##### 



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
    
    51-0324332(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 SELKIRK COGEN FUNDING CORPORATION  Delaware
    
    51-0354675(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    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 o Indicate by check mark whether the registrants are accelerated filers (as
defined in Exchange Act Rule 12b-2). Yes o No x As of November 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 September 30, 2004 and December 31, 2003
    
    
    1Consolidated Statements of Operations for the three and nine months ended September 30, 2004 and 2003
    
    
    2Consolidated Statements of Cash Flows for the three and nine months ended September 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
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 5.
    
    Other Information
    
    
    23Item 6.
    
    Exhibits
    
    
    24SIGNATURES
    
    
    
    
    25
 i




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SELKIRK COGEN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited) September 30,
    
    December 31,2004
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,169
    
    
    $
    3,216Restricted funds
    
    
    30,783
    
    
    
    10,652Accounts receivable
    
    
    21,140
    
    
    
    22,449Due from affiliates
    
    
    
    
    
    
    58Inventory
    
    
    8,764
    
    
    
    9,460Other current assets
    
    
    946
    
    
    
    1,095Total current assets
    
    
    63,802
    
    
    
    46,930PLANT AND EQUIPMENT:Plant and equipment, at cost
    
    
    377,617
    
    
    
    375,794Less: Accumulated depreciation
    
    
    134,000
    
    
    
    124,495Plant and equipment, net
    
    
    243,617
    
    
    
    251,299OTHER LONG-TERM ASSETS:Long-Term restricted funds
    
    
    32,766
    
    
    
    30,895Deferred financing charges, net of accumulated amortization
of $11,755 and $11,014, respectively
    
    
    4,536
    
    
    
    5,277TOTAL ASSETS
    
    $
    344,721
    
    
    $
    334,401LIABILITIES AND PARTNERS DEFICITSCURRENT LIABILITIES:Accounts payable
    
    $
    434
    
    
    $
    2,114Accrued bond interest payable
    
    
    7,475
    
    
    
    327Accrued fuel expenses
    
    
    11,532
    
    
    
    11,542Accrued property taxes
    
    
    3,644
    
    
    
    1,750Accrued operating and maintenance expenses
    
    
    1,360
    
    
    
    4,793Other accrued expenses
    
    
    2,517
    
    
    
    2,394Due to affiliates
    
    
    745
    
    
    
    977Liability for derivative contracts
    
    
    40
    
    
    
    498Current portion of deferred revenue
    
    
    707
    
    
    
    707Current portion of long-term bonds
    
    
    22,349
    
    
    
    19,587Total current liabilities
    
    
    50,803
    
    
    
    44,689LONG-TERM LIABILITIES:Other long-term liabilities
    
    
    6,544
    
    
    
    6,200Deferred revenue, net of current portion
    
    
    1,945
    
    
    
    2,476Long-term bonds, net of current portion
    
    
    299,935
    
    
    
    312,283Total liabilities
    
    
    359,227
    
    
    
    365,648COMMITMENTS AND CONTINGENCIESPARTNERS DEFICITS:General partners deficits
    
    
    (1,819
    )
    
    
    (316
    )Limited partners deficits
    
    
    (12,647
    )
    
    
    (30,433
    )Accumulated other comprehensive loss
    
    
    (40
    )
    
    
    (498
    )Total partners deficits
    
    
    (14,506
    )
    
    
    (31,247
    )TOTAL LIABILITIES AND PARTNERS DEFICITS
    
    $
    344,721
    
    
    $
    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
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003OPERATING REVENUES:Electric and steam
    
    $
    65,770
    
    
    $
    62,266
    
    
    $
    190,030
    
    
    $
    184,875Fuel
    
    
    1,353
    
    
    
    2,310
    
    
    
    15,263
    
    
    
    13,884Total operating revenues
    
    
    67,123
    
    
    
    64,576
    
    
    
    205,293
    
    
    
    198,759COST OF REVENUES:Fuel and transmission
    
    
    36,473
    
    
    
    35,579
    
    
    
    112,592
    
    
    
    112,286Other operating and maintenance
    
    
    3,695
    
    
    
    3,430
    
    
    
    13,775
    
    
    
    12,177Depreciation
    
    
    3,196
    
    
    
    3,148
    
    
    
    9,521
    
    
    
    9,427Total cost of revenues
    
    
    43,364
    
    
    
    42,157
    
    
    
    135,888
    
    
    
    133,890GROSS PROFIT
    
    
    23,759
    
    
    
    22,419
    
    
    
    69,405
    
    
    
    64,869OTHER OPERATING EXPENSES:Administrative services, affiliates
    
    
    323
    
    
    
    309
    
    
    
    1,077
    
    
    
    1,122Other general and administrative
    
    
    620
    
    
    
    913
    
    
    
    1,980
    
    
    
    2,227Total other operating expenses
    
    
    943
    
    
    
    1,222
    
    
    
    3,057
    
    
    
    3,349OPERATING INCOME
    
    
    22,816
    
    
    
    21,197
    
    
    
    66,348
    
    
    
    61,520INTEREST (INCOME) EXPENSE:Interest income
    
    
    (168
    )
    
    
    (123
    )
    
    
    (446
    )
    
    
    (455
    )Interest expense
    
    
    7,399
    
    
    
    7,812
    
    
    
    22,616
    
    
    
    23,806Total interest expense, net
    
    
    7,231
    
    
    
    7,689
    
    
    
    22,170
    
    
    
    23,351INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE
    
    $
    15,585
    
    
    $
    13,508
    
    
    $
    44,178
    
    
    $
    38,169CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )NET INCOME
    
    $
    15,585
    
    
    $
    13,508
    
    
    $
    44,178
    
    
    $
    38,116NET INCOME ALLOCATION:General partners
    
    $
    156
    
    
    $
    136
    
    
    $
    443
    
    
    $
    382Limited partners
    
    
    15,429
    
    
    
    13,372
    
    
    
    43,735
    
    
    
    37,734TOTAL
    
    $
    15,585
    
    
    $
    13,508
    
    
    $
    44,178
    
    
    $
    38,116
 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
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    15,585
    
    
    $
    13,508
    
    
    $
    44,178
    
    
    $
    38,116Adjustments to reconcile net income to net cash
provided by operating activities:Cumulative effect of a change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53Depreciation, amortization and accretion
    
    
    3,439
    
    
    
    3,405
    
    
    
    10,266
    
    
    
    10,210Deferred revenue
    
    
    (177
    )
    
    
    (177
    )
    
    
    (531
    )
    
    
    (531
    )Loss on disposal of plant and equipment
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    Increase (decrease) in cash resulting from a
change in:Accounts receivable
    
    
    1,578
    
    
    
    (1,184
    )
    
    
    1,309
    
    
    
    (2,277
    )Due from affiliates
    
    
    5
    
    
    
    
    
    
    
    58
    
    
    
    1,757Inventory
    
    
    (201
    )
    
    
    (115
    )
    
    
    696
    
    
    
    398Other current assets
    
    
    308
    
    
    
    354
    
    
    
    149
    
    
    
    (816
    )Accounts payable
    
    
    (115
    )
    
    
    (429
    )
    
    
    (1,680
    )
    
    
    118Accrued bond interest payable
    
    
    7,157
    
    
    
    7,556
    
    
    
    7,148
    
    
    
    7,548Accrued fuel expenses
    
    
    (1,037
    )
    
    
    (1,099
    )
    
    
    (10
    )
    
    
    470Accrued property taxes
    
    
    44
    
    
    
    42
    
    
    
    1,894
    
    
    
    142Accrued operating and maintenance expenses
    
    
    (169
    )
    
    
    (207
    )
    
    
    (3,433
    )
    
    
    (192
    )Other accrued expenses
    
    
    338
    
    
    
    336
    
    
    
    123
    
    
    
    (545
    )Due to affiliates
    
    
    (82
    )
    
    
    687
    
    
    
    (232
    )
    
    
    285Other long-term liabilities
    
    
    730
    
    
    
    730
    
    
    
    340
    
    
    
    440Net cash provided by operating activities
    
    
    27,403
    
    
    
    23,407
    
    
    
    60,308
    
    
    
    55,176CASH FLOWS FROM INVESTING ACTIVITIES:Restricted funds
    
    
    (26,460
    )
    
    
    (26,216
    )
    
    
    (22,002
    )
    
    
    (26,615
    )Plant and equipment additions
    
    
    (257
    )
    
    
    (128
    )
    
    
    (1,872
    )
    
    
    (618
    )Net cash used in investing activities
    
    
    (26,717
    )
    
    
    (26,344
    )
    
    
    (23,874
    )
    
    
    (27,233
    )CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to partners
    
    
    (966
    )
    
    
    (2,136
    )
    
    
    (27,895
    )
    
    
    (20,711
    )Repayment of long-term debt
    
    
    
    
    
    
    
    
    
    
    (9,586
    )
    
    
    (8,498
    )Net cash used in financing activities
    
    
    (966
    )
    
    
    (2,136
    )
    
    
    (37,481
    )
    
    
    (29,209
    )NET DECREASE IN CASH AND
CASH EQUIVALENTS
    
    
    (280
    )
    
    
    (5,073
    )
    
    
    (1,047
    )
    
    
    (1,266
    )CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    2,449
    
    
    
    6,523
    
    
    
    3,216
    
    
    
    2,716CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    2,169
    
    
    $
    1,450
    
    
    $
    2,169
    
    
    $
    1,450SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    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 statement of operations
for the nine months ended September 30, 2004 to conform to the basis of
presentation for the three months ended September 30, 2004. Certain
reclassifications have been made to the consolidated statements of cash flows
for the three and nine months ended September 30, 2003 to conform to the
current periods basis of presentation. Operating results for the three and
nine months ended September 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 nine months ended September 30, 2004 and 2003 (in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    15,585
    
    
    $
    13,508
    
    
    $
    44,178
    
    
    $
    38,116Net unrealized gain (loss) from
current period hedging transactions
in accordance with SFAS No. 133
    
    
    339
    
    
    
    (56
    )
    
    
    (5
    )
    
    
    2,932Net reclassification to earnings
    
    
    31
    
    
    
    231
    
    
    
    463
    
    
    
    962Comprehensive income
    
    $
    15,955
    
    
    $
    13,683
    
    
    $
    44,636
    
    
    $
    42,010
 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., the Partnerships project management firm and
affiliate of JMC Selkirk Inc., the Partnerships managing general partner,
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, Inc. are included in administrative services  affiliates in the
accompanying consolidated statements of operations. The total amount due to
JMCS I Management, Inc. at September 30, 2004, was approximately $225,000. The Partnership purchases from and sells gas to affiliates of JMC Selkirk, Inc.
As of May 31, 2003, the Partnership ceased transactions with NEGT Energy
TradingGas Corporation (NEGT Energy TradingGas). Gas purchases from affiliates are
recorded as fuel costs and sales of gas to affiliates are recorded as fuel revenues in the
accompanying consolidated statements of operations. There were no amounts due
to/from affiliates for purchases or sales of gas at September 30, 2004. Gas purchased from affiliates is as follows (dollars in thousands): Nine months ended September 30,2004
    
    2003NEGT Energy TradingGas
    
    $
    
    
    
    $
    4,901MASSPOWER
    
    
    112
    
    
    
    1,520Pittsfield Generating Company, L.P.
    
    
    
    
    
    
    39
 Gas sold to affiliates is as follows (dollars in thousands): Nine months ended September 30,2004
    
    2003NEGT Energy TradingGas
    
    $
    
    
    
    $
    9,117MASSPOWER
    
    
    
    
    
    
    16
 The Partnership has two agreements with Iroquois Gas Transmission System
(IGTS), an indirect affiliate of JMC Selkirk, Inc., to provide firm
transportation of natural gas from Canada. Firm fuel transportation services
for the nine months ended September 30, 2004 totaled approximately $5,132,000,
compared to approximately $5,275,000 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 September 30, 2004, was approximately $520,000. 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 nine months
ended September 30, 2004 and 2003 (in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Beginning accumulated other
comprehensive loss at July 1
and January 1, respectively
    
    $
    (410
    )
    
    $
    (1,406
    )
    
    $
    (498
    )
    
    $
    (5,125
    )Net change of current period
hedging transactions gain
(loss)
    
    
    339
    
    
    
    (56
    )
    
    
    (5
    )
    
    
    2,932Net reclassification to earnings
    
    
    31
    
    
    
    231
    
    
    
    463
    
    
    
    962Ending accumulated other
comprehensive loss
    
    $
    (40
    )
    
    $
    (1,231
    )
    
    $
    (40
    )
    
    $
    (1,231
    )
 The Partnership expects that net derivative losses of approximately $40,000,
included in accumulated other comprehensive loss as of September 30, 2004,
will be reclassified into earnings within the next twelve months. Note 5. Relationship with National Energy & Gas Transmission, Inc. (NEGT) NEGT owns an indirect interest in the Partnership and its wholly owned
subsidiary, Selkirk Cogen Funding Corporation. NEGT manages the Partnership
through its indirect, wholly owned subsidiaries, JMC Selkirk, Inc., the
Partnerships managing general partner, and JMCS I Management, Inc., the
Partnerships project management firm. Prior to October 29, 2004, NEGT was an
indirect subsidiary of PG&E Corporation. 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 7




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##### 



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. There were no amounts due to or from these
subsidiaries at September 30, 2004. None of the Partnership or its NEGT affiliated partners (JMC Selkirk, Inc. and
PentaGen Investors, L.P.) were parties to the NEGT Bankruptcy. The NEGT
Bankruptcy did not have a material adverse impact on the Partnerships
operations. 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 contemplated that NEGT would retain
and continue to operate its power generation and pipeline businesses unless
they were sold. On October 29, 2004, the POR became effective and NEGT
emerged from bankruptcy. Pursuant to the POR, NEGT completed its separation
from PG&E Corporation and will issue new debt securities and common stock to
its creditors. NEGT announced on September 15, 2004, that it had entered into a definitive
purchase agreement with GS Power Holdings II LLC, a wholly owned subsidiary of
The Goldman Sachs Group, Inc. (the GS Power 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 GS Power
Agreement resulted from a multi-round bankruptcy court-sanctioned auction
bidding process in which GS Power Holdings II LLC was the winning bidder. As
a result, the purchase agreement between NEGT and Denali Power, LLC previously
disclosed in a Quarterly Report on Form 10-Q for the quarter ended June 30,
2004 will ultimately be terminated prior to the consummation of the sale under
the GS Power Agreement. On September 23, 2004, the Bankruptcy Court issued an
order approving the GS Power Agreement. NEGT expects the transaction, which is
subject to certain regulatory and third party approvals, to close in the first
quarter of 2005. The Goldman Sachs Group, Inc., through its ownership of
Cogentrix Energy, Inc. already owns indirect beneficial interests in the
Partnership through the general partner interest of JMC Selkirk, Inc. and
limited partner interests of JMC Selkirk, Inc. and PentaGen Investors, L.P. NEGTs indirect ownership interest in the general partner interest of JMC
Selkirk, Inc. and the limited partner interests of JMC Selkirk, Inc. and
PentaGen Investors, L.P. in the Partnership are included within the sale as
contemplated by the GS Power Agreement (the GS Power Sale). NEGTs indirect
ownership interest in JMCS I Management, Inc. is also included in the GS Power
Sale. As presently contemplated, the GS Power Sale, if consummated, is not
expected to alter the ability of JMC Selkirk, Inc. or JMCS I Management, Inc.
to manage the Partnership. On September 17, 2004, Moodys Investors Service (Moodys) issued a credit
opinion confirming Selkirk Cogen Funding Corporations senior secured debt
rating at Baa3 with a stable rating outlook. In this credit opinion, Moodys
stated that the rating considers the September 15, 2004 announcement by NEGT
concerning the GS Power Agreement, which includes NEGTs indirect ownership in
the Partnership. 8




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##### 



On September 24, 2004 Standard and Poors (S&P) issued a bulletin stating it
does not expect the recent announcement by NEGT concerning the GS Power
Agreement to affect the rating on the senior secured debt of Selkirk Cogen
Funding Corporation. That rating is currently BBB- with a stable rating
outlook. S&P also stated that it was analyzing the possible effects of the
proposed ownership change on the Partnership. 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. Note 7. Subsequent Event On November 12, 2004, the Partnership entered into a new agreement (the
Additional Agreement) with Canadian Forest Oil Ltd. (formerly Producers
Marketing Ltd.), one of its fuel suppliers, to replace the volumes of natural
gas currently being provided by such supplier under its existing firm natural
gas supply agreement when the agreement expires on October 31, 2009 (the
Expiration Date). The initial term of the Additional Agreement commences on
November 1, 2004 and ends on the Expiration Date, and the subsequent term
extends from November 1, 2009 through October 31, 2014. The Additional
Agreement does not include a minimum contract volume purchase obligation and effectively eliminates the Partnerships minimum contract volume
purchase obligation under the existing firm natural gas supply agreement; provides for
additional volumes of gas supply to be available for purchase at the option of
the Partnership; and includes additional pricing provisions for all quantities
of gas purchased from the fuel supplier. The Partnership is currently
evaluating the accounting treatment for this agreement. 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 consolidated financial
statements and notes to the accompanying consolidated financial statements of
Selkirk Cogen Partners, L.P. (the Partnership) 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 natural 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 11




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##### 



capacity. Gas 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 third quarter of 2004, the Partnership generated net income of $15.6
million and cash flows from operations of $27.4 million. The increase in
earnings of $2.1 million and cash flows from operations of $4.0 million
compared to same period in the prior year was primarily due to higher electric
revenues from sales of other energy-related products. During the nine months ended September 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 $44.2
million and cash flows from operations of $60.3 million during the first nine
months of 2004. The increase in earnings of $6.1 million and cash flows from
operations of $5.1 million compared to same period in the prior year was
primarily due to higher electric revenues from sales of other energy-related
products and higher fuel revenues under the peak shaving arrangement. Average electric energy market prices were lower during the third 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 higher during the third quarter of 2004 as
compared to the same period in the prior year. The Partnership cannot predict
whether these trends will continue for the remainder of 2004. During the beginning of the fourth quarter of 2004, the Partnership performed a
three-week planned major maintenance outage on a portion of Unit 2, as compared
to the performance of a one-week planned non-major maintenance outage on a
portion of Unit 2 during the fourth quarter of 2003. The Partnership does not
expect the lower volumes of electric energy available for delivery and higher
volumes of natural gas available for resale resulting from the longer outage
duration to negatively impact operating revenues 12




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##### 



during the fourth quarter of 2004. At the same time, due to the expanded scope
of the planned maintenance outage the Partnership expects maintenance expenses
to be higher in the fourth quarter of 2004, as compared to the same period in
the prior year. 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 established under the
Partnerships financing documents. The Partnership has been engaged in discussions with certain of its fuel
suppliers regarding the extension or replacement of the related firm natural
gas supply agreements in order to meet the Gas Contract Extension Conditions
(defined herein) under the Partnerships financing documents so as to prevent
the requirement of deposits into the Gas Contract Extension Fund (defined
herein), and thus prevent the resulting restriction on the Partnerships
ability to make distributions to its partners after December 26, 2004. In
connection with these discussions, on November 12, 2004, the Partnership
entered into a new agreement with one of its fuel suppliers. See Part II, Item
5., Other Information, for a description of the Partnerships actions with
respect to the extension or replacement of its firm natural gas supply
agreements. Relationship with National Energy & Gas Transmission, Inc. (NEGT) NEGT owns an indirect interest in the Partnership and its wholly owned
subsidiary, Selkirk Cogen Funding Corporation. NEGT manages the Partnership
through its indirect, wholly owned subsidiaries, JMC Selkirk, Inc., the
Partnerships managing general partner, and JMCS I Management, Inc., the
Partnerships project management firm. Prior to October 29, 2004, NEGT was an
indirect subsidiary of PG&E Corporation. 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
September 30, 2004. None of the Partnership or its NEGT affiliated partners (JMC Selkirk, Inc. and
PentaGen Investors, L.P.) were parties to the NEGT Bankruptcy. The NEGT
Bankruptcy did not have a material adverse impact on the Partnerships
operations. 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 contemplated that NEGT would retain
and continue to operate its power generation and pipeline businesses unless
they were sold. On October 29, 2004, the POR became effective and NEGT
emerged from bankruptcy. Pursuant to the POR, NEGT completed its separation
from PG&E Corporation and will issue new debt securities and common stock to
its creditors. 13




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##### 



NEGT announced on September 15, 2004, that it had entered into a definitive
purchase agreement with GS Power Holdings II LLC, a wholly owned subsidiary of
The Goldman Sachs Group, Inc. (the GS Power 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 GS Power
Agreement resulted from a multi-round bankruptcy court-sanctioned auction
bidding process in which GS Power Holdings II LLC was the winning bidder. As
a result, the purchase agreement between NEGT and Denali Power, LLC previously
disclosed in a Quarterly Report on Form 10-Q for the quarter ended June 30,
2004 will ultimately be terminated prior to the consummation of the sale under
the GS Power Agreement. On September 23, 2004, the Bankruptcy Court issued an
order approving the GS Power Agreement. NEGT expects the transaction, which is
subject to certain regulatory and third party approvals, to close in the first
quarter of 2005. The Goldman Sachs Group, Inc., through its ownership of
Cogentrix Energy, Inc. already owns indirect beneficial interests in the
Partnership through the general partner interest of JMC Selkirk, Inc. and
limited partner interests of JMC Selkirk, Inc. and PentaGen Investors, L.P. NEGTs indirect ownership interest in the general partner interest of JMC
Selkirk, Inc. and the limited partner interests of JMC Selkirk, Inc. and
PentaGen Investors, L.P. in the Partnership are included within the sale as
contemplated by the GS Power Agreement (the GS Power Sale). NEGTs indirect
ownership interest in JMCS I Management, Inc. is also included in the GS Power
Sale. As presently contemplated, the GS Power Sale, if consummated, is not
expected to alter the ability of JMC Selkirk, Inc. or JMCS I Management, Inc.
to manage the Partnership. 14




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##### 



Results of Operations The following tables sets forth operating revenue and related data for the
three and nine months ended September 30, 2004 and 2003 (dollars and volumes in
millions). Three Months Ended September 30,2004
    
    2003Volume
    
    Dollars
    
    Volume
    
    DollarsDispatch factor(1):Unit 1
    
    
    90.5
    %
    
    
    
    
    
    
    96.2
    %Unit 2
    
    
    100.0
    %
    
    
    
    
    
    
    98.2
    %Capacity factor(2):Unit 1
    
    
    80.2
    %
    
    
    
    
    
    
    82.3
    %Unit 2
    
    
    97.3
    %
    
    
    
    
    
    
    97.1
    %Electric and steam revenues:Unit 1 (Kwh)
    
    
    141.6
    
    
    $
    19.1
    
    
    
    145.2
    
    
    $
    19.2Unit 2 (Kwh)
    
    
    569.5
    
    
    
    47.1
    
    
    
    568.0
    
    
    
    43.1Steam (lbs)
    
    
    279.7
    
    
    
    (0.5
    )
    
    
    308.6
    
    
    
    Total electric and steam revenues
    
    
    
    
    
    
    65.7
    
    
    
    
    
    
    
    62.3Fuel revenues:Gas resales (mmbtu)
    
    
    0.2
    
    
    
    1.2
    
    
    
    0.2
    
    
    
    0.8Gas transportation
optimizations (mmbtu)
    
    
    
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    1.5Peak shaving
arrangements (mmbtu)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fuel revenues
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    2.3Total operating revenues
    
    
    
    
    
    $
    67.1
    
    
    
    
    
    
    $
    64.6
 Nine Months Ended September 30,2004
    
    2003Volume
    
    Dollars
    
    Volume
    
    DollarsDispatch factor(1):Unit 1
    
    
    86.6
    %
    
    
    
    
    
    
    96.9
    %Unit 2
    
    
    97.9
    %
    
    
    
    
    
    
    90.9
    %Capacity facto(2):Unit 1
    
    
    79.5
    %
    
    
    
    
    
    
    89.5
    %Unit 2
    
    
    93.3
    %
    
    
    
    
    
    
    88.8
    %Electric and steam revenues:Unit 1 (Kwh)
    
    
    417.7
    
    
    $
    54.2
    
    
    
    468.9
    
    
    $
    56.4Unit 2 (Kwh)
    
    
    1,625.3
    
    
    
    135.4
    
    
    
    1,540.9
    
    
    
    128.5Steam (lbs)
    
    
    1,085.2
    
    
    
    0.4
    
    
    
    996.7
    
    
    
    Total electric and steam revenues
    
    
    
    
    
    
    190.0
    
    
    
    
    
    
    
    184.9Fuel revenues(3):Gas resales (mmbtu)
    
    
    0.9
    
    
    
    6.0
    
    
    
    1.4
    
    
    
    8.3Gas transportation
optimizations (mmbtu)
    
    
    
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    3.1Peak shaving
arrangements (mmbtu)
    
    
    0.6
    
    
    
    9.0
    
    
    
    0.2
    
    
    
    2.5Total fuel revenues
    
    
    
    
    
    
    15.3
    
    
    
    
    
    
    
    13.9Total operating revenues
    
    
    
    
    
    $
    205.3
    
    
    
    
    
    
    $
    198.8
 15




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##### 



(1) 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. (2) 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. (3) Certain reclassifications have been made to fuel revenues for the nine
months ended September 30, 2004 to conform to the basis of presentation for the
three months ended September 30, 2004. Three Months Ended September 30, 2004 Compared to the Three Months Ended
September 30, 2003 Overall Results Net income was $15.6 million for the third quarter of 2004, an increase of $2.1
million from the same period in the prior year. This increase was primarily
due to higher electric revenues from sales of other energy-related products. The following highlights the principal changes in operating revenues and
operating expenses. Operating Revenues Operating revenues were $67.1 million for the third quarter of 2004, an
increase of $2.5 million from the same period in the prior year. This increase
was primarily due to higher electric revenues. Electric revenues increased by
$3.9 million in the third quarter of 2004 primarily due to escalation in the
Con Edison contract capacity payment, higher fuel index pricing in the Con
Edison contract price for delivered energy and sales of other energy-related
products. Cost of Revenues The cost of revenues was $43.4 million for the third quarter of 2004, an
increase of $1.2 million from the same period in the prior year. This increase
was primarily due to higher fuel costs. Fuel costs increased by $1.2 million
in the third quarter of 2004 primarily due to the higher price of natural gas
under the firm gas supply agreements. 16




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##### 



Nine Months Ended September 30, 2004 Compared to the Nine Months Ended
September 30, 2003 Overall Results Net income was $44.2 million for the nine months ended September 30, 2004, an
increase of $6.1 million from the same period in the prior year. This increase
was primarily due to higher electric revenues from sales of other
energy-related products and higher fuel revenues under the peak shaving
arrangement. The nine months ended September 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). Certain reclassifications have been made to fuel revenues and fuel costs in the
consolidated statement of operations for the nine months ended September 30,
2004 to conform to the basis of presentation for three months ended September
30, 2004. The following highlights the principal changes in operating revenues and
operating expenses. Operating Revenues Operating revenues were $205.3 million for the nine months ended September 30,
2004, an increase of $6.5 million from the same period in the prior year. This
increase was primarily due to higher electric and fuel revenues. Electric
revenues increased by $4.7 million primarily due to escalation in the Con
Edison contract capacity payment and sales of other energy-related products.
Fuel revenues increased by $1.4 million primarily due to the higher volume and
price of natural gas sold under the peak shaving arrangement, partially offset
by lower gas transportation optimizations. Beginning in the second quarter of
2004, the net effect of certain gas transportation optimizations are recorded
in cost of revenues due to a change in the terms and conditions of these
transactions. Cost of Revenues The cost of revenues was $135.9 million for the nine months ended September 30,
2004, an increase of $2.0 million from the same period in the prior year. This
increase was primarily due to higher maintenance costs. Maintenance costs
increased by $1.3 million 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 $27.4 million for the third
quarter of 2004, an increase of $4.0 million from the same period in the prior
year. This increase is primarily due to higher net income resulting from higher
electric revenues from sales of other energy-related products. Net cash
provided by operating activities was $60.3 million for the nine months ended
September 30, 2004, an increase of $5.1 million from the same period in the
prior year. This increase is primarily due to higher net income resulting from
higher electric revenues from sales of other energy-related products and higher
fuel revenues under the peak shaving arrangement. 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 September 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. Credit Ratings On September 17, 2004, Moodys Investors Service (Moodys) issued a credit
opinion confirming Selkirk Cogen Funding Corporations senior secured debt
rating at Baa3 with a stable rating outlook. In this credit opinion, Moodys
stated that the rating considers the September 15, 2004 announcement by NEGT
concerning the GS Power Agreement, which includes NEGTs indirect ownership in
the Partnership. On September 24, 2004 Standard and Poors (S&P) issued a bulletin stating it
does not expect the recent announcement by NEGT concerning the GS Power
Agreement to affect the rating on the senior secured debt of Selkirk Cogen
Funding Corporation. That rating is currently BBB- with a stable rating
outlook. S&P also stated that it was analyzing the possible effects of the
proposed ownership change on the Partnership. 18




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##### 



Uses of Cash Net cash used in investing activities of $26.7 million for the third quarter of
2004 was comparable to the same period in the prior year. Net cash used in
investing activities was $23.9 million for the nine months ended September 30,
2004, a decrease of $3.3 million from the same period in the prior year. This
decrease 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 $1.0 million for the third quarter of
2004, a decrease of $1.1 million from the same period in the prior year. This
decrease is primarily due to less cash becoming available for distribution to
the Partners. Net cash used in financing activities was $37.5 million for the
nine months ended September 30, 2004, an increase of $8.3 million from the same
period in the prior year. This increase is primarily due to additional cash
becoming available for distribution to the Partners and higher principal
payments on long-term debt. Gas Contract Extension Fund Under the Partnerships financing agreements, deposits will be required into a
gas contract extension fund (Gas Contract Extension Fund) if the Partnership
has not satisfied certain conditions with respect to the extension or
replacement of the Partnerships firm gas supply agreements by December 26,
2004 (the Gas Contract Extension Conditions). 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 Gas Contract Extension Fund will cease to be
required if the Partnership satisfies the Gas Contract Extension Conditions at
any time after December 26, 2004. See Part II, Item 5., Other Information, for
a description of the Partnerships actions with respect to the extension or
replacement of its firm natural gas supply agreements. Extraordinary Optional Redemption The Partnerships bonds are subject to extraordinary optional redemption by
Selkirk Cogen Funding Corporation (the Funding Corporation), in whole, at a
redemption price equal to 103.5% of the principal amount thereof plus accrued
interest to the date of such redemption, if the Partnership, after using
commercially reasonable efforts, has not satisfied the Gas Contract Extension
Conditions by December 26, 2004 (Extraordinary Optional Redemption). Under
such circumstances, the Funding Corporation will be entitled to make this
optional redemption at any time during the one-year period from March 26, 2005
through March 25, 2006. 19




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##### 



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, Contractual Payment Obligations
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 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 September 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 20




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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. 21




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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
Funding Corporation as of September 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, Inc. (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 September 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. 22




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PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION Firm Natural Gas Supply Agreements The Partnership has been engaged in discussions with certain of its fuel
suppliers regarding the extension or replacement of the related firm natural
gas supply agreements in order to meet the Gas Contract Extension Conditions
under the Partnerships financing documents so as to prevent the requirement of
deposits into the Gas Contract Extension Fund, and thus prevent the resulting
restriction on the Partnerships ability to make distributions to its partners
after December 26, 2004. See Part I, Item 2., Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources  Gas Contract Extension Fund, for a description of the Gas
Contract Extension Fund. In connection with these discussions, on November 12, 2004 the Partnership
entered into a new agreement (the Additional Agreement) with Canadian Forest
Oil Ltd. (formerly, Producers Marketing Ltd.), one of its fuel suppliers, to
replace the volumes of natural gas currently being provided by such supplier
under its existing firm natural gas supply agreement when the agreement expires
on October 31, 2009 (the Expiration Date). The initial term of the
Additional Agreement commences on November 1, 2004 and ends on the Expiration
Date, and the subsequent term extends from November 1, 2009 through October 31,
2014. The Additional Agreement does not include a minimum contract volume purchase obligation and effectively eliminates the Partnerships
minimum contract volume purchase obligation under the existing firm natural gas
supply agreement; provides for additional volumes of gas supply to be available for purchase at
the option of the Partnership; and includes additional pricing provisions for
all quantities of gas purchased from the fuel supplier. The Partnership is continuing its discussions with two other fuel suppliers
regarding the extension or replacement of their respective firm natural gas
supply agreements with the Partnership. The firm natural gas supply agreement
with the Partnerships fourth fuel supplier contains a provision that would
allow the Partnership, at its option, to elect to extend the term of the
agreement. Management of the Partnership expects to defer exercising this
extension option until it has further information about the status of the
Partnerships discussions with the other two fuel suppliers and can evaluate
the prospects for the Partnerships satisfaction of the Gas Contract Extension
Conditions, as well as the availability of the Extraordinary Optional
Redemption. See Part I, Item 2., Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital Resources
 Extraordinary Optional Redemption, for a description of this optional
redemption provision. 23




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ITEM 6. EXHIBITS Exhibit No.
    
    Description of Exhibit10.1
    
    Base Contract for Sale and Purchase of Natural Gas, dated as of November 1,
2004, between Selkirk Cogen Partners, L.P. and Canadian Forest Oil Ltd.31.1
    
    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 November 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 November 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 November 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 November 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 November 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 November 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 November 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 November 12, 2004
 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: November 12, 2004
    
    
    
    /s/ J. TRACY MEYName: J. Tracy MeyTitle: Controller and Chief Accounting OfficerSELKIRK COGEN FUNDING CORPORATIONDate: November 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 Exhibit10.1
    
    Base Contract for Sale and Purchase of Natural Gas, dated as of November 1,
2004, between Selkirk Cogen Partners, L.P. and Canadian Forest Oil Ltd.31.1
    
    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 November 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 November 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 November 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 November 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 November 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 November 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 November 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 November 12, 2004