. During the third quarter of 2006, the
      Trust completed its contractual agreement to resell the purchased gas back
      to
      the Norcals’ gas supplier and therefore, there is no longer any value recorded
      on the consolidated balance sheets associated with these contracts.




Management
        Fees
  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 fees and related interest. Any waived
        management fees and interest are 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





Year
      ended December 31, 2006 compared to the year ended December 31,
      2005





Revenues
      decreased by $0.4 million, or 10.4%, from $4.2 million in 2005 to $3.8 million
      in 2006. The decrease in power generation revenue of $0.4 million was due to
      fewer megawatts being generated because of temporary closure of the Norcals
      due
      to maintenance.





Cost
      of
      revenues increased by approximately $2.8 million, or 103%, from $2.7 million
      for
      2005 to $5.5 million in 2006. This was primarily attributable to a $2.5 million
      effect of accounting for its gas contracts as natural gas prices decreased
      during 2006, and $0.5 million of maintenance costs at the Norcals.





Gross
      profit of $1.5 million in 2005 decreased by $3.2 million to a gross loss of
      $1.7
      million for 2006. This increase was primarily due to increased costs of revenues
      attributable to the accounting for gas contracts and lower revenues of $0.4
      million.





General
      and administrative expenses decreased by approximately $0.2 million from $0.3
      million in 2005 to $0.1 million in 2006. The decrease was primarily
      attributable to lower professional fees.




The
        management fee due to the Managing Shareholder for 2006 and 2005 was
        approximately $0.4 million. The management fee was paid to the Managing
        Shareholder for certain management, administrative and advisory services,
        office
        space and other facilities provided to the Trust. In 2006, the Managing
        Shareholder waived its right to receive $0.1 million of unpaid accrued
        management fees and interest.
  In
        2005,
        the Trust recorded an impairment of $0.6 million related to its remaining
        co-generation projects purchased from EUA.  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.  The Trust did not record any impairments in
        2006.





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          of Contents


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 decreases 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 approximately $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 2005.




The
        management fee due to the Managing Shareholder for 2005 and 2004 was
        approximately $0.4 million. In 2005, the Managing Shareholder waived its
        right
        to receive $79,000 of unpaid accrued management fees and interest.


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.




Liquidity
      and Capital Resources





Year
      ended December 31, 2006 compared to the year ended December 31,
      2005





At
      December 31, 2006, the Trust had cash and cash equivalents of $1.4 million,
      an
      increase of approximately $1.1 million from December 31, 2005. The cash flows
      for the year 2006 were $2.7 million provided by operating activities, $55,000
      provided by investing activities and $1.7 million used in financing
      activities.





In
      2006,
      the Trust’s operating activities generated cash of $2.7 million compared to $2.1
      million in 2005, an increase of $0.6 million, primarily due to a decrease in
      distributions from investments.




In
      2006,
      the Trust used cash of $1.7 million in financing activities as compared to
      $1.9
      million in 2005.  Both amounts represent cash distributions to
      shareholders.





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 approximately $0.2 million from December 31, 2004. The cash flows
      for 2005 consisted of $2.1 million provided by operating activities, $31,000
      provided by investing 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 amounts represent cash distributions to
      shareholders.




Future
        Liquidity and Capital Resource Requirements
  The
        Trust
        expects cash flows from operating activities, along with existing cash, cash
        equivalents and borrowing capabilities will be sufficient to provide working
        capital and fund capital expenditures for the next 12 months.


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Off-Balance
      Sheet Arrangements




The
      Trust
      has not entered into any off-balance sheet arrangements that either have, or
      are
      reasonable likely to have, a material adverse current or future effect on the
      Trust’s financial condition, revenues or expenses, result of operations,
      liquidity, capital expenditures or capital resources that are material to the
      Trust.





Contractual
      Obligations and Commitments





At
      December 31, 2006, the Trust’s contractual obligations are as follows (inthousands):





Payments
                due by periodContractual
                obligations
            
            Total
            
            
            Less
                than 1 year
            
            
            1
                -
                3 years
            
            
            3
                -
                5 years
            
            
            More
                than 5 yearsGround
                operating leases
            
            $
            2,482
            
            
            $
            173
            
            
            $
            346
            
            
            $
            346
            
            
            $
            1,617






Recent
      Accounting Pronouncements





FIN
      48





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, Accounting for Uncertainty
      in Income
      Taxes(“FIN 48”) an interpretation of FASB Statement No. 109,
Accounting for Income
      Taxes. FIN 48 clarifies the accounting for uncertainty in income
      taxes recognized in an enterprise’s financial statements in accordance with
      SFAS 109 and prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 will be effective for the Trust
      beginning January 1, 2007. The Trust does not believe that the adoption of
      FIN 48 will have a material impact on its consolidated financial
      statements.





SFAS
      157




In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(“SFAS 157”), to define fair value, establish a framework for measuring
      fair value in accordance with generally accepted accounting principles (GAAP)
      and expand disclosures about fair value measurements. SFAS 157 requires
      quantitative disclosures using a tabular format in all periods (interim and
      annual) and qualitative disclosures about the valuation techniques used to
      measure fair value in all annual periods. SFAS 157 will be effective for
      the Trust beginning January 1, 2008. The Trust is currently evaluating the
      impact of adopting SFAS 157 on its consolidated financial
      statements.





SAB
      108




In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects
      of
      Prior Year Misstatements When Quantifying Misstatements in Current Year
      Financial Statements(“SAB 108”). SAB 108 requires analysis of
      misstatements using both an income statement (rollover) approach and a balance
      sheet (iron curtain) approach in assessing materiality and provides for a
      one-time cumulative effect transition adjustment. SAB 108 is effective for
      fiscal years ending on or after November 15, 2006. The adoption of this
      standard did not have a material impact on its consolidated financial
      statements.





SFAS
      159




In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
      Financial
      Assets and Financial Liabilities (“SFAS 159”). SFAS 159 expands
      opportunities to use fair value measurements in financial reporting and permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value. SFAS 159 will be effective for the Trust on January 1,
      2008. The
      Trust
      is currently evaluating the impact of adopting SFAS 159 on its consolidated
      financial statements.





SFAS
      160





In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
      in
      Consolidated Financial Statements — an amendment of ARB No. 51
      (“SFAS 160”).  SFAS 160 requires that ownership interests in
      subsidiaries held by parties other than the parent, and the amount of
      consolidated net income, be clearly identified, labeled, and presented in the
      consolidated financial statements within
      equity, but separate from the parent’s equity.It also requires once a
      subsidiary is deconsolidated, any retained noncontrolling equity investment
      in
      the former subsidiary be initially measured at fair value. Sufficient
      disclosures are required to clearly identify and distinguish between the
      interests of the parent and the interests of the noncontrolling owners. SFAS
      160
      will be effective for the Trust beginning January 1, 2009. The Trust is
      currently evaluating the impact of adopting SFAS 160 on its consolidated
      financial statements.


14
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          of Contents




ITEM
      7A. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK




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




ITEM
      8.  FINANCIALSTATEMENTS 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.  CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE




None.





ITEM
      9A.  CONTROLSAND PROCEDURES




In
      accordance with Rule 13a-15(b) under the Exchange Act, the Trust’s Chief
      Executive Officer and Chief Financial Officer, evaluate 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, 2006, which revealed that
      the following material weaknesses previously identified continue to
      exist:




(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, 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.




The
      Trust’s Chief Executive Officer and Chief Financial Officer have concluded that
      there was no change in the Trust's internal control over financial reporting
      (as
      such term is defined in Rule 13a-15(f) under the Exchange Act, as amended)
      that
      occurred during the quarter ended December 31, 2006 that has materially
      affected, or is reasonably likely to materially affect, the Trust’s internal
      control over financial reporting.




Since
      December 31, 2006, the Trust has implemented the following to address the above
      weaknesses:




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





·
            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.




·
            During
                the fourth quarter of
                2007, the Trust expanded its internal control over financial reporting.
                The Trust documented many existing informal internal controls of
                the
                Trust, improved disclosure controls and procedures primarily by
                establishing a compliance-focused disclosure committee and formalizing
                monthly closing procedures and implemented a corporate whistleblower
                policy.




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’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
      the period covered by this report pursuant to Rule 13a-15(b) under the Exchange
      Act and concluded that, as of the end of the period covered by this report,
      because of the material weaknesses noted above, the Trust’s disclosure controls
      and procedures were not effective.


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Because
      the Trust is not an “Accelerated Filer” as defined in Rule 12b-2 of the Exchange
      Act, the Trust is not presently required to file Management’s annual report on
      internal control over financial reportingand the Attestation report
      of the registered public
      accounting firm
      required by Item 308(a) and (b) of Regulation S-K promulgated under the
      Securities Act of 1933, as amended.  Under current rules, because the
      Trust is neither a “large accelerated filer” nor an “accelerated filer”, the
      Trust is not required to provide management’s report on internal control over
      financial reporting until the Trust files its annual report for 2007 and
      compliance with the auditor’s attestation report requirement is not required
      until the Trust files its annual report for 2008.  The Trust currently
      expects to comply with these requirements at such time as the Trust is required
      to do so.




ITEM
      9B.  OTHERINFORMATION




None.


PART
      III





ITEM
      10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE




The
      Trust’s Managing Shareholder, RRP, 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
                SinceRandall
                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, the Managing Shareholder
      and affiliated Power Trusts and LLCs since January 2006 and served as Chief
      Operating Officer of the Trust, the Managing Shareholder and affiliated Power
      Trusts and LLCs from January 2004 until January 2006. 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 the Trust. Such relationship does 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.


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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.




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 not to 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. 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, and Director Independence”.




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 met during the year ended December 31,
      2006.


17
 Table
          of Contents


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.  EXECUTIVECOMPENSATION




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
      in accordance with the terms of the Trust’s Declaration of 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.





Compensation
      Discussion and Analysis




The
      executive officers of the Trust, Mr. Holmes, Mr. Swanson, Mr. Strasberg, Mr.
      Gulino and Mr. Wilson, are employed by, and are executive officers of, the
      Managing Shareholder and provide managerial services to the Trust in accordance
      with the terms of the Trust’s Declaration of Trust. The Trust does not have any
      other executive officers. The Managing Shareholder determines and pays the
      compensation of these officers. Each of the executive officers of the Trust
      also
      serves as an executive officer of each of the other investment trust managed
      by
      the Managing Shareholder. Messrs. Swanson, Strasberg and Gulino also serve
      in
      similar capacities for trusts managed by affiliates of the Managing Shareholder.
      Because the executive officers are not employees of the Trust and provide
      managerial services to all of the trusts managed by the Managing Shareholder
      and
      its affiliates in the course of such employment, they do not receive additional
      compensation for providing managerial services to the Trust.




The
      Managing Shareholder is fully responsible for the payment of compensation to
      the
      executive officers, and the Trust does not pay any compensation to its executive
      officers and does not reimburse the Managing Shareholder for the compensation
      paid to executive officers. The Trust does, however, pay the Managing
      Shareholder a management fee and the Managing Shareholder 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, and Director Independence” for more information regarding Managing
      Shareholder compensation and payments to affiliated entities.





Report
      of the Managing Shareholder




Because
      the Trust is managed by the Managing Shareholder and does not have a Board
      of
      Directors or a Compensation Committee, the Managing Shareholder reviewed and
      discussed with management the Compensation Discussion and Analysis included
      in
      this Annual Report on Form 10-K. Based on such review and discussion, the
      Managing Shareholder determined that the Compensation Discussion and Analysis
      be
      included in this Annual Report on Form 10-K for filing with the Securities
      and
      Exchange Commission.




Submitted
      by the Managing Shareholder




Robert
      E.
      Swanson, Chairman




ITEM
      12. SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS




The
      following table sets forth information with respect to the beneficial ownership
      of the Trust’s Investor Shares as of December 31, 2006 (no person owns more than
      5%) by:





·
            each
                executive officer of the Trust (there are no directors); 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,
      2006.
      Other than as set forth below, no officer of the Trust owns any shares of the
      Trust.


18
 Table
          of Contents





Name
                of beneficial
                owner
            Number
              of
                shares
                (1)
            PercentRidgewood
                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, and Director Independence”.





ITEM
      13.  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS,
      AND DIRECTOR INDEPENDENCE





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 $341,000 for the year ended December 31, 2006, 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.





For
      the
      year ended December 31, 2006, the Trust accrued interest expense of $5,000,
      on
      accrued but unpaid management fees. The interest accrued has been waived by
      the
      Managing Shareholder and recorded as capital contribution in the period
      waived.




For
      the
      year ended December 31, 2006, the Trust made management fee payments to the
      Managing Shareholder of $245,000. In the fourth quarter of 2006, the Managing
      Shareholder forgave $96,000 of 2006 unpaid accrued management fees, which were
      recorded as capital contributions.  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
      Management Agreement with the Managing Shareholder, 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 Trust. 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.  For the year ended December 31, 2006, RPM
      charged the projects approximately $237,000 for overhead items allocated in
      proportion to the amount invested in projects managed.  In addition,
      for the year ended December 31, 2006, RPM charged the projects approximately
      $3,624,000 for all of the direct operating and non-operating expenses incurred
      during 2006.





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%
      per
      annum 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 $17,000, for the year ended December 31, 2006. 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.


19
 Table
          of Contents




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 other trusts and funds that it
      manages. As part of the agreement, the Trust agreed to limitations on its
      ability to incur indebtedness, liens and to provide guarantees.





Related
      Persons Transactions





The
      Trust
      relies upon the Managing Shareholder to review and approve all transactions
      with
      related persons required to be reported under the rules of the SEC (“related
      person transactions”). Prior to approving a related person transaction, the
      Managing Shareholder considers the relevant facts and circumstances, including,
      to the extent applicable, the relationships between all parties that would
      qualify as “related persons” under the rules of the SEC and such person’s or
      entity’s relationship to the Trust, such person’s or entity’s interest in the
      transaction, and the material facts and terms of the transaction. The Managing
      Shareholder approves those transactions that it determines are entered into
      in
      good faith and on fair and reasonable terms for, and in the best interests
      of,
      the Trust. The Trust does not maintain a written policy in connection with
      this
      process. Instead, the Managing Shareholder’s determinations regarding which
      related person transactions to enter into on behalf of the Trust are evidenced
      in the business records of the Trust and the Managing Shareholder.





ITEM
      14.  PRINCIPALACCOUNTANT 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, 2006 and 2005 (in
      thousands).




2006
            
            
            2005Audit
                Fees*
            
            $
            138
            
            
            $
            167Audit-Related
                Fees
            
            
            -
            
            
            
            -Tax
                Fees
            
            
            29
            
            
            
            -All
                Other Fees
            
            
            -
            
            
            
            -Total
            
            $
            167
            
            
            $
            167*
                The fees for 2005 were borne by the Managing
                Shareholder.





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. EXHIBITSAND 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 (incorporated
                  by
                  reference to the Registrant’s Annual Report on Form 10-K filed with the
                  SEC on December 14, 2007).


20
 Table
            of Contents


Exhibit
                  No.
              
              Description3
              (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) (incorporated
                  by
                  reference to the Registrant’s Annual Report on Form 10-K filed with the
                  SEC on December 14, 2007).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 (incorporated by reference to the Registrant’s Annual Report on Form
                  10-K filed with the SEC on December 14, 2007).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)
                  (incorporated by reference to the Registrant’s Annual Report on Form 10-K
                  filed with the SEC on December 14, 2007).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) (incorporated by reference to the Registrant’s
                  Annual Report on Form 10-K filed with the SEC on December 14,
                  2007).10.4
              
              
              Power
                  Purchase Agreement between New England Power Company and Ridgewood
                  Providence Power Partners, as successor in interest, dated November
                  1987
                  (as amended) (incorporated by reference to the Registrant’s Annual Report
                  on Form 10-K filed with the SEC on December 14, 2007).14
              
              
              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.


_____________________


#
              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.


*
            Filed
                herewith.




(c)
              Financial
                  Statement
                  Schedules


See
      Financial Statements and accompanying notes included in this
      report.


21
 Table
          of Contents





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 IIIDate: 
                January 25, 2008
            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
            
            January 25,
                2008Randall
                D. Holmes
            
            (Principal
                Executive Officer)/s/
                Jeffrey H. Strasberg
            
            Executive
                Vice President and Chief Financial Officer
            
            January 25,
                2008Jeffrey
                H. Strasberg
            
            (Principal
                Financial and Accounting Officer)RIDGEWOOD
                RENEWABLE POWER
                LLC(Managing
                Shareholder)By:
                /s/ Randall D. Holmes
            
            Chief
                Executive Officer of Managing Shareholder
            
            January 25,
                2008Randall
                D. Holmes











22
 Table
          of Contents


RIDGEWOOD
      ELECTRIC POWER TRUST III





INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
                of Independent Registered Public Accounting
                Firm
            F-2Consolidated
                Balance Sheets at December 31, 2006 and
                2005
            F-3Consolidated
                Statements of Operations for the three years
                ended December 31, 2006
            F-4Consolidated
                Statements of Changes in Shareholders’ Equity
                (Deficit) for the three years ended December 31, 2006
            F-5Consolidated
                Statements of Cash Flows for the three years ended
                December 31, 2006
            F-6Notes
                to Consolidated Financial Statements
            F-7











REPORT
      OF INDEPENDENT REGISTEREDPUBLIC 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, 2006 and 2005,
      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, 2006. 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 audit 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, 2006 and 2005, and the results of its operations
      and its cash flows for each of the three years in the period ended December
      31,
      2006, in conformity with accounting principles generally accepted in the United
      States of America.














/s/
      GRANT
      THORNTON LLP


Edison,
      New Jersey


January
      25, 2008




F-2
 Table
          of Conents


RIDGEWOOD
                  ELECTRICPOWER TRUST IIICONSOLIDATED
                  BALANCE
                  SHEETS(in
                  thousands, except share
                  data)December
                  31,2006
              
              
              2005ASSETSCurrent
                  assets:Cash
                  and cash
                  equivalents
              
              $
              1,365
              
              
              $
              303Accounts
                  receivable
              
              
              488
              
              
              
              894Notes
                  receivable
              
              
              15
              
              
              
              70Due
                  from
                  affiliates
              
              
              414
              
              
              
              670Gas
                  forward
                  contract
              
              
              -
              
              
              
              2,482Other
                  current
                  assets
              
              
              82
              
              
              
              89Total
                  current
                  assets
              
              
              2,364
              
              
              
              4,508Investment
              
              
              4,566
              
              
              
              4,633Plant
                  and equipment,
                  net
              
              
              3,233
              
              
              
              3,594Intangibles,
                  net
              
              
              933
              
              
              
              1,004Total
                  assets
              
              $
              11,096
              
              
              $
              13,739LIABILITIES
                  AND SHAREHOLDERS'
                  EQUITYCurrent
                  liabilities:Accounts
                  payable and accrued
                  expenses
              
              $
              131
              
              
              $
              103Due
                  to
                  affiliates
              
              
              27
              
              
              
              4Total
                  current
                  liabilities
              
              
              158
              
              
              
              107Commitments
                  and
                  contingenciesShareholders’
equity
                  (deficit):Shareholders’
equity
                  (391.8444
                  Investor Shares issued andoutstanding)
              
              
              11,160
              
              
              
              13,827Managing
                  shareholder’s accumulated
                  deficit(1
                  management share issued and
                  outstanding)
              
              
              (222
              )
              
              
              (195
              )Total
                  shareholders’
                  equity
              
              
              10,938
              
              
              
              13,632Total
                  liabilities and shareholders’ equity
              
              $
              11,096
              
              
              $
              13,739







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


F-3
 Table
          of Conents




RIDGEWOOD
ELECTRIC
                  POWERTRUST IIICONSOLIDATED
                  STATEMENTS OF
                  OPERATIONS(in
                  thousands, except per share
                  data)Years
                  Ended December
                  31,2006
              
              
              2005
              
              
              2004Revenues
              
              $
              3,768
              
              
              $
              4,205
              
              
              $
              5,594Cost
                  of
                  revenues
              
              
              5,490
              
              
              
              2,705
              
              
              
              4,293Gross
                  (loss)
                  profit
              
              
              (1,722
              )
              
              
              1,500
              
              
              
              1,301Operating
                  expenses:General
                  and administrative expenses
              
              
              103
              
              
              
              251
              
              
              
              166Management
                  fee to the Managing Shareholder
              
              
              341
              
              
              
              354
              
              
              
              363Impairment
                  of plant and equipment
              
              
              -
              
              
              
              550
              
              
              
              100Total
                  operating expenses
              
              
              444
              
              
              
              1,155
              
              
              
              629(Loss)
                  income from
                  operations
              
              
              (2,166
              )
              
              
              345
              
              
              
              672Other
                  income
                  (expense):Equity
                  in
                  income from investment
              
              
              1,005
              
              
              
              1,021
              
              
              
              1,150Interest
                  income
              
              
              30
              
              
              
              7
              
              
              
              7Interest
                  expense
              
              
              (5
              )
              
              
              (15
              )
              
              
              (6
              )Other
                  income (expense), net
              
              
              9
              
              
              
              (5
              )
              
              
              (6
              )Total
                  other income, net
              
              
              1,039
              
              
              
              1,008
              
              
              
              1,145Net
                  (loss)
                  income
              
              $
              (1,127
              )
              
              $
              1,353
              
              
              $
              1,817Managing
                  Shareholder - Net (loss)
                  income
              
              $
              (11
              )
              
              $
              14
              
              
              $
              18Shareholders
                  - Net (loss)
                  income
              
              
              (1,116
              )
              
              
              1,339
              
              
              
              1,799Net
                  (loss) income per Investor
                  Share
              
              
              (2,849
              )
              
              
              3,418
              
              
              
              4,592






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


F-4
 Table
          of Conents




RIDGEWOOD
ELECTRIC
                  POWERTRUST IIICONSOLIDATED
                  STATEMENTS OF CHANGES
                  IN SHAREHOLDERS' EQUITY (DEFICIT)YEARS
                  ENDED DECEMBER 31, 2004,
                  2005 and 2006(in
                  thousands)Shareholders'
              
              
              ManagingShareholder
              
              
              Total
                  Shareholders'Equity
              
              
              (Deficit)
              
              
              EquityBalance
                  at December 31,
                  2003
              
              $
              14,689
              
              
              $
              (186
              )
              
              $
              14,503Net
                  income
              
              
              1,799
              
              
              
              18
              
              
              
              1,817Cash
                  distributions
              
              
              (2,155
              )
              
              
              (22
              )
              
              
              (2,177
              )Capital
                  contributions
              
              
              6
              
              
              
              -
              
              
              
              6Balance
                  at December 31,
                  2004
              
              
              14,339
              
              
              
              (190
              )
              
              
              14,149Net
                  income
              
              
              1,339
              
              
              
              14
              
              
              
              1,353Cash
                  distributions
              
              
              (1,929
              )
              
              
              (20
              )
              
              
              (1,949
              )Capital
                  contributions
              
              
              78
              
              
              
              1
              
              
              
              79Balance
                  at December 31,
                  2005
              
              
              13,827
              
              
              
              (195
              )
              
              
              13,632Net
                  loss
              
              
              (1,116
              )
              
              
              (11
              )
              
              
              (1,127
              )Cash
                  distributions
              
              
              (1,651
              )
              
              
              (17
              )
              
              
              (1,668
              )Capital
                  contributions
              
              
              100
              
              
              
              1
              
              
              
              101Balance
                  at December 31,
                  2006
              
              $
              11,160
              
              
              $
              (222
              )
              
              $
              10,938





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


F-5
 Table
          of Conents


RIDGEWOOD
                  ELECTRICPOWER TRUST IIICONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS(in
                  thousands)Years
                  Ended December
                  31,2006
              
              
              2005
              
              
              2004Cash
                  flows from operating
                  activities:Net
                  (loss)
                  income
              
              $
              (1,127
              )
              
              $
              1,353
              
              
              $
              1,817Adjustments
                  to reconcile net
                  (loss) income to net cashprovided
                  by operating
                  activities:Depreciation
                  and
                  amortization
              
              
              433
              
              
              
              512
              
              
              
              532Impairment
                  of plant and
                  equipment
              
              
              -
              
              
              
              550
              
              
              
              100Equity
                  in income from
                  investment
              
              
              (1,005
              )
              
              
              (1,021
              )
              
              
              (1,150
              )Distributions
                  from
                  investment
              
              
              1,071
              
              
              
              1,458
              
              
              
              1,569Gas
                  forward
                  contract
              
              
              2,482
              
              
              
              (359
              )
              
              
              (1,011
              )Forgiveness
                  of unpaid and accrued
                  interest on management fees
              
              
              101
              
              
              
              79
              
              
              
              6Loss
                  on disposal of
                  equipment
              
              
              -
              
              
              
              -
              
              
              
              4Change
                  in operating assets and
                  liabilities:Accounts
                  receivable
              
              
              407
              
              
              
              (390
              )
              
              
              (47
              )Due
                  to/from affiliates,
                  net
              
              
              279
              
              
              
              (4
              )
              
              
              101Other
                  current
                  assets
              
              
              6
              
              
              
              28
              
              
              
              (11
              )Other
                  assets
              
              
              -
              
              
              
              14
              
              
              
              -Accounts
                  payable and accrued
                  expenses
              
              
              28
              
              
              
              (119
              )
              
              
              (54
              )Total
                  adjustments
              
              
              3,802
              
              
              
              748
              
              
              
              39Net
                  cash provided by operating
                  activities
              
              
              2,675
              
              
              
              2,101
              
              
              
              1,856Cash
                  flows from investing
                  activities:Proceeds
                  from the sale of
                  equipment
              
              
              -
              
              
              
              -
              
              
              
              384Proceeds
                  from notes
                  receivable
              
              
              55
              
              
              
              31
              
              
              
              45Capital
                  expenditures
              
              
              -
              
              
              
              -
              
              
              
              (34
              )Net
                  cash provided by investing
                  activities
              
              
              55
              
              
              
              31
              
              
              
              395Cash
                  flows from financing
                  activities:Cash
                  distributions to
                  shareholders
              
              
              (1,668
              )
              
              
              (1,949
              )
              
              
              (2,177
              )Net
                  increase in cash and cash
                  equivalents
              
              
              1,062
              
              
              
              183
              
              
              
              74Cash
                  and cash equivalents,
                  beginning of year
              
              
              303
              
              
              
              120
              
              
              
              46Cash
                  and cash equivalents, end of
                  year
              
              $
              1,365
              
              
              $
              303
              
              
              $
              120Supplemental
                  disclosure of cash
                  flow information:Interest
                  paid
              
              $
              5
              
              
              $
              15
              
              
              $
              6







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




F-6
 Table
          of Conents
 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.    SUMMARY
      OF
      SIGNIFICANT ACCOUNTING POLICIES





a)
      Principles of Consolidation





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





The
      Trust
      uses the equity method of accounting for its investments in affiliates which
      are
      50% or less owned as the Trust has the ability to exercise significant influence
      over the operating and financial policies of the affiliates but does not control
      the affiliate. The Trust’s share of the earnings or losses of the affiliates is
      included in the consolidated financial statements.





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.





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 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
      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, 2006 consist of funds deposited in bank
      accounts.  Cash balances with banks as of December 31, 2006 and 2005
      exceeded insured limits by $1,265 and $203, respectively.




F-7
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)


e)
      Accounts Receivable





Accounts
      receivable are recorded at invoice price in the period in which 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.





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.





The
      Trust
      uses the straight-line method of depreciation over the estimated useful life
      of
      the assets:




Building
            20
                yearsMachinery
                and equipment
            5-7
                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 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.




h)
      Fair Value of Financial Instruments




At
      December 31, 2006 and 2005, the carrying value of the Trust’s cash and cash
      equivalents, accounts receivable, notes receivable, accounts payable and accrued
      expenses approximates their fair value.





i)
      Gas Contract





In
      August
      2001, the Norcals entered into agreements to purchase natural gas, at fixed
      prices, over a five-year term in connection with entering into an amendment
      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 Statement of Financial Accounting Standards ("SFAS") No. 133,
      "Accounting for Derivative Instruments and Hedging Activities", as amended.
      The
      Trust has designated these derivatives as a non-hedge instrument. Accordingly,
      the value of these 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 these contracts are reflected as a
      component of cost of revenues in the consolidated statements of operations.
      During the third quarter of 2006, the Norcals completed their contractual
      agreements to resell the purchased gas back to their supplier and therefore,
      there is no longer any value recorded on the consolidated balance sheets
      associated with these contracts.





During
      the year ended December 31, 2006, the Trust recorded a loss as a component
      of
      cost of revenues from a change in its gas supply contracts of
      $2,482.  During the years ended December 31, 2005 and 2004, the Trust
      recorded, as a component of cost of revenues, gains from changes in its gas
      supply contracts of $359 and $1,011, respectively.





j)
      Comprehensive (Loss) Income




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




k)
      Significant Customer and Supplier





During
      2006, 2005 and 2004, the Trust’s largest customer accounted for 97.1%, 81.6% and
      86.9%, respectively, of total revenues. During 2006, 2005 and 2004, the Trust
      purchased 100% of its gas from one supplier.




F-8
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)




l)
      Income Taxes





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





m)
      Recent Accounting Pronouncements





FIN
      48





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, Accounting for Uncertainty
      in Income
      Taxes (“FIN 48”) an interpretation of Statement of Financial Accounting
      Standards (“SFAS”) No. 109,
      Accounting for Income Taxes. FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in an enterprise’s financial statements
      in accordance with SFAS 109 and prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. FIN 48 also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. FIN 48 will be
      effective for the Trust beginning January 1, 2007. The Trust does not believe
      that the adoption of FIN 48 will have a material impact on its consolidated
      financial statements.





SFAS
      157




In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
      ("SFAS 157"), to define fair value, establish a framework for measuring fair
      value in accordance with generally accepted accounting principles (GAAP) and
      expand disclosures about fair value measurements. SFAS 157 requires quantitative
      disclosures using a tabular format in all periods (interim and annual) and
      qualitative disclosures about the valuation techniques used to measure fair
      value in all annual periods. SFAS 157 will be effective for the Trust beginning
      January 1, 2008. The Trust is currently evaluating the impact of adopting SFAS
      157 on its consolidated financial statements.





SAB
      108




In
      September 2006, the Securities and Exchange Commission ("SEC") issued Staff
      Accounting Bulletin No. 108, Considering the Effects
      of Prior
      Year Misstatements When Quantifying Misstatements in Current Year Financial
      Statements ("SAB 108"). SAB 108 requires analysis of misstatements using
      both an income statement (rollover) approach and a balance sheet (iron curtain)
      approach in assessing materiality and provides for a one-time cumulative effect
      transition adjustment. SAB 108 is effective for fiscal years ending on or after
      November 15, 2006. The adoption of this standard did not have a material impact
      on its consolidated financial statements.





SFAS
      159




In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
      Financial
      Assets and Financial Liabilities (“SFAS 159”). SFAS 159 expands
      opportunities to use fair value measurements in financial reporting and permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value. SFAS 159 will be effective for the Trust on January 1,
      2008. The Trust is currently evaluating the impact of adopting SFAS 159 on
      its consolidated financial statements.





SFAS
      160





In
      December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
      in
      Consolidated Financial Statements — an amendment of ARB No. 51
      (“SFAS 160”).  SFAS 160 requires that ownership interests in
      subsidiaries held by parties other than the parent, and the amount of
      consolidated net income, be clearly identified, labeled, and presented in the
      consolidated financial statements within
      equity, but separate from the parent’s equity.It also requires once a
      subsidiary is deconsolidated, any retained noncontrolling equity investment
      in
      the former subsidiary be initially measured at fair value. Sufficient
      disclosures are required to clearly identify and distinguish between the
      interests of the parent and the interests of the noncontrolling owners. SFAS
      160
      will be effective for the Trust beginning January 1, 2009. The Trust is
      currently evaluating the impact of adopting SFAS 160 on its consolidated
      financial statements.


F-9
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)


3.    PROJECTS
      AND IMPAIRMENT OF LONG-LIVED ASSETS





JRW
      Associates, L.P.





On
      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 in the
      second quarter of 2004 for proceeds of $384. The impairments were recorded
      to
      adjust the carrying value of the mobile electric power generating units to
      reflect the 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 cash, a $150 interest bearing promissory note ("Promissory Note"), and
      a
      $74 interest free note ("Interest Free Note"). The Promissory Note receivable
      bore interest at a rate of 10% per annum, and was fully paid monthly over a
      four
      year term. TheInterest Free Note was repaid over a six month term.





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.


F-10
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)


4.   INVESTMENT




Ridgewood
      Providence





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 RRP.




Summarized
      balance sheet data for Ridgewood Providence at December 31, 2006 and 2005 is
      as
      follows:





2006
            
            
            2005Current
                assets
            
            $
            2,944
            
            
            $
            2,675Non-current
                assets
            
            
            10,822
            
            
            
            12,214Total
                assets
            
            $
            13,766
            
            
            $
            14,889Current
                liabilities
            
            $
            975
            
            
            $
            1,912Equity
            
            
            12,791
            
            
            
            12,977Total
                liabilities and equity
            
            $
            13,766
            
            
            $
            14,889Trust
                share of equity
            
            $
            4,566
            
            
            $
            4,633





Summarized
      statements of operations data for Ridgewood Providence for the years ended
      December 31, 2006, 2005 and
      2004 is as follows:





2006
            
            
            2005
            
            
            2004Revenues
            
            $
            11,999
            
            
            $
            11,916
            
            
            $
            12,205Cost
                of revenues
            
            
            9,137
            
            
            
            9,050
            
            
            
            8,972Other
                expenses
            
            
            48
            
            
            
            5
            
            
            
            13Total
                expenses
            
            
            9,185
            
            
            
            9,055
            
            
            
            8,985Net
                income
            
            $
            2,814
            
            
            $
            2,861
            
            
            $
            3,220Trust
                share of net income
            
            $
            1,005
            
            
            $
            1,021
            
            
            $
            1,150





5.    PLANT
      AND EQUIPMENT





At
      December 31, 2006 and 2005, plant and equipment at cost and accumulated
      depreciation were:





2006
            
            
            2005Building
            
            $
            319
            
            
            $
            319Machinery
                and equipment
            
            
            6,838
            
            
            
            8,4787,157
            
            
            
            8,797Less:
                accumulated depreciation
            
            
            (3,924
            )
            
            
            (5,203
            )$
            3,233
            
            
            $
            3,594





For
      the
      years ended December 31, 2006, 2005 and 2004, depreciation expense was $361,
      $440 and $460, respectively, which is included in cost of revenues.




F-11
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)




6.   INTANGIBLE
      ASSETS




At
      December 31, 2006 and 2005, the gross and net carrying amounts of the electric
      sales contracts were:





2006
            
            
            2005Electricity sales
                contracts - gross
            
            $
            1,794
            
            
            $
            1,794Less:
                accumulated amortization
            
            
            (861
            )
            
            
            (790
            )Intangibles, net
            
            $
            933
            
            
            $
            1,004




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.


For
      each
      of the years ended December 31, 2006, 2005 and 2004, amortization expense was
      approximately $72, which is included in cost of revenues. The Trust expects
      to
      record amortization expense during the next five years as follows:




Years
                Ended December
                31,2007
            
            $
            722008
            
            
            722009
            
            
            722010
            
            
            722011
            
            
            72





7.   TRANSACTIONS
      WITH
      MANAGING SHAREHOLDER AND AFFILIATES





The
      Trust
      operates pursuant to the terms of a management agreement (“Management
      Agreement”). Under the terms of the 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 equals $341, $354 and $363 for the years ended
      December 31, 2006, 2005 and 2004, 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.




For
      the
      years ended December 31, 2006, 2005 and 2004, the Trust made management fee
      payments to the Managing Shareholder of $245, $282 and $363,
      respectively.  During
      the fourth quarter of 2006 and 2005, the Managing Shareholder forgave $96 and
      $72 of unpaid accrued management fees, respectively, which were recorded as
      capital contributions. 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.




For
        the
        years ended December 31, 2006, 2005 and 2004, the Trust accrued interest
        expense
        of $5, $7 and $6, respectively, on accrued but unpaid management fees. The
        interest accrued has been waived by the Managing Shareholder and recorded
        as
        capital contribution in the period waived.


Under
      the
      Management Agreement with the Managing Shareholder, 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 Trust. 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, 2006, 2005
      and
      2004, RPM charged the projects approximately $237, $250 and $248,
      respectively, for overhead items allocated in proportion to the amount invested
      in projects managed. In addition, for the years ended December 31, 2006, 2005,
      and 2004 RPM charged the projects approximately $3,624, $3,669 and $4,690,
      respectively, for all of the direct operating and non-operating expenses
      incurred. These charges may not be indicative of costs incurred if the Trust
      were not operated by RPM.




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%
      per
      annum 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 $17, $20 and $22 for each of the three years ended December
      31,
      2006, 2005 and 2004, respectively. The Trust has not yet reached
      Payout.


F-12
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)




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.





RRP
      owns
      one Investor Share of the Trust. The Trust granted the Managing Shareholder
      a
      single Management Share representing the Managing Shareholder’s management
      rights and rights to distributions of cash flow.





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 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 to and receivables from other affiliates in the
      ordinary course of business. The amounts payable to and receivable from the
      other affiliates do not bear interest. The Trust had outstanding payables and
      receivables as follows:





December
                  31,2006
              
              
              2005
              
              
              2006
              
              
              2005Due
                  from
              
              
              Due
                  toRPM
              
              $
              396
              
              
              $
              311
              
              
              $
              -
              
              
              $
              -RRP
              
              
              5
              
              
              
              -
              
              
              
              -
              
              
              
              4Providence
              
              
              -
              
              
              
              354
              
              
              
              27
              
              
              
              -Other
                  affiliates
              
              
              13
              
              
              
              5
              
              
              
              -
              
              
              
              -Total
              
              $
              414
              
              
              $
              670
              
              
              $
              27
              
              
              $
              4




8.    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, 2006 as
      follows:




Years
                Ended December
                31,2007
            
            $
            1732008
            
            
            1732009
            
            
            1732010
            
            
            1732011
            
            
            173Thereafter
            
            
            1,617Total
            
            $
            2,482





F-13
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)


Rent
      expense for the years ended December 31, 2006, 2005 and 2004 was $185, $185
      and
      $186, respectively, which is included in cost of revenues.





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 20, 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.





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.  While it is not possible to predict
      the outcome of the litigation discussed above with certainty and some lawsuits,
      claims or proceedings may be disposed of unfavorably to the Trust, based on
      its
      evaluation of matters which are pending or asserted, the Trust’s management
      believes the disposition of such matters will not have a material adverse effect
      on the Trust’s business or financial statements.





9.    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 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 and 2008
“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.


F-14
 Table
          of Conents
 RIDGEWOOD
              ELECTRIC POWER TRUST III
 NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollar
              amounts in thousands, except
              per share data)





10.   SELECTED
      UNAUDITED QUARTERLY FINANCIAL DATA





2006
                  Quarters1st
              
              
              2nd
              
              
              3rd
              
              
              4thRevenues
              
              $
              51
              
              
              $
              1,154
              
              
              $
              1,580
              
              
              $
              983Gross
                  (loss)
                  profit
              
              
              (1,226
              )
              
              
              (332
              )
              
              
              327
              
              
              
              (491
              )(Loss)
                  income from
                  operations
              
              
              (1,363
              )
              
              
              (434
              )
              
              
              227
              
              
              
              (596
              )Net
                  (loss)
                  income
              
              
              (1,054
              )
              
              
              (203
              )
              
              
              507
              
              
              
              (377
              )Net
                  (loss) income per Investor
                  Share
              
              
              (2,662
              )
              
              
              (513
              )
              
              
              1,281
              
              
              
              (955
              )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
              )




11. SUBSEQUENT
        EVENT





In
      connection with the Trust’s 2008 annual budget cycle, which is part of its 2007
      year-end financial closing process, the Trust performed a cash flow analysis
      of
      the Norcals and determined that effective December 31, 2007, the remaining
      net
      book value of its plant and equipment, and its intangibles assets, will be
      fully
      impaired with a resulting impairment expense recorded in the fourth quarter
      of
      2007. Based on the Trust’s accounting for its investments, all recorded plant
      and equipment and intangible assets relate to the Norcals. As a result, at
      December 31, 2007, the Trust’s balance sheet will be materially reduced and
      operating results for periods subsequent to December 31, 2007 will not have
      depreciation and amortization expense.






F-15