EXHIBIT NO. 99-E
                         KAMINE/BESICORP SYRACUSE L.P.
                              Financial Statements
                           December 31, 1996 and 1995
                  (With Independent Auditors' Report Thereon)
 
 
<PAGE>
Independent Auditors' Report
 
The Partners
Kamine/Besicorp Syracuse L.P.:
 
We have audited the accompanying balance sheets of Kamine/Besicorp Syracuse L.P.
as of December 31, 1996 and 1995, and the related statements of operations,
partners' deficiency, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kamine/Besicorp Syracuse L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
 
The accompanying financial statements have been prepared assuming that
Kamine/Besicorp Syracuse L.P. will continue as a going concern. As discussed in
note 4 to the financial statements, the Partnership was not in compliance with
certain covenants in its senior and subordinated financing agreements. As a
result, all borrowings of loans payable and related deferred financing costs
have been classified as current. At December 31, 1996, total current liabilities
substantially exceed current assets, which raises substantial doubt about the
entity's ability to continue as a going concern. Managements' plans with regard
to these matters are described in note 4. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
 
 
 
February 21, 1997
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                                 Balance Sheets
                           December 31, 1996 and 1995
 
<TABLE>
<CAPTION>
 
                           Assets                                  1996          1995
 
 
<S>                                                          <C>              <C>
Current assets:
 Cash                                                          $  4,087,855     6,479,478
 Accounts receivable                                              3,140,890     2,135,663
 Other receivables                                                   89,319       123,911
 Prepaid expenses and other current assets                          848,614     1,426,712
 Deferred financing costs, less accumulated amortization of
  $2,026,509 and 1,295,944 at December 31, 1996 and 1995,
  respectively (note 4)                                           8,653,486     9,384,051
                                                                -----------   -----------
     Total current assets                                        16,820,164    19,549,815
                                                                -----------   -----------
Plant and equipment - cogeneration facility (notes 3 and 4)     129,032,968   127,685,218
 Less accumulated depreciation                                   10,945,043     7,393,330
                                                                -----------   -----------
     Plant and equipment, net                                   118,087,925   120,291,888
                                                                -----------   -----------
 Deferred fuel costs, less accumulated amortization of
  $9,131,070 and $4,993,658 at December 31, 1996 and 1995,
  respectively (note 6)                                          17,847,975    21,985,387
 Cash held in escrow (note 1)                                     9,413,071     5,827,320
                                                                -----------   -----------
 Other assets                                                       358,018       405,242
                                                                -----------   -----------
     Total other assets                                          27,619,064    28,217,949
                                                                -----------   -----------
     Total assets                                              $162,527,153   168,059,652
                                                                -----------   -----------
                                                                -----------   -----------
            Liabilities and Partners' Deficiency
Current liabilities:
 Loans payable - current (note 4)                               145,226,100   148,982,000
 Subordinated loans - current (note 4)                           20,000,000    20,000,000
 Accounts payable and accrued expenses                            6,811,106     4,352,888
 Retainage payable - construction (note 6)                           45,750       420,750
 Amounts due to related parties (note 7)                             53,064        53,663
                                                                -----------   -----------
     Total liabilities                                          172,136,020   173,809,301
                                                                -----------   -----------
Partners' deficiency (note 2):
 General partners                                                (4,969,355)   (2,973,848)
 Limited partners                                                (4,639,512)   (2,775,801)
                                                                -----------   -----------
     Total partners' deficiency                                  (9,608,867)   (5,749,649)
 
Commitments (notes 4, 5, 6 and 9)                               -----------   -----------
     Total liabilities and partners' deficiency                $162,527,153   168,059,652
                                                                -----------   -----------
                                                                -----------   -----------
See accompanying notes to financial statements.
 
</TABLE>
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                            Statements of Operations
                  Years ended December 31, 1996, 1995 and 1994
 
<TABLE>
<CAPTION>
 
                                                      1996          1995            1994
 
 
<S>                                             <C>              <C>          <C>
Revenues (note 6)                                 $ 32,484,975    26,151,260      28,222,400
                                                   -----------   -----------     -----------
Operating expenses:
 Fuel (note 1)                                       4,434,907     2,447,715      12,350,318
 Operations and maintenance (note 6)                 1,015,063       967,150       1,286,787
 Overhaul                                            2,721,823            --              --
 Rent (note 5)                                          47,223        47,023          42,344
 Management fee (note 7)                               292,693       337,992         351,503
 Insurance                                             541,759       600,983         508,462
 Depreciation                                        3,551,713     3,560,896       3,832,434
 Amortization of financing costs                       730,565       734,053         561,891
 Amortization of fuel costs                          4,137,412     4,138,681         827,432
 Utilities                                             559,768       107,639         189,030
 Property tax                                          224,886        95,933           2,164
 Late fees (note 6)                                         --            --         336,000
 Other                                                 295,753       473,353          31,535
                                                   -----------   -----------     -----------
     Total operating expenses                       18,553,565    13,511,418      20,319,900
                                                   -----------   -----------     -----------
     Income from operations                         13,931,410    12,639,842       7,902,500
                                                   -----------   -----------     -----------
Other income (expense):
 Interest expense (note 9)                         (17,512,465)  (17,200,112)    (11,143,469)
 Interest income                                       646,462       728,454         125,869
 Other income (expense), net (note 8)                 (796,615)     (848,361)      3,014,296
                                                   -----------   -----------     -----------
     Total other expense                           (17,662,618)  (17,320,019)     (8,003,304)
                                                   -----------   -----------     -----------
     Net loss                                     $ (3,731,208)   (4,680,177)       (100,804)
                                                   -----------   -----------     -----------
                                                   -----------   -----------     -----------
See accompanying notes to financial statements.
 
</TABLE>
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                       Statements of Partners' Deficiency
                  Years ended December 31, 1996, 1995 and 1994
 
<TABLE>
<CAPTION>
                                                    General      Limited         Total
                                                    partners     partners
 
<S>                                             <C>             <C>         <C>
 
Partners' deficiency at December 31, 1993         $  (182,310)    (169,969)      (352,279)
Net loss (note 2)                                     (52,418)     (48,386)      (100,804)
Partners' distributions (note 2)                     (159,382)    (148,812)      (308,194)
                                                   ----------   ----------     ----------
 
Partners' deficiency at December 31, 1994            (394,110)    (367,167)      (761,277)
 
Net loss (note 2)                                  (2,420,354)  (2,259,823)    (4,680,177)
Partners' distributions (note 2)                     (159,384)    (148,811)      (308,195)
                                                   ----------   ----------     ----------
Partners' deficiency at December 31, 1995          (2,973,848)  (2,775,801)    (5,749,649)
 
Net loss (note 2)                                  (1,929,594)  (1,801,614)    (3,731,208)
Partners' distributions (note 2)                      (65,913)     (62,097)      (128,010)
                                                   ----------   ----------     ----------
Partners' deficiency at December 31, 1996         $(4,969,355)  (4,639,512)    (9,608,867)
                                                   ----------   ----------     ----------
                                                   ----------   ----------     ----------
See accompanying notes to financial statements.
 
</TABLE>
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                            Statements of Cash Flows
                  Years ended December 31, 1996, 1995 and 1994
 
<TABLE>
<CAPTION>
                                                                  1996        1995            1994
 
<S>                                                         <C>            <C>          <C>
Cash flows from operating activities:
 Net loss                                                     $(3,731,208)  (4,680,177)       (100,804)
 Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
     Depreciation                                               3,551,713    3,560,896       3,832,434
     Amortization of deferred fuel costs                        4,137,412    4,138,681         827,432
     Amortization of financing costs                              730,565      734,053         561,891
     Changes in operating assets and liabilities:
       (Increase) decrease in accounts receivable              (1,005,227)     320,312      (2,455,975)
       Decrease (increase) in other receivables                    34,592    3,232,484      (3,356,395)
       Decrease (increase) in prepaid expenses and other
          current assets                                          578,098    1,240,534      (2,418,856)
       Decrease in other assets                                    47,224      118,797              --
       Increase in deferred fuel costs                                 --           --     (24,500,000)
       Increase in escrow accounts                             (3,585,751)  (4,777,705)     (1,049,615)
       Increase (decrease) in accounts payable and accrued
          expenses                                              2,458,218  (10,902,920)      5,479,875
       (Decrease) increase in due to related parties                 (599)    (284,480)        316,590
                                                               ----------  -----------     -----------
          Net cash provided by (used in) operating
           activities                                           3,215,037   (7,299,525)    (22,863,423)
                                                               ----------- -------------   -------------
Cash flows from investing activities - construction and
  purchase of plant and equipment, net of amounts payable      (1,722,750)  (4,670,988)     (9,614,150)
                                                               ----------  -----------     -----------
 
Cash flows from financing activities:
 Proceeds from loans payable                                    2,739,100   37,700,000      16,400,000
 Payments on loans payable                                     (6,495,000)  (1,323,000)        (30,000)
 Proceeds from loan payable - bank                                     --           --      24,500,000
 Payments on loan payable - bank                                       --  (24,500,000)             --
 Partners' distributions                                         (128,010)    (308,195)       (308,194)
 Increase in deferred financing costs                                  --      (58,014)     (1,545,022)
                                                               ----------  -----------     -----------
          Net cash (used in) provided by financing
           activities                                          (3,883,910)  11,510,791      39,016,784
                                                               ----------- -----------     -----------
 
          Net (decrease) increase in cash                      (2,391,623)    (459,722)      6,539,211
Cash at beginning of year                                       6,479,478    6,939,200         399,989
                                                               ----------  -----------     -----------
 
Cash at end of year                                           $ 4,087,855    6,479,478       6,939,200
                                                               ----------  -----------     -----------
                                                               ----------  -----------     -----------
Supplemental disclosure of cash flow information - cash
 paid during the year for interest, net of interest
 capitalized. The amount of interest that was capitalized
 was $3,687,300 in 1994 (none in 1995 and 1996)               $17,625,385   16,397,809       6,609,484
                                                               ----------  -----------     -----------
                                                               ----------  -----------     -----------
See accompanying notes to financial statements.
 
</TABLE>
 
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
 
                         Notes to Financial Statements
 
                           December 31, 1996 and 1995
 
 
 
(1)  Organization and Summary of Significant Accounting Policies
 
     Organization
 
     Kamine/Besicorp Syracuse L.P. (the Partnership) is a Delaware limited
partnership formed on August 4, 1989. The Partnership was organized for the
purpose of constructing, owning and operating a 79.9-megawatt cogeneration
facility (the Facility) on premises leased from Hanlin Group, Inc. (Hanlin) near
Syracuse, New York. The Facility is operated as a PURPA qualifying cogeneration
facility using natural gas as the primary source of fuel.
 
     The general partners of the Partnership are Kamine Syracuse Cogen Co., Inc.
(KS Cogen) and Beta Syracuse, Inc. (Beta) (a subsidiary of Besicorp Group,
Inc.), which retained an initial 16% and 50% interest in the Partnership,
respectively. Kamine Development Corp. (KDC) is a limited partner with an
initial 34% interest in the Partnership. On November 9, 1992, the partnership
agreement was amended whereby KS Cogen, Beta, KDC and Ansaldo North America,
Inc. (Ansaldo), a limited partner, retain interests of 16%, 35.715%, 19.715% and
28.57%, respectively.
 
     The Partnership commenced commercial operations as of February 26, 1994.
Sales to Niagara Mohawk Power Corporation (NIMO) approximated 98%, 99% and 99%
of total revenues in 1996, 1995 and 1994, respectively.
 
     Summary of Significant Accounting Policies
 
     Plant and Equipment
 
     Plant and equipment are stated at cost, less accumulated depreciation.
Maintenance and repairs which do not enhance the value or increase the basic
productive capacity of the asset are charged to operations as incurred.
Depreciation of assets was computed on a straight-line basis over their useful
lives of 25 years, commencing on the date the Facility was placed into service.
 
     Effective November 3, 1994, the Partnership extended the estimated useful
life of the Facility to 35 years as a result of the amended and restated Power
Purchase Agreement (PPA) (see note 6). The effect of this change in estimate was
immaterial to the 1994 statement of operations.
 
     All costs of the Partnership during the construction period were
capitalized to the Facility unless they specifically related to organization and
start-up costs, the costs of obtaining financing, the costs of obtaining fuel
commitments, or general operating expenses. Construction costs included direct
materials and labor costs, purchase of equipment and those indirect costs
related thereto. Interest costs during construction were capitalized.
Construction costs incurred but not yet paid are classified as either accounts
payable, accrued expenses or retainage payable.
 
     Deferred Financing Costs
 
     All costs associated with the financing of the Facility are deferred and
amortized over the life of the permanent financing.
 
(1), Continued
 
     Deferred Fuel Costs
 
     Costs associated with obtaining the commitment of natural gas supplies for
the Facility are deferred and amortized over the life of the gas supply
contract.
 
     The cost associated with modifying the fuel arrangements through January 1,
2001 (see note 6) to accom-
<PAGE>
modate the revised PPA terms is deferred and amortized during the period from
November 1, 1994 (the date the modifications became effective) through December
31, 2000.
 
     Revenue Recognition
 
     Revenues are recognized as earned.
 
     Income Taxes
 
     Income taxes have not been provided since the Partnership is not a taxable
entity. The partners report their share of the Partnership's taxable income or
loss on their respective income tax returns.
 
     Fuel Sales
 
     Sales of fuel and transportation associated with excess natural gas
pipeline capacity purchased by the Partnership to support peak fuel requirements
have been treated as a reduction to fuel expense. Total sales related to the
disposition of such excess capacity in 1996, 1995 and 1994 was $450,786,
$150,721 and $1,738,737, respectively.
 
     Financial Instruments
 
     The carrying values of the Partnership's financial instruments at December
31, 1996 approximate their estimated fair value. The carrying amounts of
accounts receivable, accounts payable, accrued expenses and other current
liabilities approximate fair value due to the short-term maturity of such
instruments. Management believes that the carrying amount of loans payable
approximates fair value based on rates that would be offered to the Partnership
for loans with similar maturities and characteristics.
 
     The Partnership has entered into interest rate swap and interest rate cap
agreements to manage its interest rate risk. These transactions are entered into
with notional amounts scheduled to be consistent with expected outstanding
balances associated with loan agreements. The net interest differential,
including premiums paid or received, if any, on interest rate swaps and interest
rate caps, is recognized on an accrual basis and is recorded as a part of
interest expense.
 
     Counterparties to the interest rate swap and interest rate cap agreements
are major financial institutions. Credit loss from counterparty nonperformance
is not anticipated.
 
(1), Continued
 
     Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
 
     The Partnership adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," as of January 1, 1996. The
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairments whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
the assets to the future net cash flows expected to be generated by the assets.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less the cost to sell. Adoption of this
Statement did not have an impact on the Partnership financial position or
results of operations.
 
     Use of Estimates
 
     In conformity with generally accepted accounting principles, management of
the Partnership has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent liabilities
in preparing the accompanying financial statements. Actual results could differ
from those estimates.
 
     Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.
 
<PAGE>
     Risk and Uncertainties
 
     The Partnership is principally engaged in a single line of business, the
production and sale of electric power to one customer, NIMO.
 
     The regulated investor-owned utility industry is presently subject to
considerable market pressures and changes in the federal and state regulatory
environment in which it operates. These pressures are resulting in industry
consolidation and pressure to disaggregate electric generation, transmission and
distribution assets and to adjust cost structures to meet market conditions. The
utility to which the Partnership sells its power, NIMO, made a filing on October
10, 1995 to the Public Service Commission of the State of New York setting forth
numerous restructuring proposals, including a significant reduction in the price
for power purchased from independent power producers currently under contract
with NIMO. The Partnership expects many of NIMO's proposals to be strongly
contested, including the significant reduction in the price for power. NIMO has
also stated in such filing that its financial viability is threatened. In
 
(1), Continued
 
early 1996, NIMO suspended payment of dividends on its common stock. On August
1, 1996, NIMO proposed to buy out 44 independent power contracts in exchange for
a combination of cash and securities. The PPA of the Partnership is included
among these contracts. Discussions between NIMO and the holders of the power
contracts are continuing. The outcome of the industry trends, regulatory
changes, the NIMO filing and NIMO's financial viability cannot presently be
determined.
 
     Cash Held in Escrow
 
     The Partnership has established two long-term escrow accounts. These
accounts are principally for major maintenance payments and debt payment
reserves. The security agent is Deutsche Bank AG, New York Branch (Deutsche Bank
AG).
 
     Reclassifications
 
     Certain items in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
 
(2)  Allocation of Income, Losses and Cash Distributions
 
     A separate capital account has been established and maintained for each
partner. Each such account is (a) increased by the amount of such partner's
capital contributions, any profits and items of income and gain allocated to
such partner, and any increase in such partner's share of the liabilities of the
Partnership and the amount of partnership liabilities assumed by the partner;
and (b) decreased by the amount of cash and the fair market value of any
partnership assets distributed to such partner, the amount of losses allocated
to such partner, and any decrease in such partner's share of the liabilities of
the Partnership and the amount of any partner liabilities assumed by the
Partnership (subject to certain provisions).
 
     Profits and losses for any calendar year or portion of such year shall be
allocated among the partners in proportion to their percentage ownership
interests. Net cash flow, as defined, for each quarter shall be distributed to
the partners in accordance with their percentage ownership interests.
 
     In addition, amounts required for payment of New York State franchise taxes
by the partners, based upon a .769% (.75% plus 2.5% surcharge thereon) rate of
each partner's pro rata share of partnership revenues pursuant to Article 9,
Section 186, of the New York State Tax Code, are distributed to the partners
when tax payments are due. All partners' distributions in 1996, 1995 and 1994
were for payment of such taxes.
 
(2), Continued
 
     The partners have a deficiency in their partners' capital account balance
as a result of distributions as well as their proportionate share of net loss.
Management anticipates that the deficiencies in the partners' capital account
balance will reverse in subsequent years.
 
(3)  Plant and Equipment
 
<PAGE>
     The Facility was constructed under the terms of a turnkey fixed price
Engineering, Procurement and Construction (EPC) Contract by Ansaldo.
 
     Plant and equipment at December 31, 1996 and 1995 includes $10,958,087 of
capitalized interest.
 
(4)  Financing
 
     The Partnership entered into agreements with SV Syracuse, Inc. (SVS) and
Ansaldo on January 22, 1992 whereby SVS and Ansaldo agreed to provide interim
financing of up to $15,000,000 and $5,000,000, respectively, for the development
and construction of the Facility until other financing for the construction and
completion of the Facility could be obtained.
 
     On November 9, 1992, the Partnership converted the interim loans to term
loans and entered into subordinated financing agreements with SVS and Ansaldo in
the amounts of $15,000,000 and $5,000,000, respectively, as contemplated in the
interim loan agreements. Each of the subordinated financing agreements provides
for interest to be charged at the LIBOR rate, as defined, plus a range of 5.4%
to 7.875%, payable quarterly (13.4375% at December 31, 1996). Principal payments
are not required to begin until 2003, at which time quarterly payments will
begin and continue until October 31, 2008, each agreement's maturity date. SVS
was awarded a 12.5% share of the net cash flow generated, as defined, by the
Facility, and Ansaldo was awarded its 28.57% limited partner interest as
additional compensation for providing financial support for the Facility.
 
     As of November 9, 1992, the Partnership entered into a financing agreement
with Deutsche Bank AG, as agent, and four other banks (the Banks) whereby the
Banks agreed to provide construction financing not to exceed $111,800,000. The
construction financing bore interest at the base rate, as defined, plus 1.1%, or
at the LIBOR rate, as defined, plus 1.9%, as determined at the option of the
Partnership, with a maturity date of no later than April 20, 1994. Subject to
conditions set forth in the financing agreement, the Banks, at the request of
the Partnership, will convert the construction financing into a term loan not to
exceed $114,300,000. The term loan bears interest at the base rate, as defined,
plus a range of 1.5% to 1.625%, or at the LIBOR rate, as defined, plus a range
of 2.25% to 2.375%, as
 
(4), Continued
 
determined at the option of the Partnership (7.9375% at December 31, 1996), with
a maturity date of no later than December 31, 2008. Principal payments are made
quarterly, over a 15-year period. The Banks have been granted a first priority
security interest in the Facility and other collateral.
 
     As of October 20, 1994, the financing agreement was amended and restated to
increase the construction financing and term loan commitment by $15,000,000 in
conjunction with conversion to the revised PPA terms (see note 6). Loan terms
are the same as for the original financing.
 
     In addition to the above-mentioned financing arrangements, the Banks agreed
to provide a working capital loan, not to exceed $2,500,000, until the term loan
maturity date. The Partnership shall also repay the aggregate unpaid principal
amount at least once each fiscal quarter. The working capital loan will bear
interest at the base rate, as defined, plus a range of 1.5% to 1.625%. There
were no outstanding borrowings under this agreement as of December 31, 1996 and
1995. The Banks also agreed to provide letters of credit not to exceed
$6,800,000 prior to term loan conversion and $5,800,000 subsequent to term loan
conversion. At December 31, 1996 letters of credit totaling $431,132 were
outstanding.
 
     On November 3, 1994, Key Bank of New York loaned $24,500,000 to the
Partnership for use in making the payment to NORCEN Energy Resources Limited
(NORCEN), formerly North Canadian Marketing (see note 6), pursuant to the Second
Amendment to the Gas Purchase Agreement. The loan was repaid on December 29,
1995 with the proceeds received from a $24,500,000 LC Loan Facility (LC Loan)
from Deutsche Bank AG. Interest on the LC Loan is equal to LIBOR plus 2.75%
(8.125% at December 31, 1996). Commencing on December 31, 1996 and each
successive year thereafter, the interest rate increases by .25% per annum. Until
the LC Loan is repaid in full, 80% of the monies otherwise available to equity
and cash flow holders will be utilized for repayment of the LC Loan. In
addition, when the LC Loan is paid in full and the LC Loan of the Partnership's
affiliate, Kamine/Besicorp Beaver Falls L.P. (KBF), remains unpaid, 80% of the
monies that would be
<PAGE>
available to the Partnership equity and cash flow holders will be loaned to KBF
to repay its obligation.
 
     On November 30, 1992, the Partnership entered into agreements with the
Onondaga County Industrial Development Agency (IDA) for loans in the amounts of
$150,000 and $300,000. These notes represent a deferral of IDA fees that were
due at construction loan closing. The loans were made to assist the Facility in
making payment of property taxes due. The $150,000 loan is non-interest bearing
and is payable in annual installments of $15,000 commencing December 1, 1993
through December 1, 2002. The $300,000 loan bears an interest rate of 6% through
November 30, 1997, and thereafter, at the option of the IDA, either the prime
rate or five-year treasury rate until maturity, with principal payments
commencing on April 1, 1994 through January 1, 2003.
 
(4), Continued
 
     As of December 31, 1996, the PSD Permit Test, as defined in the
Construction Contract, had not been satisfactorily completed on oil and final
completion was delayed beyond December 31, 1995, both of which are Events of
Default under the financing agreements. As a result of the aforementioned Events
of Default, all borrowings of loans payable, subordinated loans and related
deferred financing costs have been classified as current. At December 31, 1996,
total current liabilities substantially exceed total current assets, which
raises substantial doubt about the Partnership's ability to continue as a going
concern. Management anticipates that the existing Events of Default will be
cured in the first half of 1997. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
     The total scheduled amounts of loans payable due during each of the next
five years, if the Events of Default are resolved, are as follows:
 
<TABLE>
<CAPTION>
 
<S>                               <C>
1997                                $33,160,350
1998                                  7,818,000
1999                                  7,818,000
2000                                  9,111,000
2001                                  9,111,000
                                     ----------
                                     ----------
 
</TABLE>
 
 
     As of November 9, 1992, the Partnership conveyed ownership of the Facility
to the IDA. The tax-exempt status of the IDA has caused payment of a fee to the
IDA upon its issuance of a mortgage bond in lieu of mortgage recording taxes and
exempts the Facility from all sales taxes during the construction of the
Facility and from property taxes during IDA ownership. Payments in lieu of real
property taxes have been made to the IDA beginning on June 30, 1995. Payments
are calculated based on a specified annual payment and percentage of gross steam
and net electric revenues, as defined. The IDA has appointed the Partnership as
its agent and will convey the Facility to the Partnership in accordance with an
installment sale agreement, with the conveyance expected to be on December 31,
2014.
 
(5)  Lease of Land
 
     The Facility is located on a parcel of land leased to the Partnership from
Hanlin for a term of 48 years starting February 15, 1991 through February 14,
2039. The Partnership paid rent of $600 per annum for the period February 15,
1991 to February 15, 1993, after which the Partnership pays rent of $45,000 per
annum. The lease provides for adjustments related to the consumer price index
after December 31, 1991.
 
(6)  Commitments
 
     An affiliate of the Partnership entered into a PPA with NIMO dated as of
December 4, 1987 with amendments dated August 25, 1989 and October 19, 1990 with
approval by the New York Public Service Commission (the Commission) on various
dates through November 21, 1990. There was a subsequent amendment on September
26, 1991 which did not require the approval of the Commission. The PPA was
assigned to the Partnership on November 1, 1991. NIMO agreed to purchase all
electricity generated by the Facility for a term of 25 years from the date of
commercial operation.
 
     An amendment to the PPA was entered into as of January 4, 1994 and became
effective on November 3, 1994 (Commencement Date). The amendment requires NIMO
to purchase electricity generated by the Facility
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for 35 years from the Commencement Date. In addition, during the period through
January 1, 2001, the Facility is expected to be on standby availability and will
not generate electricity except in the case of certain requirements or if NIMO
elects to restart the Facility at an earlier date. The Partnership is to receive
annual capacity payments from NIMO which will be more than sufficient to cover
debt service and fixed costs during the standby availability period. Also, the
Partnership became obligated to pay NIMO $336,000 for commencing the PPA after
August 4, 1994.
 
     The Partnership entered into an Energy Service Agreement (ESA) with the New
York State Fair and the Industrial Exhibit Authority dated as of August 6, 1991.
The New York State Fair and the Industrial Exhibit Authority will purchase
thermal energy from the Facility at a price set forth in and adjusted pursuant
to the ESA which shall be 8.5% of the rental revenues for each building that
benefits from the delivery of thermal energy during those periods of time that
energy services are taken (excluding any revenues derived from the New York
State Fair).
 
     The Partnership entered into a Peak Shaving Agreement with NIMO as of May
28, 1993. Under this agreement, NIMO can take the Partnership's contracted
natural gas, subject to defined limitations, for up to 35 days from every
November 15 to April 16 of the following year. As compensation, the Partnership
receives a fee of 25 cents to 75 cents per decatherm of gas plus the cost of
alternate fuel or the cost of the gas. Revenues realized pursuant to this
agreement were $215,112 in 1996. There were no revenues realized pursuant to
this agreement in 1995 and 1994.
 
     The Partnership entered into an Operation and Maintenance Agreement (O&M)
with Stewart and Stevenson Operations, Inc. (Operator) dated as of June 17,
1992. Under the O&M, the Operator will operate and maintain the Facility for two
successive six-year terms unless six months' prior notice is given by the
Partnership to the Operator. The O&M was amended and restated to conform with
the plan for operations associated with the amended and restated PPA. While the
Facility is on standby availability, compensation includes
 
(6), Continued
 
a fee of (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per year
plus (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) for the
Operator's labor fee; both amounts are subject to escalation by the Employment
Cost Index (ECI). When the Facility is operating, the fee will change to
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per year subject to
escalation for ECI plus reimbursable costs. Major facility overhauls, as
defined, will be performed under the direction of the Operator, with costs of
the overhaul to be borne by the Partnership. The Partnership is required to
establish and fund a reserve account for major facility overhaul costs.
 
     The Partnership has entered into various contracts for the supply and
transportation of natural gas to the project. Natural gas will be supplied by
NORCEN. Transportation of natural gas by pipelines will be by TransCanada
Pipelines Limited (TCPL) from a point near the border between Saskatchewan and
Alberta, Canada to Chippewa, Ontario; by Empire State Pipeline Company to
Syracuse; and by NIMO to the Facility.
 
     The natural gas supply and transportation contracts became effective on
November 1, 1993 based on the estimated completion date for the Facility and the
gas industry standard of contract years beginning on November 1. This caused the
Partnership to become responsible for fixed costs associated with these
contracts, which the Partnership attempted to minimize through sales of natural
gas to third parties utilizing the Partnership's contractual arrangements.
 
     In 1994, the gas supply agreement with NORCEN was amended to suspend the
Partnership's obligation to purchase gas until January 1, 2001 and to assign the
Partnership's contracted pipeline space on TCPL to NORCEN. In connection with
the amended agreement, the Partnership paid NORCEN $24,500,000. The unamortized
cost is included in deferred fuel cost at December 31, 1996.
 
     The Partnership entered into an EPC Contract Settlement Agreement with
Ansaldo as of May 22, 1995. It fixed the net payment obligation to Ansaldo with
respect to all remaining work, claims, amounts due under the Commercial
Operations Agreement and any other amounts associated with the EPC Contract. As
of December 31, 1996, $45,750 is due at Final Acceptance of the Facility.
 
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(7)  Related-party Transactions
 
     In addition to their respective shares of partnership cash flow, the
general partners and/or their affiliates will receive a management fee per
annum, as defined, and an operation and maintenance management fee per annum, as
defined (both adjusted for inflation). The management fees for 1996, 1995 and
1994 were $292,693, $337,992 and $351,503, respectively, of which a portion
thereof is unpaid and included in amounts due to related parties at December 31,
1996, 1995 and 1994.
 
(8)  Other Income
 
     The Partnership entered into a Commercial Operations Agreement (the
Agreement) as of March 8, 1994 with Ansaldo. The Agreement required Ansaldo to
pay the Partnership a penalty for the aggregate amount of the difference between
actual electric revenues and fuel costs (gross margin) and projected gross
margin, as defined in the Agreement, and certain other payments during the
period from commencement of commercial operations to the date of operational
acceptance under the construction contract. Included in other income for the
years ended December 31, 1995 and 1994 are penalties of $21,159 and $3,407,530,
respectively.
 
(9)  Derivative Financial Instruments Held - Other Than Trading
 
     On December 31, 1992, the Partnership entered into an interest rate swap
agreement effective from November 1, 1993 through October 31, 2008 whereby
floating rate debt (senior debt) based on LIBOR plus a range of 2.25% to 2.375%
over the scheduled life of the debt has been effectively converted to fixed rate
debt of 7.745% plus a range of 2.25% to 2.375%. In 1996, 1995 and 1994, this
contract resulted in interest charges of $2,431,677, $1,970,529 and $4,277,980,
respectively, for the excess of the fixed rate over the variable rate. The
notional principal amount at December 31, 1996, 1995 and 1994 is $107,328,000,
$111,800,000 and $111,800,000. The fair value of the Partnership's future
payment obligation over the remaining life of the agreement is estimated to be
approximately $15,200,000, based on discounted cash flows using current interest
rates.
 
     On December 1, 1992, the Partnership also entered into an interest rate cap
agreement effective from October 29, 1993 through October 31, 2008 whereby
floating rate debt (subordinated loans) based on LIBOR plus a range of 7.75% to
7.875% was limited to a rate of no higher than 8.7% plus a range of 7.75% to
7.875%. In 1996, $386,616 of costs resulted from this contract. No costs
resulted from this contract in 1995 and 1994. The cost of this agreement will be
realized as a .35% premium on the previously described interest rate swap
agreement from November 1, 1995 through October 31, 2008. The notional principal
amount is $20,000,000 for the years ended December 31, 1996, 1995 and 1994. The
fair value of the Partnership's future payment obligation over the remaining
life of the agreement is estimated to be approximately $2,100,000, based on
discounted cash flows using current interest rates.
 
On November 3, 1994, the Partnership entered into an additional interest rate
cap agreement effective from November 3, 1994 through December 26, 1995 whereby
floating rate debt (Key Bank of New York) based on LIBOR plus .55% was limited
to 7.00%. The Partnership paid $139,650 for this interest rate protection, of
which $121,435 and $18,215 was charged to interest expense in 1995 and 1994,
respectively.
 
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