##### 



FORM 10-Q [X]
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2004
 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 May 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 March 31, 2004
and December 31, 2003
    
    
    1Consolidated Statements of Operations for the three months ended March 31,
2004 and 2003
    
    
    2Consolidated Statements of Cash Flows for the three
months ended March 31, 2004 and 2003
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of OperationsResults of Operations
    
    
    14Liquidity and Capital Resources
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4.
    
    Controls and
Procedures
    
    
    18PART
II. OTHER INFORMATIONItem 6.
    
    Exhibits and Reports on Form 8-K
    
    
    19SIGNATURES
    
    
    20
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SELKIRK COGEN PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited) March 31,
    
    December 31,2004
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    887
    
    
    $
    3,216Restricted funds
    
    
    29,058
    
    
    
    10,652Accounts receivable
    
    
    22,471
    
    
    
    22,449Due from affiliates
    
    
    
    
    
    
    58Inventory
    
    
    10,626
    
    
    
    9,460Other current assets
    
    
    981
    
    
    
    1,095Total current assets
    
    
    64,023
    
    
    
    46,930PLANT AND EQUIPMENT:Plant and equipment, at cost
    
    
    376,414
    
    
    
    375,794Less: Accumulated depreciation
    
    
    127,653
    
    
    
    124,495Plant and equipment, net
    
    
    248,761
    
    
    
    251,299OTHER LONG-TERM ASSETS:Long-Term restricted funds
    
    
    31,425
    
    
    
    30,895Deferred financing charges, net of accumulated amortization
of $11,263 and $11,014, respectively
    
    
    5,028
    
    
    
    5,277TOTAL ASSETS
    
    $
    349,237
    
    
    $
    334,401LIABILITIES AND PARTNERS DEFICITSCURRENT LIABILITIES:Accounts payable
    
    $
    479
    
    
    $
    2,114Accrued bond interest payable
    
    
    7,691
    
    
    
    327Accrued fuel expenses
    
    
    11,990
    
    
    
    11,542Accrued property taxes
    
    
    3,600
    
    
    
    1,750Accrued operating and maintenance expenses
    
    
    926
    
    
    
    4,793Other accrued expenses
    
    
    1,413
    
    
    
    2,394Due to affiliates
    
    
    817
    
    
    
    977Liability for derivative contracts
    
    
    459
    
    
    
    498Current portion of deferred revenue
    
    
    707
    
    
    
    707Current portion of long-term bonds
    
    
    19,587
    
    
    
    19,587Total current liabilities
    
    
    47,669
    
    
    
    44,689LONG-TERM LIABILITIES:Other long-term liabilities
    
    
    5,081
    
    
    
    6,200Deferred revenue, net of current portion
    
    
    2,299
    
    
    
    2,476Long-term bonds, net of current portion
    
    
    312,283
    
    
    
    312,283Total liabilities
    
    
    367,332
    
    
    
    365,648COMMITMENTS AND CONTINGENCIESPARTNERS DEFICITS:General partners deficits
    
    
    (190
    )
    
    
    (316
    )Limited partners deficits
    
    
    (17,446
    )
    
    
    (30,433
    )Accumulated other comprehensive loss
    
    
    (459
    )
    
    
    (498
    )Total partners deficits
    
    
    (18,095
    )
    
    
    (31,247
    )TOTAL LIABILITIES AND PARTNERS DEFICITS
    
    $
    349,237
    
    
    $
    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 EndedMarch 31,
    
    March 31,2004
    
    2003OPERATING REVENUES:Electric and steam
    
    $
    64,434
    
    
    $
    67,164Fuel
    
    
    10,098
    
    
    
    4,649Total operating revenues
    
    
    74,532
    
    
    
    71,813COST OF REVENUES:Fuel and transmission
    
    
    39,645
    
    
    
    41,570Other operating and maintenance
    
    
    3,322
    
    
    
    3,146Depreciation
    
    
    3,158
    
    
    
    3,140Total cost of revenues
    
    
    46,125
    
    
    
    47,856GROSS PROFIT
    
    
    28,407
    
    
    
    23,957OTHER OPERATING EXPENSES:Administrative services, affiliates
    
    
    383
    
    
    
    418Other general and administrative
    
    
    671
    
    
    
    633Total other operating expenses
    
    
    1,054
    
    
    
    1,051OPERATING INCOME
    
    
    27,353
    
    
    
    22,906INTEREST (INCOME) EXPENSE:Interest income
    
    
    (131
    )
    
    
    (152
    )Interest expense
    
    
    7,613
    
    
    
    8,001Total interest expense, net
    
    
    7,482
    
    
    
    7,849INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE
    
    
    19,871
    
    
    
    15,057CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    
    
    
    
    (53
    )NET INCOME
    
    $
    19,871
    
    
    $
    15,004NET INCOME ALLOCATION:General partners
    
    $
    199
    
    
    $
    151Limited partners
    
    
    19,672
    
    
    
    14,853TOTAL
    
    $
    19,871
    
    
    $
    15,004
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements. 2




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SELKIRK COGEN PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited) Three Months EndedMarch 31,
    
    March 31,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    19,871
    
    
    $
    15,004Adjustments to reconcile net income to net cash
provided by operating activities:Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    53Depreciation, amortization and accretion
    
    
    3,408
    
    
    
    3,403Deferred revenue
    
    
    (177
    )
    
    
    (177
    )Increase (decrease) in cash resulting from a change in:Accounts receivable
    
    
    (22
    )
    
    
    (7,858
    )Due from affiliates
    
    
    58
    
    
    
    1,562Inventory
    
    
    (1,166
    )
    
    
    (56
    )Other current assets
    
    
    114
    
    
    
    178Accounts payable
    
    
    (1,635
    )
    
    
    105Accrued bond interest payable
    
    
    7,364
    
    
    
    7,739Accrued fuel expenses
    
    
    448
    
    
    
    4,618Accrued property taxes
    
    
    1,850
    
    
    
    100Accrued operating and maintenance expenses
    
    
    (3,867
    )
    
    
    (468
    )Other accrued expenses
    
    
    (981
    )
    
    
    (1,220
    )Due to affiliates
    
    
    (160
    )
    
    
    (601
    )Other long-term liabilities
    
    
    (1,120
    )
    
    
    (1,020
    )Net cash provided by operating activities
    
    
    23,985
    
    
    
    21,362CASH FLOWS FROM INVESTING ACTIVITIES:Restricted funds
    
    
    (18,936
    )
    
    
    (22,951
    )Plant and equipment additions
    
    
    (620
    )
    
    
    (157
    )Net cash used in investing activities
    
    
    (19,556
    )
    
    
    (23,108
    )CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to partners
    
    
    (6,758
    )
    
    
    Net cash used in financing activities
    
    
    (6,758
    )
    
    
    NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,329
    )
    
    
    (1,746
    )CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    3,216
    
    
    
    2,716CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    887
    
    
    $
    970
 The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial 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 months ended March 31, 2003 to conform with the current periods
basis of presentation. Operating results for the three months ended March 31,
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 months ended March 31, 2004 and 2003 (in thousands): Three Months Ended March 31,2004
    
    2003Net income
    
    $
    19,871
    
    
    $
    15,004Net gain (loss) from current
period hedging transactions in
accordance with SFAS No. 133
    
    
    (174
    )
    
    
    1,388Net reclassification to earnings
    
    
    213
    
    
    
    457Comprehensive Income
    
    $
    19,910
    
    
    $
    16,849
 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.
Freestanding financial instruments including mandatory redeemable financial
instruments, obligations to repurchase an issuers equity shares by
transferring assets, and certain obligations to issue a variable number of
shares, must be valued and classified as liabilities. Instruments that are
redeemable only upon liquidation or termination of the reporting entity
continue to be treated as equity instruments. Freestanding financial instruments falling within the scope of SFAS No. 150 are
initially valued at fair value. Subsequent valuation depends on the nature of
the instrument. If both the redemption date and price are fixed, the
instruments value should be accreted to the redemption amount using the
effective interest method. If either the redemption date or amount is not
fixed, then the instrument should be carried at the amount of cash that would
be paid under the conditions as specified in the contract if the shares were
redeemed at the reporting date. Adjustments to the July 1 carrying value of
instruments, which were issued prior to the issuance date of the SFAS No. 150,
are recorded as a cumulative effect of a change in accounting principle. SFAS
No. 150 is effective for non-public entities, as defined in the statement, in
the fiscal period beginning after December 31, 2003. 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 5




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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. 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 March 31, 2004, was approximately
$202,000. 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 March 31, 2004. Gas purchased from affiliates is as follows (dollars in thousands): Three months ended March 31,2004
    
    2003NEGT Energy TradingGas
    
    $
    
    
    
    $
    4,901MASSPOWER
    
    
    112
    
    
    
    
 Gas sold to affiliates is as follows (dollars in thousands): Three months ended March 31,2004
    
    2003NEGT Energy TradingGas
    
    $
    
    
    
    $
    2,186
 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 three
months ended March 31, 2004 totaled approximately $1,810,000, compared to
approximately $1,774,000 for the same 6




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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 March 31, 2004, was approximately $615,000. 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 months ended March
31, 2004 and 2003 (in thousands): Three months ended March 31,2004
    
    2003Beginning accumulated other comprehensive
loss at January 1
    
    $
    (498
    )
    
    $
    (5,125
    )Net change of current period hedging
transactions gain (loss)
    
    
    (174
    )
    
    
    1,388Net reclassification to earnings
    
    
    213
    
    
    
    457Ending accumulated other comprehensive loss
    
    $
    (459
    )
    
    $
    (3,280
    )
 The Partnership expects that net derivative losses of approximately $459,000,
included in accumulated other comprehensive loss as of March 31, 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 filed voluntarily
petitions and were disclosed in previous reports as related parties of the
Partnership with which it engaged in transactions are: NEGT 7




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Energy Trading-Power, L.P. and NEGT Energy TradingGas. There were no amounts
due to or from these subsidiaries at March 31, 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. 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 its power generation business. The
Partnership cannot predict whether a sale by NEGT of its interest in the
Partnership (a NEGT Interest Sale) will be completed. Any NEGT Interest
Sale may affect JMCS I Managements administrative services agreement with the
Partnership. Further, if a NEGT Interest Sale were to be completed, the
ability of JMC Selkirk or JMCS I Management to manage the Partnership may be
adversely affected, in which event RCM Selkirk GP may be entitled to exercise
the Special Management Rights set forth in the Partnership Agreement. 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 8




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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 for a specified number of days during the winter season. The Partnership determines when to schedule a unit off-line for major
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,
scheduled major maintenance outages may be expected to occur approximately
every three years. Differences in the timing and scope of scheduled
maintenance can have a significant impact on revenues and the cost of revenues. Executive Summary During the first quarter of 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 $19.9 million and cash
flows from operations of $24.0 million during the first quarter of 2004. The
increase in earnings and cash flows from operations compared to same period in
the prior year was primarily due to higher fuel revenues. Average electric energy market prices and the price of electric energy under
the Partnerships power purchase agreements were lower during the first quarter
of 2004 as compared to the same period in the prior year. Average natural gas
resale prices and the price of natural gas under the Partnerships firm gas
supply agreements were comparable during the first quarters of 2004 and 2003.
The Partnership cannot predict whether these trends will continue for the
balance of 2004. The Partnership has scheduled the Facility for five weeks of major maintenance
outages during the remainder of 2004, as compared to the five weeks of
non-major maintenance outages experienced during the same period in the prior
year. Although the maintenance outages scheduled for 2004 are for the same
duration as those experienced during 2003, the Partnership cannot predict
electric and gas market conditions or the resulting impact on revenues during
2004. As a result of the expanded scope of the scheduled maintenance outages
planned for 2004, the Partnership expects maintenance expenses to be higher in
2004 as compared to 2003. However, the Partnership does not expect the cost of
major maintenance in 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. 12




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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
filed voluntarily 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 March 31, 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. 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 its power generation business. The 13




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Partnership cannot predict whether a sale by NEGT of its interest in the
Partnership (a NEGT Interest Sale) will be completed. Any NEGT Interest
Sale may affect JMCS I Managements administrative services agreement with the
Partnership. Further, if a NEGT Interest Sale were to be completed, the
ability of JMC Selkirk or JMCS I Management to manage the Partnership may be
adversely affected, in which event RCM Selkirk GP may be entitled to exercise
the Special Management Rights set forth in the Partnership Agreement. Results of Operations The following table sets forth operating revenue and related data for the three
months ended March 31, 2004 and 2003 (dollars and volumes in millions). Three Month Ended March 31,2004
    
    2003Volume
    
    Dollars
    
    Volume
    
    DollarsDispatch factor:Unit 1
    
    
    91.6
    %
    
    
    
    
    
    
    96.4
    %Unit 2
    
    
    93.6
    %
    
    
    
    
    
    
    100.0
    %Capacity factor:Unit 1
    
    
    88.5
    %
    
    
    
    
    
    
    91.9
    %Unit 2
    
    
    90.1
    %
    
    
    
    
    
    
    98.3
    %Electric and steam revenues:Unit 1 (Kwh)
    
    
    154.4
    
    
    $
    20.0
    
    
    
    158.9
    
    
    $
    20.9Unit 2 (Kwh)
    
    
    521.2
    
    
    
    43.5
    
    
    
    562.4
    
    
    
    46.2Steam (lbs)
    
    
    448.1
    
    
    
    0.9
    
    
    
    350.7
    
    
    
    0.1Total electric and steam revenues
    
    
    
    
    
    
    64.4
    
    
    
    
    
    
    
    67.2Fuel revenues:Gas resales (mmbtu)
    
    
    0.1
    
    
    
    1.1
    
    
    
    0.1
    
    
    
    0.5Gas transportation
optimizations (mmbtu)
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    1.6Peak shaving
arrangements (mmbtu)
    
    
    0.6
    
    
    
    9.0
    
    
    
    0.2
    
    
    
    2.5Total fuel revenues
    
    
    
    
    
    
    10.1
    
    
    
    
    
    
    
    4.6Total operating revenues
    
    
    
    
    
    $
    74.5
    
    
    
    
    
    
    $
    71.8
 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. 14




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Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31,
2003 Overall Results Net income was $19.9 million for the first quarter of 2004, an increase of $4.9
million from the same period in the prior year. This increase was primarily
due to higher revenues under a peak shaving arrangement. The first quarter of 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 $74.5 million for the first quarter of 2004, an
increase of $2.7 million from the same period in the prior year. This increase
was primarily due to higher fuel revenues, partially offset by lower Unit 2
electric revenues. Unit 2 electric revenues decreased by $2.7 million in the
first quarter of 2004 primarily due to lower fuel index pricing in the Con
Edison contract price for delivered energy and lower volumes of delivered
energy. Fuel revenues increased by $5.5 million in the first quarter of 2004
primarily due to the higher volume and price of natural gas sold under a peak
shaving arrangement. Cost of Revenues The cost of revenues was $46.1 million for the first quarter of 2004, a
decrease of $1.8 million from the same period in the prior year. This decrease
was primarily due to lower fuel and transmission costs. Fuel and transmission
costs decreased by $1.9 million in the first quarter of 2004 primarily due to
the lower price of natural gas under the firm gas supply contracts. Liquidity and Capital Resources Sources of Cash Net cash provided by operating activities was $24.0 million for the first
quarter of 2004, as compared to $21.4 million for the same period in the prior
year. The $2.6 million increase is primarily due to higher net income,
partially offset by a reduction in accrued operating and maintenance expenses
resulting from a payment from the Major Maintenance Fund for the purchase of
spare parts. 15




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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. Uses of Cash Net cash used in investing activities was $19.6 million for the first quarter
of 2004, as compared to $23.1 million for the same period in the prior year.
Pursuant to the Partnerships Deposit and Disbursement Agreement, administered
by Bankers Trust Company, as depositary agent, the Partnership is required to
maintain certain Restricted Funds. The $3.5 million decrease is primarily due
to a payment from the Major Maintenance Fund for the purchase of spare parts.
Net cash flows used in investing activities for the first quarter of 2004
primarily represent deposits of monies into the Principal and Interest Funds,
disbursements made from the Major Maintenance Reserve Fund, and net additions
to plant and equipment whereas, net cash flows used in investing activities for
the first quarter of 2003 primarily represent deposits of monies into the
Principal and Interest Funds. Net cash used in financing activities was $6.8 million for the first quarter of
2004, as compared to zero for the same period in the prior year. The $6.8
million increase was primarily due to additional cash becoming available for
distribution to the Partners. 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. 16




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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 it 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 March 31,
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, 17




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##### 



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.  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 March 31,
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 March 31, 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. 18




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PART II. OTHER INFORMATION  ITEM 6.
    EXHIBITS AND REPORTS ON FORM 8-K  (A)
    
    Exhibits Exhibit No.
    
    Description of Exhibit31.1
    
    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 May 11, 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 May 11, 200431.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
dated May 11, 200431.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
dated May 11, 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 May 11, 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 May 11, 200432.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
dated May 11, 200432.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
dated May 11, 2004
  (B)
    
    Reports on Form 8-KNot applicable. Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered. 19




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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 Partner
 Date: May 11, 2004
    
    /s/ THOMAS E. LEGROName:
    
    Thomas E. LegroTitle:
    
    Vice President, Controller, Chief
Accounting Officer and Director
 SELKIRK COGEN FUNDING
CORPORATIONDate: May 11, 2004
    
    /s/ THOMAS E. LEGROName:
    
    Thomas E. LegroTitle:
    
    Vice President, Controller, Chief
Accounting Officer and Director
 20




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EXHIBIT INDEX Exhibit No.
    
    Description of Exhibit31.1
    
    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 May 11, 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 May 11, 200431.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
dated May 11, 200431.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
dated May 11, 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 May 11, 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 May 11, 200432.3
    
    Certification of Principal Executive Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
dated May 11, 200432.4
    
    Certification of Principal Financial Officer of Selkirk Cogen Funding
Corporation, pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
dated May 11, 2004