##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q  [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission File Number 33-83618 SELKIRK COGEN PARTNERS, L.P.  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    51-0324332
(IRS Employer
Identification No.)
 SELKIRK COGEN FUNDING CORPORATION  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    51-0354675
(IRS Employer
Identification No.)
 7600 Wisconsin Avenue, Bethesda, Maryland 20814
(Address of principal executive offices, including zip code) (301) 280-6800
(Registrants telephone number, including area code) Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes  [X]   No  [   ] Indicate by check mark whether the registrants are accelerated filers (as
defined in Exchange Act Rule 12b-2). Yes [   ] 
No [X] As of August 10, 2004, there were 10 shares of common stock of Selkirk
Cogen Funding Corporation, $1 par value, outstanding.




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TABLE OF CONTENTS PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003
    
    
    1Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2003
    
    
    2Consolidated Statements of Cash Flows for the three and six months ended June 30, 2004 and 2003
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations
    
    
    15Liquidity and Capital Resources
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 5. Other Information
    
    
    22Item 6. Exhibits and Reports on Form 8-K
    
    
    23SIGNATURES
    
    
    25
 i




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SELKIRK COGEN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited) June 30,
    
    December 31,2004
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,449
    
    
    $
    3,216Restricted funds
    
    
    5,664
    
    
    
    10,652Accounts receivable
    
    
    22,718
    
    
    
    22,449Due from affiliates
    
    
    5
    
    
    
    58Inventory
    
    
    8,563
    
    
    
    9,460Other current assets
    
    
    1,254
    
    
    
    1,095Total current assets
    
    
    40,653
    
    
    
    46,930PLANT AND EQUIPMENT:Plant and equipment, at cost
    
    
    377,360
    
    
    
    375,794Less: Accumulated depreciation
    
    
    130,804
    
    
    
    124,495Plant and equipment, net
    
    
    246,556
    
    
    
    251,299OTHER LONG-TERM ASSETS:Long-Term restricted funds
    
    
    31,425
    
    
    
    30,895Deferred financing charges, net of accumulated amortization
of $11,513 and $11,014, respectively
    
    
    4,778
    
    
    
    5,277TOTAL ASSETS
    
    $
    323,412
    
    
    $
    334,401LIABILITIES AND PARTNERS DEFICITSCURRENT LIABILITIES:Accounts payable
    
    $
    549
    
    
    $
    2,114Accrued bond interest payable
    
    
    318
    
    
    
    327Accrued fuel expenses
    
    
    12,569
    
    
    
    11,542Accrued property taxes
    
    
    3,600
    
    
    
    1,750Accrued operating and maintenance expenses
    
    
    1,529
    
    
    
    4,793Other accrued expenses
    
    
    2,179
    
    
    
    2,394Due to affiliates
    
    
    827
    
    
    
    977Liability for derivative contracts
    
    
    410
    
    
    
    498Current portion of deferred revenue
    
    
    707
    
    
    
    707Current portion of long-term bonds
    
    
    22,349
    
    
    
    19,587Total current liabilities
    
    
    45,037
    
    
    
    44,689LONG-TERM LIABILITIES:Other long-term liabilities
    
    
    5,721
    
    
    
    6,200Deferred revenue, net of current portion
    
    
    2,214
    
    
    
    2,476Long-term bonds, net of current portion
    
    
    299,935
    
    
    
    312,283Total liabilities
    
    
    352,907
    
    
    
    365,648COMMITMENTS
AND CONTINGENCIESPARTNERS DEFICITS:General partners deficits
    
    
    (1,964
    )
    
    
    (316
    )Limited partners deficits
    
    
    (27,121
    )
    
    
    (30,433
    )Accumulated other comprehensive loss
    
    
    (410
    )
    
    
    (498
    )Total partners deficits
    
    
    (29,495
    )
    
    
    (31,247
    )TOTAL LIABILITIES AND PARTNERS DEFICITS
    
    $
    323,412
    
    
    $
    334,401
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements. 1




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SELKIRK COGEN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003OPERATING REVENUES:Electric and steam
    
    $
    59,826
    
    
    $
    55,445
    
    
    $
    124,260
    
    
    $
    122,609Fuel
    
    
    6,155
    
    
    
    6,925
    
    
    
    16,253
    
    
    
    11,574Total operating revenues
    
    
    65,981
    
    
    
    62,370
    
    
    
    140,513
    
    
    
    134,183COST OF REVENUES:Fuel and transmission
    
    
    38,817
    
    
    
    35,137
    
    
    
    78,462
    
    
    
    76,707Other operating and maintenance
    
    
    6,758
    
    
    
    5,601
    
    
    
    10,080
    
    
    
    8,747Depreciation
    
    
    3,167
    
    
    
    3,139
    
    
    
    6,325
    
    
    
    6,279Total cost of revenues
    
    
    48,742
    
    
    
    43,877
    
    
    
    94,867
    
    
    
    91,733GROSS PROFIT
    
    
    17,239
    
    
    
    18,493
    
    
    
    45,646
    
    
    
    42,450OTHER OPERATING EXPENSES:Administrative services, affiliates
    
    
    371
    
    
    
    395
    
    
    
    754
    
    
    
    813Other general and administrative
    
    
    689
    
    
    
    681
    
    
    
    1,360
    
    
    
    1,314Total other operating expenses
    
    
    1,060
    
    
    
    1,076
    
    
    
    2,114
    
    
    
    2,127OPERATING INCOME
    
    
    16,179
    
    
    
    17,417
    
    
    
    43,532
    
    
    
    40,323INTEREST (INCOME) EXPENSE:Interest income
    
    
    (147
    )
    
    
    (180
    )
    
    
    (278
    )
    
    
    (332
    )Interest expense
    
    
    7,604
    
    
    
    7,993
    
    
    
    15,217
    
    
    
    15,994Total interest expense, net
    
    
    7,457
    
    
    
    7,813
    
    
    
    14,939
    
    
    
    15,662INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE
    
    $
    8,722
    
    
    $
    9,604
    
    
    $
    28,593
    
    
    $
    24,661CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )NET INCOME
    
    $
    8,722
    
    
    $
    9,604
    
    
    $
    28,593
    
    
    $
    24,608NET INCOME ALLOCATION:General partners
    
    $
    88
    
    
    $
    95
    
    
    $
    287
    
    
    $
    246Limited partners
    
    
    8,634
    
    
    
    9,509
    
    
    
    28,306
    
    
    
    24,362TOTAL
    
    $
    8,722
    
    
    $
    9,604
    
    
    $
    28,593
    
    
    $
    24,608
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 2




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SELKIRK COGEN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    8,722
    
    
    $
    9,604
    
    
    $
    28,593
    
    
    $
    24,608Adjustments to reconcile net income to net cash
provided by operating activities:Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Depreciation, amortization and accretion
    
    
    3,419
    
    
    
    3,402
    
    
    
    6,827
    
    
    
    6,805Deferred revenue
    
    
    (177
    )
    
    
    (177
    )
    
    
    (354
    )
    
    
    (354
    )Loss on disposal of plant and equipment
    
    
    33
    
    
    
    
    
    
    
    33
    
    
    
    Increase (decrease) in cash resulting from a change in:Accounts receivable
    
    
    (247
    )
    
    
    6,765
    
    
    
    (269
    )
    
    
    (1,093
    )Due from affiliates
    
    
    (5
    )
    
    
    195
    
    
    
    53
    
    
    
    1,757Inventory
    
    
    2,063
    
    
    
    569
    
    
    
    897
    
    
    
    513Other current assets
    
    
    (273
    )
    
    
    (1,348
    )
    
    
    (159
    )
    
    
    (1,170
    )Accounts payable
    
    
    70
    
    
    
    442
    
    
    
    (1,565
    )
    
    
    547Accrued bond interest payable
    
    
    (7,373
    )
    
    
    (7,747
    )
    
    
    (9
    )
    
    
    (8
    )Accrued fuel expenses
    
    
    579
    
    
    
    (3,049
    )
    
    
    1,027
    
    
    
    1,569Accrued property taxes
    
    
    
    
    
    
    
    
    
    
    1,850
    
    
    
    100Accrued operating and maintenance expenses
    
    
    603
    
    
    
    483
    
    
    
    (3,264
    )
    
    
    15Other accrued expenses
    
    
    766
    
    
    
    339
    
    
    
    (215
    )
    
    
    (881
    )Due to affiliates
    
    
    10
    
    
    
    199
    
    
    
    (150
    )
    
    
    (402
    )Other long-term liabilities
    
    
    730
    
    
    
    730
    
    
    
    (390
    )
    
    
    (290
    )Net cash provided by operating activities
    
    
    8,920
    
    
    
    10,407
    
    
    
    32,905
    
    
    
    31,769CASH FLOWS FROM INVESTING ACTIVITIES:Restricted funds
    
    
    23,394
    
    
    
    22,552
    
    
    
    4,458
    
    
    
    (399
    )Plant and equipment additions
    
    
    (995
    )
    
    
    (333
    )
    
    
    (1,615
    )
    
    
    (490
    )Net cash provided by (used in) investing
activities
    
    
    22,399
    
    
    
    22,219
    
    
    
    2,843
    
    
    
    (889
    )CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to partners
    
    
    (20,171
    )
    
    
    (18,575
    )
    
    
    (26,929
    )
    
    
    (18,575
    )Repayment of long-term debt
    
    
    (9,586
    )
    
    
    (8,498
    )
    
    
    (9,586
    )
    
    
    (8,498
    )Net cash used in financing activities
    
    
    (29,757
    )
    
    
    (27,073
    )
    
    
    (36,515
    )
    
    
    (27,073
    )NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
    
    
    1,562
    
    
    
    5,553
    
    
    
    (767
    )
    
    
    3,807CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    887
    
    
    
    970
    
    
    
    3,216
    
    
    
    2,716CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    2,449
    
    
    $
    6,523
    
    
    $
    2,449
    
    
    $
    6,523SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    14,728
    
    
    $
    15,479
    
    
    $
    14,728
    
    
    $
    15,479
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. 3




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SELKIRK COGEN PARTNERS,
L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements include Selkirk
Cogen Partners, L.P. and its wholly-owned subsidiary, Selkirk Cogen Funding
Corporation (collectively the Partnership). All significant intercompany
accounts and transactions have been eliminated. The consolidated financial statements for the interim periods presented are
unaudited and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
omitted pursuant to rules and regulations applicable to interim financial
statements. The information furnished in the consolidated financial statements
reflects all normal recurring adjustments, which, in the opinion of management,
are necessary for a fair presentation of such financial statements. Certain
reclassifications have been made to the consolidated statements of cash flows
for the three and six months ended June 30, 2003 to conform with the current
periods basis of presentation. Operating results for the three and six months
ended June 30, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements included in the Partnerships
December 31, 2003 Annual Report on Form 10-K. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of revenue, expenses, assets and liabilities, and
the disclosure of contingencies. Actual results could differ from these
estimates. Comprehensive Income The Partnerships comprehensive income consists principally of net income and
changes in the market value of certain financial hedges under Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended ( SFAS No. 133). 4




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The schedule below summarizes the activities affecting comprehensive income for
the three and six months ended June 30, 2004 and 2003 (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    8,722
    
    
    $
    9,604
    
    
    $
    28,593
    
    
    $
    24,608Net gain ((loss) from current period
hedging transactions in accordance
with SFAS No. 133
    
    
    (170
    )
    
    
    1,600
    
    
    
    (344
    )
    
    
    2,958Net reclassification to earnings
    
    
    219
    
    
    
    274
    
    
    
    432
    
    
    
    761Comprehensive income
    
    $
    8,771
    
    
    $
    11,478
    
    
    $
    28,681
    
    
    $
    28,327
 Note 2. Significant Accounting Policies Except as disclosed, the Partnership is following the same accounting
principles discussed in the Partnerships December 31, 2003 Annual Report on
Form 10-K. Adoption of New Accounting Pronouncements In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
150, Accounting for Certain Financial Instruments with the Characteristics of
Both Liabilities and Equity(SFAS No. 150). SFAS No. 150 addresses concerns
of how to measure and classify in the statement of financial position certain
financial instruments that have characteristics of both liabilities and equity.
This statement was adopted on January 1, 2004 and did not have an impact on
the Partnerships consolidated financial statements. On January 1, 2003, the Partnership adopted SFAS No. 143, Accounting for Asset
Retirement Obligations(SFAS No. 143). SFAS No. 143 provides accounting
requirements for costs associated with legal obligations to retire tangible,
long-lived assets. The statement requires that an asset retirement obligation
be recorded at fair value in the period in which it is incurred, if a
reasonable estimate of fair value can be made. In the same period, the
associated asset retirement costs are capitalized as part of the carrying
amount of the related long-lived asset. In each subsequent period, the
liability is accreted to its present value and the capitalized cost is
depreciated over the useful life of the long-lived asset. Upon implementation of this statement, the Partnership recorded approximately
$45,000 to its plant and equipment to reflect the fair value of the asset
retirement costs as of the date the obligation was incurred, and recognized
approximately $83,000 for asset retirement obligations. The cumulative effect
of the change in accounting principle as a result of adopting this statement
was a loss of approximately $53,000. 5




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Note 3. Related Party Transactions JMCS I Management, Inc. (JMCS I Management), an affiliate of JMC Selkirk Inc.
(JMC Selkirk), manages the day-to-day operation of the Partnership and is
compensated at agreed-upon billing rates that are adjusted quadrennially in
accordance with an administrative services agreement. The cost of services
provided by JMCS I Management are included in administrative services 
affiliates in the accompanying consolidated statements of operations. The
total amount due to JMCS I Management at June 30, 2004, was approximately
$212,000. The Partnership purchases from and sells gas to affiliates of JMC Selkirk. As
of May 31, 2003, the Partnership ceased transactions with NEGT Energy
TradingGas Corporation (NEGT Energy TradingGas). Gas purchases are
recorded as fuel costs and sales of gas are recorded as fuel revenues in the
accompanying consolidated statements of operations. There were no amounts due
to/from affiliates for purchases and sales of gas at June 30, 2004. The total
amount due from MASSPOWER, an affiliate of JMC Selkirk, at June 30, 2004, of
approximately $5,000 represents an amount due for reimbursement of certain
shared costs. Gas purchased from affiliates is as follows (dollars in thousands): Six months ended June 30,2004
    
    2003NEGT Energy TradingGas
    
    $
    
    
    
    $
    4,901MASSPOWER
    
    
    112
    
    
    
    
 Gas sold to affiliates is as follows (dollars in thousands): Six months ended June 30,2004
    
    2003NEGT Energy TradingGas
    
    $
    
    
    
    $
    9,117
 The Partnership has two agreements with Iroquois Gas Transmission System
(IGTS), an indirect affiliate of JMC Selkirk, to provide firm transportation
of natural gas from Canada. Firm fuel transportation services for the six
months ended June 30, 2004 totaled approximately $3,568,000, compared to
approximately $3,547,000 for the same period in the prior year. These services
are recorded as fuel costs in the accompanying consolidated statements of
operations. The total amount due to IGTS for firm transportation at June 30,
2004, was approximately $615,000. 6




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Note 4. Accounting For Derivative Contracts Currency Exchange Contracts The Partnership has a foreign currency exchange contract to hedge against
fluctuations in fuel transportation costs, which are denominated in Canadian
dollars. Under the currency exchange agreement, which commenced on May 25,
1995 and terminates on December 25, 2004, the Partnership exchanges
approximately $1,044,000 U.S. dollars for $1,300,000 Canadian dollars on a
monthly basis. The Partnership accounts for its foreign exchange contract as
a cash flow hedge and records on the consolidated balance sheets a liability
for derivative contracts with the offset in other comprehensive income (loss). The schedule below summarizes the activities affecting accumulated other
comprehensive loss from derivative contracts for the three and six months
ended June 30, 2004 and 2003 (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Beginning accumulated other
comprehensive loss at April 1
and January 1, respectively
    
    $
    (459
    )
    
    $
    (3,280
    )
    
    $
    (498
    )
    
    $
    (5,125
    )Net change of current period
hedging transactions gain
(loss)
    
    
    (170
    )
    
    
    1,600
    
    
    
    (344
    )
    
    
    2,958Net reclassification to earnings
    
    
    219
    
    
    
    274
    
    
    
    432
    
    
    
    761Ending accumulated other
comprehensive loss
    
    $
    (410
    )
    
    $
    (1,406
    )
    
    $
    (410
    )
    
    $
    (1,406
    )
 The Partnership expects that net derivative losses of approximately $410,000,
included in accumulated other comprehensive loss as of June 30, 2004, will be
reclassified into earnings within the next twelve months. Note 5. Relationship with National Energy & Gas Transmission, Inc. (NEGT) JMC Selkirk is the managing general partner of the Partnership. Approximately
90% of the ownership interest in JMC Selkirk is held by an indirect subsidiary
of NEGT. NEGT is an indirect subsidiary of PG&E Corporation. NEGT, through its indirect subsidiaries JMC Selkirk and JMCS I Management,
manages the Partnership. On July 8, 2003, NEGT and certain subsidiaries
voluntarily filed petitions for relief under the provisions of Chapter 11 of
the U.S. Bankruptcy Code (collectively, the NEGT Bankruptcy) in the
Greenbelt Division of the United States Bankruptcy Court for the District of
Maryland (the Bankruptcy Court). The subsidiaries that voluntarily filed
petitions and were disclosed in previous reports as 7




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##### 



related parties of the Partnership with which it engaged in transactions are:
NEGT Energy Trading-Power, L.P. and NEGT Energy TradingGas. There were no
amounts due to or from these subsidiaries at June 30, 2004. None of the Partnership or its NEGT affiliated partners (JMC Selkirk and
PentaGen Investors, L.P.) are parties to the NEGT Bankruptcy. The Managing
General Partner believes that JMC Selkirk, PentaGen Investors, L.P., and the
Partnership will not be substantively consolidated with NEGT in any bankruptcy
proceeding involving NEGT, and that the NEGT Bankruptcy will not have a
material adverse impact on the Partnerships operations. However, the Partnership cannot be certain that the NEGT Bankruptcy will not
affect NEGTs arrangements with respect to the Partnership or the ability of
JMC Selkirk or JMCS I Management to manage the Partnership. The Partnership
Agreement provides certain management rights to the other general partner of
the Partnership, RCM Selkirk GP, Inc. (RCM Selkirk GP), in the event that
JMC Selkirk were to be included as a debtor within the NEGT Bankruptcy, or
either JMC Selkirk or JMCS I Management were to be in material default of its
obligations to the Partnership (following notice and a 120 day cure period).
These protections (the Special Management Rights) include (i) the removal of
JMC Selkirk as the managing general partner, (ii) the appointment of itself as
the successor managing general partner, and (iii) the termination of the
administrative services agreement with JMCS I Management and subsequent
appointment of a RCM Selkirk GP affiliate as the project management firm.
Enforcement of these rights by RCM Selkirk GP could, however, be delayed or
impeded as a result of any bankruptcy proceeding involving JMC Selkirk.
Moreover, the bankruptcy of any partner of the Partnership would be an event
of default under the Partnerships Credit Agreement. On February 26, 2004, NEGT filed with the Bankruptcy Court its Third Amended
Plan of Reorganization and the related Disclosure Statement. A Modified Third
Amended Plan of Reorganization (the POR) was confirmed by order of the
Bankruptcy Court on May 3, 2004. The POR contemplates that, unless NEGT sells
its power generation and pipeline businesses as described in the POR, it will
retain and continue to operate these businesses, separate from PG&E
Corporation, and will issue new debt securities and common stock. On July 23, 2004, NEGT entered into a definitive agreement with Denali Power,
LLC, a company formed by affiliates of ArcLight Capital Partners, LLC and
Caithness Energy, LLC, (the Denali Agreement) to acquire NEGTs equity
interests in 12 power plants and a natural gas pipeline, including NEGTs
indirect ownership interests in the Partnership. The Denali Agreement will be
subject to Bankruptcy Court approval, and contemplates a court-sanctioned
auction process in accordance with customary bidding procedures approved by
the Bankruptcy Court. On August 10, 2004, the Bankruptcy Court issued an
order approving the bidding procedures. In the court-sanctioned auction, NEGT
will seek offers that are higher or otherwise better than that which has been
negotiated with Denali Power, LLC. The transaction is expected to close in
the first quarter of 2005 and is subject to certain regulatory and third party
approvals. Affiliates of ArcLight Capital Partners, LLC and Caithness Energy,
LLC already own 8




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indirect beneficial interests in the Partnership through the limited partner
interest of Teton Selkirk, LLC, and an affiliate of ArcLight Capital Partners,
LLC also owns an indirect beneficial interest in the Partnership through the
limited partner interest of PentaGen Investors, L.P. NEGTs indirect ownership interest in the general partner interest of JMC
Selkirk and the limited partner interests of JMC Selkirk and PentaGen
Investors, L.P. in the Partnership are included within the Denali Agreement.
The Partnership cannot predict whether a sale by NEGT of its interest in the
Partnership, whether pursuant to the Denali Agreement or otherwise (a NEGT
Interest Sale), will be completed. As presently contemplated, the NEGT
Interest Sale is not expected to alter the ability of JMC Selkirk or JMCS I
Management to manage the Partnership. On August 4, 2004, Standard and Poors (S&P) issued a press release, which
stated that the announcement by NEGT of its agreement to sell National Energy
Power Company, LLC, through which NEGT holds interest in Selkirk Cogen Funding
Corporation to Denali Power, LLC will not affect the rating on Selkirk Cogen
Funding Corporations bonds. S&P further stated that it believes that
ArcLight Capital Partners, LLC and Caithness Energy, LLC will be able to
manage the administrative functions of the project and carry out the duties as
managing general partner. S&Ps rating on the senior secured debt of Selkirk
Cogen Funding Corporation remains at BBB- with a stable outlook. Note 6. Title V Permit On November 6, 2001, the Partnership received from the New York State
Department of Environmental Conservation (DEC) the Facilitys Title V
operating permit endorsed by the DEC on November 2, 2001 (the Title V
Permit). The Title V Permit as received by the Partnership contains
conditions that conflict with the Partnerships existing air permits, and the
Facilitys compliance with these conditions under certain operating
circumstances would be problematic. Further, the Partnership believes that
certain of the conditions contained in the Title V Permit are inconsistent
with the laws and regulations underlying the Title V program and Title V
operating permits issued by the DEC to comparable electric generating
facilities in New York. By letter dated November 12, 2001, the Partnership
has filed with the DEC a request for an adjudicatory hearing to address and
resolve the issues presented by the Title V Permit, and the terms and
conditions of the Title V Permit will be stayed pending a final DEC decision
on the appeal. At this time, the Partnership cannot assess whether a
settlement can be achieved, the likely outcome of the adjudicatory hearing if
no settlement is achieved, or the impact on the Facility. 9




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ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS This Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Partnerships consolidated
financial statements and notes to the accompanying consolidated financial
statements included herein. Further, this Quarterly Report on Form 10-Q should
be read in conjunction with the Partnerships December 31, 2003 Annual Report
on Form 10-K. Cautionary Statement Regarding Forward-Looking Statements The information in this Quarterly Report on Form 10-Q includes forward-looking
statements about the future that are necessarily subject to various risks and
uncertainties. Use of words like anticipate, estimate, intend,
project, plan, expect, will, believe, could, and similar
expressions help identify forward-looking statements and constitute
forward-looking statements under the Private Securities Litigation Reform Act
of 1995. These statements are based on current expectations and assumptions,
which the Partnership believes are reasonable and on information currently
available to the Partnership. Actual results could differ materially from
those contemplated by the forward-looking statements. Although the Partnership
believes that the expectations reflected in the forward-looking statements are
reasonable, future results, events, levels of activity, performance or
achievements cannot be guaranteed. Although the Partnership is not able to
predict all the factors that may affect future results, some of the factors
that could cause future results to differ materially from those expressed or
implied by the forward-looking statements or historical results include: Operational Risks The Partnerships future results of operations and financial condition may be
affected by the performance of equipment; levels of dispatch; the receipt of
certain capacity and other fixed payments; electricity prices; natural gas
resale prices; fuel deliveries and prices; unanticipated changes in operating
expenses or capital expenditures or other maintenance activities; variations in
weather and natural disasters; and the potential impacts of threatened or
actual terrorism and war. Accounting and Risk Management The Partnerships future results of operations and financial condition may be
affected by the effect of new accounting pronouncements; changes in critical
accounting policies or estimates; the effectiveness of the Partnerships risk
management policies and procedures; changes in the number of participants in
the energy trading markets; the ability of the Partnerships counterparties to
satisfy their financial commitments to the Partnership and the impact of
counterparties nonperformance on the Partnerships liquidity position; and
heightened rating agency criteria and the impact of changes in the
Partnerships credit ratings. 10




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Legislative and Regulatory Matters The Partnerships business may be affected by legislative or regulatory changes
affecting the electric and natural gas industries in the United States,
including the pace and extent of efforts to restructure the electric and
natural gas industries; heightened regulatory and enforcement agency focus on
the energy business with the potential for changes in industry regulations and
in the treatment of the Partnership by state and federal agencies; changes in
or application of federal, state, and local laws and regulations to which the
Partnership is subject including changes in corporate governance and securities
laws requirements; and changes in or application of Canadian laws, regulations,
and policies which may impact the Partnership. Litigation and Environmental Matters The Partnerships future results of operations and financial condition may be
affected by compliance with existing and future environmental and safety laws,
regulations, and policies, the cost of which could be significant; the outcome
of future litigation and environmental matters; and the outcome of the
negotiations with the New York State Department of Environmental Conservation
(DEC) regarding the Facilitys Title V operating permit as described in
Regulations and Environmental Matters below. Business Description The Partnership owns a natural gas-fired, combined-cycle cogeneration facility
consisting of two units designed to operate independently for electrical
generation, but thermally integrated for steam generation. Revenues are
derived primarily from sales of electricity and, to a lesser extent, from sales
of steam and natural gas. The Partnership operates as a single business
segment. The Partnership has long-term contracts for the sale of electric capacity and
energy produced by the Facility with Niagara Mohawk Power Corporation (Niagara
Mohawk) and Con Edison Company of New York, Inc. (Con Edison). Under the
Amended and Restated Niagara Mohawk Power Purchase Agreement, the Partnership
has dispatch decisionmaking authority for Unit 1, whereby it has the ability
and flexibility to operate the unit based on current market conditions. Under
the Con Edison Power Purchase Agreement, Con Edison dispatches Unit 2 on an
economic basis, whereby it takes into account the variable cost of electricity
to be delivered by the unit compared to the variable cost of electricity
available from other sources. The Partnership directs the supply and transportation of natural gas to Unit 1
and Unit 2 under its long-term gas supply and transportation agreements so as
to have sufficient quantities of natural gas available at the Facility to meet
its scheduled operation. In addition, the Partnership may enter into
short-term transactions to resell its long-term, firm natural gas volumes at
favorable prices relative to their costs and relative to the cost of substitute
fuels. These transactions include gas resales, gas transportation
optimizations and peak shaving arrangements. Gas resales are sales of
excess natural gas supplies when Unit 1 or Unit 2 is dispatched off-line or at
less than full capacity. Gas 11




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transportation optimizations are transactions whereby the Partnership is able
to optimize the long-term gas transportation contracts and lower the cost of
natural gas delivered to the Facility by purchasing and/or selling natural gas
at favorable prices along the transportation route. Peak shaving arrangements
are transactions whereby the Partnership grants to local distribution companies
or other purchasers a call on a specified portion of the Partnerships firm
natural gas supply, including transportation, for a specified number of days
during the winter season. The Partnership determines when to schedule all or a portion of a unit off-line
for planned maintenance activities based upon equipment manufacturer
guidelines, the actual condition of the unit based on maintenance experience,
operating experience, and operating schedule. Taking into account these
factors, coupled with current capacity factors, recent operating experience,
and industry practice, planned major maintenance outages may be expected to
occur approximately every three years. The inherent differences in the
duration and scope of major maintenance activities as compared to non-major
maintenance activities can have a significant impact on revenues and the cost
of revenues. Executive Summary During the second quarter of 2004, the Partnership generated net income of $8.7
million and cash flows from operations of $8.9 million. The decrease in
earnings of $0.9 million compared to same period in the prior year was
primarily due to the expanded scope of planned maintenance on the Facility. During the six months ended June 30, 2004, the Partnership benefited from calls
on the peak shaving arrangement during a period of price spikes in the winter
natural gas market. The Partnership generated net income of $28.6 million and
cash flows from operations of $32.9 million during the first six months of
2004. The increase in earnings of $4.0 million and cash flows from operations
of $1.1 million compared to same period in the prior year was primarily due to
higher fuel revenues. Average electric energy market prices were higher during the second quarter of
2004 as compared to the same period in the prior year. The average price of
electricity under the Partnerships power purchase agreements, average natural
gas resale prices and the average price of natural gas under the Partnerships
firm gas supply agreements were comparable during the second quarters of 2004
and 2003. The Partnership cannot predict whether these trends will continue
for the balance of 2004. The Partnership has scheduled a portion of Unit 2 for a three-week planned
major maintenance outage during the fourth quarter of 2004, as compared to the
performance of a one-week planned non-major maintenance outage on a portion of
Unit 2 during the same period in the prior year. As a result of the longer
outage duration planned for the fourth quarter of 2004, the Partnership expects
lower volumes of electric energy available for delivery and higher volumes of
natural gas available for resale. The Partnership is unable to predict the
resulting impact on revenues during the fourth quarter of 2004 because it
cannot determine future electric and gas market conditions. At the same time,
the Partnership expects maintenance expenses to be higher in the fourth quarter
of 2004, 12




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##### 



as compared to the same period in the prior year, due to the expanded scope of
the planned maintenance outage planned for the fourth quarter of 2004.
However, the Partnership does not expect the cost of planned major maintenance
during the fourth quarter of 2004 to have a significant impact on cash flows
used in operations, as the majority of these expenditures will be funded from
the Major Maintenance Reserve Fund. Relationship with National Energy & Gas Transmission, Inc. (NEGT) JMC Selkirk, Inc. (JMC Selkirk) is the managing general partner of the
Partnership. Approximately 90% of the ownership interest in JMC Selkirk is
held by an indirect subsidiary of NEGT. NEGT is an indirect subsidiary of PG&E
Corporation. NEGT, through its indirect subsidiaries JMC Selkirk and JMCS I Management, Inc.
(JMCS I Management), manages the Partnership. On July 8, 2003, NEGT and
certain subsidiaries voluntarily filed petitions for relief under the
provisions of Chapter 11 of the U.S. Bankruptcy Code (collectively, the NEGT
Bankruptcy) in the Greenbelt Division of the United States Bankruptcy Court
for the District of Maryland (the Bankruptcy Court). The subsidiaries that
voluntarily filed petitions and were disclosed in previous reports as related
parties of the Partnership with which it engaged in transactions are: NEGT
Energy Trading-Power, L.P. and NEGT Energy TradingGas Corporation. There were
no amounts due to or from these subsidiaries at June 30, 2004. None of the Partnership or its NEGT affiliated partners (JMC Selkirk and
PentaGen Investors, L.P.) are parties to the NEGT Bankruptcy. The Managing
General Partner believes that JMC Selkirk, PentaGen Investors, L.P., and the
Partnership will not be substantively consolidated with NEGT in any bankruptcy
proceeding involving NEGT, and that the NEGT Bankruptcy will not have a
material adverse impact on the Partnerships operations. However, the Partnership cannot be certain that the NEGT Bankruptcy will not
affect NEGTs arrangements with respect to the Partnership or the ability of
JMC Selkirk or JMCS I Management to manage the Partnership. The Partnership
Agreement provides certain management rights to the other general partner of
the Partnership, RCM Selkirk GP, Inc. (RCM Selkirk GP), in the event that JMC
Selkirk were to be included as a debtor within the NEGT Bankruptcy, or either
JMC Selkirk or JMCS I Management were to be in material default of its
obligations to the Partnership (following notice and a 120 day cure period).
These protections (the Special Management Rights) include (i) the removal of
JMC Selkirk as the managing general partner, (ii) the appointment of itself as
the successor managing general partner, and (iii) the termination of the
administrative services agreement with JMCS I Management and subsequent
appointment of a RCM Selkirk GP affiliate as the project management firm.
Enforcement of these rights by RCM Selkirk GP could, however, be delayed or
impeded as a result of any bankruptcy proceeding involving JMC Selkirk.
Moreover, the bankruptcy of any partner of the Partnership would be an event of
default under the Partnerships Credit Agreement. On February 26, 2004, NEGT filed with the Bankruptcy Court its Third Amended
Plan of Reorganization and the related Disclosure Statement. A Modified Third
Amended Plan of Reorganization (the POR) was confirmed by order of the
Bankruptcy Court on 13




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May 3, 2004. The POR contemplates that, unless NEGT sells its power
generation and pipeline businesses as described in the POR, it will retain and
continue to operate these businesses, separate from PG&E Corporation, and will
issue new debt securities and common stock. On July 23, 2004, NEGT entered into a definitive agreement with Denali Power,
LLC, a company formed by affiliates of ArcLight Capital Partners, LLC and
Caithness Energy, LLC, (the Denali Agreement) to acquire NEGTs equity
interests in 12 power plants and a natural gas pipeline, including NEGTs
indirect ownership interests in the Partnership. The Denali Agreement will be
subject to Bankruptcy Court approval, and contemplates a court-sanctioned
auction process in accordance with customary bidding procedures approved by
the Bankruptcy Court. On August 10, 2004, the Bankruptcy Court issued an
order approving the bidding procedures. In the court-sanctioned auction, NEGT
will seek offers that are higher or otherwise better than that which has been
negotiated with Denali Power, LLC. The transaction is expected to close in
the first quarter of 2005 and is subject to certain regulatory and third party
approvals. Affiliates of ArcLight Capital Partners, LLC and Caithness Energy,
LLC already own indirect beneficial interests in the Partnership through the
limited partner interest of Teton Selkirk, LLC, and an affiliate of ArcLight
Capital Partners, LLC also owns an indirect beneficial interest in the
Partnership through the limited partner interest of PentaGen Investors, L.P. NEGTs indirect ownership interest in the general partner interest of JMC
Selkirk and the limited partner interests of JMC Selkirk and PentaGen
Investors, L.P. in the Partnership are included within the Denali Agreement.
The Partnership cannot predict whether a sale by NEGT of its interest in the
Partnership, whether pursuant to the Denali Agreement or otherwise (a NEGT
Interest Sale), will be completed. As presently contemplated, the NEGT
Interest Sale is not expected to alter the ability of JMC Selkirk or JMCS I
Management to manage the Partnership. On August 4, 2004, Standard and Poors (S&P) issued a press release, which
stated that the announcement by NEGT of its agreement to sell National Energy
Power Company, LLC, through which NEGT holds interest in Selkirk Cogen Funding
Corporation to Denali Power, LLC will not affect the rating on Selkirk Cogen
Funding Corporations bonds. S&P further stated that it believes that
ArcLight Capital Partners, LLC and Caithness Energy, LLC will be able to
manage the administrative functions of the project and carry out the duties as
managing general partner. S&Ps rating on the senior secured debt of Selkirk
Cogen Funding Corporation remains at BBB- with a stable outlook. 14




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Results of Operations The following tables sets forth operating revenue and related data for the
three and six months ended June 30, 2004 and 2003 (dollars and volumes in
millions). Three Months Ended June 30,2004
    
    2003Volume
    
    Dollars
    
    Volume
    
    DollarsDispatch
factor:Unit 1
    
    
    77.6
    %
    
    
    
    
    
    
    98.1
    %Unit 2
    
    
    100.0
    %
    
    
    
    
    
    
    74.4
    %Capacity
factor:Unit 1
    
    
    69.8
    %
    
    
    
    
    
    
    94.4
    %Unit 2
    
    
    92.4
    %
    
    
    
    
    
    
    70.9
    %Electric
and steam revenues:Unit 1 (Kwh)
    
    
    121.7
    
    
    $
    15.0
    
    
    
    164.8
    
    
    $
    16.3Unit 2 (Kwh)
    
    
    534.6
    
    
    
    44.8
    
    
    
    410.5
    
    
    
    39.3Steam (lbs)
    
    
    357.4
    
    
    
    
    
    
    
    337.4
    
    
    
    (0.1
    )Total electric and steam revenues
    
    
    
    
    
    
    59.8
    
    
    
    
    
    
    
    55.5Fuel
revenues:Gas resales (mmbtu)
    
    
    0.6
    
    
    
    3.5
    
    
    
    1.1
    
    
    
    6.9Gas transportation
optimizations (mmbtu)
    
    
    0.4
    
    
    
    2.7
    
    
    
    
    
    
    
    Peak shaving
arrangements (mmbtu)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fuel revenues
    
    
    
    
    
    
    6.2
    
    
    
    
    
    
    
    6.9Total operating revenues
    
    
    
    
    
    $
    66.0
    
    
    
    
    
    
    $
    62.4
 Six Months Ended June 30,2004
    
    2003Volume
    
    Dollars
    
    Volume
    
    DollarsDispatch
factor:Unit 1
    
    
    84.6
    %
    
    
    
    
    
    
    97.3
    %Unit 2
    
    
    96.8
    %
    
    
    
    
    
    
    87.1
    %Capacity
factor:Unit 1
    
    
    79.1
    %
    
    
    
    
    
    
    93.2
    %Unit 2
    
    
    91.2
    %
    
    
    
    
    
    
    84.5
    %Electric
and steam revenues:Unit 1 (Kwh)
    
    
    276.1
    
    
    $
    35.1
    
    
    
    323.7
    
    
    $
    37.2Unit 2 (Kwh)
    
    
    1,055.8
    
    
    
    88.3
    
    
    
    972.9
    
    
    
    85.4Steam (lbs)
    
    
    805.5
    
    
    
    0.9
    
    
    
    688.1
    
    
    
    Total electric and steam revenues
    
    
    
    
    
    
    124.3
    
    
    
    
    
    
    
    122.6Fuel
revenues:Gas resales (mmbtu)
    
    
    0.7
    
    
    
    4.5
    
    
    
    1.2
    
    
    
    7.5Gas transportation
optimizations (mmbtu)
    
    
    0.4
    
    
    
    2.7
    
    
    
    0.2
    
    
    
    1.6Peak shaving
arrangements (mmbtu)
    
    
    0.6
    
    
    
    9.0
    
    
    
    0.2
    
    
    
    2.5Total fuel revenues
    
    
    
    
    
    
    16.2
    
    
    
    
    
    
    
    11.6Total operating revenues
    
    
    
    
    
    $
    140.5
    
    
    
    
    
    
    $
    134.2
 15




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The capacity factor of Unit 1 and Unit 2 is the amount of energy
produced by each Unit in a given time period expressed as a percentage of the
total contract capability amount of potential energy production in that time
period. The dispatch factor of Unit 1 and Unit 2 is the number of hours
scheduled for electric delivery (regardless of output level) in a given time
period expressed as a percentage of the total number of hours in that time
period. Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30,
2003 Overall Results Net income was $8.7 million for the second quarter of 2004, a decrease of $0.9
million from the same period in the prior year. This decrease was primarily
due to higher maintenance expenses. The following highlights the principal changes in operating revenues and
operating expenses. Operating Revenues Operating revenues were $66.0 million for the second quarter of 2004, an
increase of $3.6 million from the same period in the prior year. This increase
was primarily due to higher electric revenues. Electric revenues increased by
$4.2 million in the second quarter of 2004 primarily due to the higher volume
of Unit 2 delivered energy. Cost of Revenues The cost of revenues was $48.7 million for the second quarter of 2004, an
increase of $4.8 million from the same period in the prior year. This increase
was primarily due to higher fuel and maintenance costs. Fuel costs increased
by $3.6 million in the second quarter of 2004 primarily due to the higher
volume of natural gas purchased under gas transportation optimizations.
Maintenance costs increased by $1.0 million in the second quarter of 2004
primarily due to the expanded scope of planned maintenance on the Facility.
During the second quarter of 2004, a planned major maintenance outage was
performed on a portion of Unit 1, as compared to the performance of a planned
non-major maintenance outage on a portion of Unit 2 during the same period in
the prior year. 16




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Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003 Overall Results Net income was $28.6 million for the six months ended June 30, 2004, an
increase of $4.0 million from the same period in the prior year. This increase
was primarily due to higher revenues under the peak shaving arrangement. The six months ended June 30, 2003 included a net loss for the cumulative
effect of a change in accounting principle of $53 thousand. The cumulative
effect was based on the Partnerships adoption as of January 1, 2003, of
Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Costs(see Note 2 to the Notes to Consolidated Financial
Statements). The following highlights the principal changes in operating revenues and
operating expenses. Operating Revenues Operating revenues were $140.5 million for the six months ended June 30, 2004,
an increase of $6.3 million from the same period in the prior year. This
increase was primarily due to higher fuel revenues. Fuel revenues increased by
$4.6 million in the first six months of 2004 primarily due to the higher volume
and price of natural gas sold under the peak shaving arrangement. Cost of Revenues The cost of revenues was $94.9 million for the six months ended June 30, 2004,
an increase of $3.2 million from the same period in the prior year. This
increase was primarily due to higher fuel and maintenance costs. Fuel costs
increased by $1.0 million in the first six months of 2004 primarily due to the
higher volume of natural gas purchased under gas transportation optimizations.
Maintenance costs increased by $1.0 million in the first six months of 2004
primarily due to the expanded scope of planned maintenance on the Facility.
During the second quarter of 2004, a planned major maintenance outage was
performed on a portion of Unit 1, as compared to the performance of a planned
non-major maintenance outage on a portion of Unit 2 during the same period in
the prior year. 17




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##### 



Liquidity and Capital Resources Sources of Cash Net cash provided by operating activities was $8.9 million for the second
quarter of 2004, a decrease of $1.5 million from the same period in the prior
year. This decrease is primarily due to lower net income resulting from higher
maintenance expenses. Net cash provided by operating activities was $32.9
million for the six months ended June 30, 2004, an increase of $1.1 million
from the same period in the prior year. This increase is primarily due to
higher net income resulting from higher revenues under the peak shaving
arrangement, partially offset by a reduction in accrued operating and
maintenance expenses resulting from a payment from the Major Maintenance
Reserve Fund for the purchase of spare parts. The Partnership believes, based on current conditions and circumstances, it
will have sufficient cash flows from operations to fund existing debt
obligations and operating costs during 2004. Credit Agreement The Partnership has available for its use a credit agreement, as amended (the
Credit Agreement), with a maximum available credit (including both
outstanding letters of credit and working capital loans) of $10.0 million.
Effective June 30, 2004, the Credit Agreement was amended to extend the
expiration date from August 8, 2005 to June 30, 2007. Outstanding balances of
working capital loans under the Credit Agreement bear interest at a base rate
with principal and interest payable monthly in arrears. The base rate under
the Credit Agreement is the greater of (i) a rate equal to the sum of the
federal funds rate plus 0.50%, and (ii) the prime rate publicly announced by
Citizens Bank of Massachusetts. The Credit Agreement is available to the
Partnership for the purposes of meeting letter of credit requirements under
various fuelrelated contracts and for meeting working capital requirements.
As of June 30, 2004, a letter of credit in the amount of approximately $2.9
million has been issued and there were no amounts drawn under such letter of
credit and no balances outstanding under the working capital arrangement. Uses of Cash Net cash used in investing activities of $22.4 million for the second quarter
of 2004 was comparable to the same period in the prior year. Net cash provided
by investing activities was $2.8 million for the six months ended June 30,
2004, an increase of $3.7 million from the same period in the prior year. The
increase is primarily due to a payment from the Major Maintenance Reserve Fund
for the purchase of spare parts. Net cash used in financing activities was $29.8 million for the second quarter
of 2004, an increase of $2.7 million from the same period in the prior year.
Net cash used in financing activities was $36.5 million for the six months
ended June 30, 2004, an increase of $9.4 million from the same period in the
prior year. These increases were primarily due to additional cash becoming
available for distribution to the Partners and higher principal payments on
long-term debt. 18




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##### 



Gas Contract Extension Fund Under the Partnerships financing agreements, a gas contract extension fund
(Gas Contract Extension Fund) will be required if the Partnership has not
satisfied certain conditions with the respect to the extension or replacement
of the Partnerships firm gas supply agreements by December 26, 2004. If the
Gas Contract Extension Fund is required, after December 26, 2004, cash
otherwise available for deposit into the Partnership Distribution Fund and
subsequent distribution to the Partners will be deposited into the Gas Contract
Extension Fund until the balance of the Gas Contract Extension Fund is
sufficient to fund all of the scheduled principal payments on the Partnerships
bonds from June 26, 2010 through June 26, 2012. The Partnership has commenced
discussions with its fuel suppliers regarding the extension of its firm gas
supply agreements. Significant Contractual Payment Obligations Since December 31, 2003, the Partnership has not committed to any new
significant contractual payment obligations of the types described under the
caption Liquidity and Capital Resources contained in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations, of
the Partnerships December 31, 2003 Annual Report on Form 10-K. Accounting Matters Critical Accounting Policies The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States involves the use
of estimates and assumptions that affect the recorded amount of assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Certain of these
estimates and assumptions are considered to be Critical Accounting Policies,
due to their complexity, subjectivity, and uncertainty, along with their
relevance to the financial performance of the Partnership. Actual results may
differ substantially from these estimates. There have been no changes to the
Partnerships critical accounting policies since December 31, 2003. See Item
7, Managements Discussion and Analysis of Financial Condition and Results of
Operations, of the Partnerships December 31, 2003 Annual Report of Form 10-K
for further discussion. Accounting Principles Issued But Not Yet Adopted In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46, as subsequently revised in
December 2003 (FIN 46R), is an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements(ARB 51), and supersedes
EITF Issues No. 90-15 and 96-21, which prescribe accounting for lease
arrangements with nonsubstantive lessors. This interpretation clarifies the
application of ARB 51 to certain entities, defined as variable interest
entities (VIEs), in which equity investors do not have a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities 19




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##### 



without additional subordinated financial support. FIN 46R requires that a
VIE is to be consolidated by a company, if that company is subject to a
majority of the risk of loss from the VIEs activities or is entitled to
receive a majority of the VIEs residual returns, or both. The consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. There were no new variable interest
entities created by the Partnership between February 1, 2003 and June 30, 2004.
The Partnership is non-public entity as defined by the interpretation. As a
non-public entity, the consolidation requirements related to entities or
arrangements existing before February 1, 2003 are effective January 1, 2005.
The Partnership has not identified any arrangements with potential VIEs. The
Partnership will continue to evaluate its arrangements for potential FIN 46R
application effective January 1, 2005. The Partnership does not expect that
implementation of this interpretation will have a significant impact on its
consolidated financial statements. Legal Matters The Partnership is a party in various legal proceedings and may be subject to
potential claims arising in the ordinary course of its business. Management
does not believe that the resolution of these matters will have a material
adverse effect on the Partnerships consolidated financial position or results
of operations. See Part I, Item 3 of the Partnerships December 31, 2003
Annual Report on Form 10-K for further discussion of significant pending
litigation. Regulations and Environmental Matters On November 6, 2001, the Partnership received from the DEC the Facilitys
Title V operating permit endorsed by the DEC on November 2, 2001 (the Title V
Permit). The Title V Permit as received by the Partnership contains
conditions that conflict with the Partnerships existing air permits, and the
Facilitys compliance with these conditions under certain operating
circumstances would be problematic. Further, the Partnership believes that
certain of the conditions contained in the Title V Permit are inconsistent
with the laws and regulations underlying the Title V program and Title V
operating permits issued by the DEC to comparable electric generating
facilities in New York. By letter dated November 12, 2001, the Partnership
has filed with the DEC a request for an adjudicatory hearing to address and
resolve the issues presented by the Title V Permit, and the terms and
conditions of the Title V Permit will be stayed pending a final DEC decision
on the appeal. At this time, the Partnership cannot assess whether a
settlement can be achieved, the likely outcome of the adjudicatory hearing if
no settlement is achieved, or the impact on the Facility. 20




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ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK For quantitative and qualitative disclosures about market risk, see Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, of the
Partnerships December 31, 2003 Annual Report on Form 10-K. The Partnerships
exposures to market risk have not changed materially since December 31, 2003. ITEM 4. CONTROLS AND
PROCEDURES An evaluation of the disclosure controls and procedures of the Partnership and
Selkirk Cogen Funding Corporation (the Funding Corporation) as of June 30,
2004 has been conducted under the supervision and with the participation of the
principal executive officer and principal financial officer of both JMC Selkirk
(as Managing General Partner of the Partnership) and the Funding Corporation.
Based on that evaluation, such officers have concluded that, as of such date,
the disclosure controls and procedures of the Partnership and Funding
Corporation are effective, in that they provide reasonable assurance that such
officers are alerted on a timely basis to material information that is required
to be included in the Partnerships and Funding Corporations periodic filings
under the Securities and Exchange Act of 1934, as amended. During the quarter ended June 30, 2004, no changes occurred in the
Partnerships or Funding Corporations internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Partnerships or Funding Corporations internal control over
financial reporting. (See Item 5. Other Information, for newly appointed
directors and executive officers of the Funding Corporation and JMC Selkirk) 21




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PART II. OTHER
INFORMATION ITEM 5. OTHER
INFORMATION Directors and Executive Officers Effective July 1, 2004, Thomas E. Legro resigned from his positions as
Director, Vice President, Controller and Chief Accounting Officer of both the
Funding Corporation and JMC Selkirk (the Managing General Partner). The
following tables set forth the names and positions of newly appointed directors
and executive officers. Selkirk
Cogen Funding Corporation: Name
    
    PositionWilliam H. Runge, III
    
    DirectorJ. Tracy Mey
    
    Controller and Chief Accounting Officer
 The
Managing General Partner: Name
    
    PositionWilliam H. Runge, III
    
    DirectorJ. Tracy Mey
    
    Controller and Chief Accounting Officer
 William H. Runge, IIIis Associate Chief Restructuring Officer and Chief
Financial Officer of NEGT, an affiliate of the Managing General Partner, and
has been associated with NEGT since October 2002. Mr. Runge is also a managing
director with Alvarez & Marsal, LLC, a global professional services firm
specializing in business diagnostics, business plan development and financial
strategies for corporate turnarounds and restructuring. Prior to joining
Alvarez & Marsal, LLC, Mr. Runge was a partner with a Big Five public
accounting firm and a chief financial officer and chief operating officer in
private industry. Mr. Runge was elected Director of both the Funding
Corporation and the Managing General Partner on July 1, 2004. J. Tracy Meyis Controller and Chief Accounting Officer of Power Services
Company, an affiliate of the Managing General Partner, and has been with Power
Services Company since it was formed in 1989. Prior to joining Power Services
Company, Mr. Mey held positions with a Fortune 500 International engineering &
manufacturing firm and with the public accounting firm of Arthur Andersen &
Company. Mr. Mey was elected Controller and Chief Accounting Officer of both
the Funding Corporation and the Managing General Partner on July 1, 2004. Prior
to July 1, 2004, Mr. Mey served as Assistant Controller of both the Funding
Corporation and the Managing General Partner. 22




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Audit Committee The Board of Directors of each of the Managing General Partner and the Funding
Corporation performs the functions and responsibilities of an audit committee
of the Partnership and Funding Corporation, respectively. Each such Board of
Directors has determined that one of its members, William H. Runge, III, is an
audit committee financial expert as defined in Item 401(h) of the Securities
and Exchange Commissions Regulation S-K, and has also determined that Mr.
Runge is not independent within the meaning of such provision because he is
an executive officer of NEGT. The Partnership and Funding Corporation,
however, are not required under the Commissions rules implementing Section
10A(m) of the Securities Exchange Act of 1934, as amended, to have an audit
committee consisting of independent members because they are not listed
issuers within the meaning of such rules. ITEM 6. EXHIBITS AND
REPORTS ON FORM 8-K (A) Exhibits Exhibit No.
    
    Description of Exhibit3.1
    
    Amendment No. 4 to the Third Amended and Restated Agreement of Limited
Partnership of Selkirk Cogen Partners, L.P. (the Partnership), dated as
of July 12, 200410.1
    
    Amendment No. 7 to Credit Agreement, dated as of June 30, 2004, between
the Partnership and Citizens Bank of Massachusetts31.1
    
    Certification of Principal Executive Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 302 of the Sarbanes  Oxley Act of 2002 dated August 12, 200431.2
    
    Certification of Principal Financial Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 302 of the Sarbanes  Oxley Act of 2002 dated August 12, 200431.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes  Oxley Act of 2002
dated August 12, 200431.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes  Oxley Act of 2002
dated August 12, 200432.1
    
    Certification of Principal Executive Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 906 of the Sarbanes  Oxley Act of 2002 dated August 12, 2004
 23




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Exhibit No.
    
    Description of Exhibit32.2
    
    Certification of Principal Financial Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 906 of the Sarbanes  Oxley Act of 2002 dated August 12, 200432.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes  Oxley Act of 2002
dated August 12, 200432.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes  Oxley Act of 2002
dated August 12, 2004
 (B) Reports on Form 8-K Not applicable. Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered. 24




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized. SELKIRK COGEN PARTNERS, L.P.By:
    
    JMC SELKIRK, INC.,Managing General PartnerDate: August 12, 2004
    
    /s/ J. TRACY MEYName: J. Tracy MeyTitle: Controller and Chief Accounting OfficerSELKIRK COGEN FUNDING CORPORATIONDate: August 12, 2004
    
    /s/ J. TRACY MEYName: J. Tracy MeyTitle: Controller and Chief Accounting Officer
 25




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EXHIBIT INDEX Exhibit No.
    
    Description of Exhibit3.1
    
    Amendment No. 4 to the Third Amended and Restated Agreement of Limited
Partnership of Selkirk Cogen Partners, L.P. (the Partnership), dated as
of July 12, 200410.1
    
    Amendment No. 7 to Credit Agreement, dated as of June 30, 2004, between
the Partnership and Citizens Bank of Massachusetts31.1
    
    Certification of Principal Executive Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 302 of the Sarbanes  Oxley Act of 2002 dated August 12, 200431.2
    
    Certification of Principal Financial Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 302 of the Sarbanes  Oxley Act of 2002 dated August 12, 200431.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes  Oxley Act of 2002
dated August 12, 200431.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes  Oxley Act of 2002
dated August 12, 200432.1
    
    Certification of Principal Executive Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 906 of the Sarbanes  Oxley Act of 2002 dated August 12, 200432.2
    
    Certification of Principal Financial Officer of JMC Selkirk, Inc., as
Managing General Partner of Selkirk Cogen Partners, L.P., pursuant to
Section 906 of the Sarbanes  Oxley Act of 2002 dated August 12, 200432.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes  Oxley Act of 2002
dated August 12, 200432.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes  Oxley Act of 2002
dated August 12, 2004