EXHIBIT NO. 99-E
 
 
Certain Confidential Material Contained in this Document has been omitted and
filed separately with the Securities and Exchange Commission Pursuant to Rule
24b-2 of the Securities Exchange Act of 1933, as amended.
 
 
 
 
 
 
 
 
 
                         KAMINE/BESICORP SYRACUSE L.P.
                              Financial Statements
                           December 31, 1997 and 1996
                  (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, 1997 and 1996, and the related statements of operations,
partners' deficiency, and cash flows for each of the years in the three-year
period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
 
 
 
 
 
February 24, 1998
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                                 Balance Sheets
                           December 31, 1997 and 1996
 
<TABLE>
<CAPTION>
 
                           Assets                                  1997          1996
 
 
<S>                                                          <C>              <C>
Current assets:
 Cash                                                          $  4,313,991     4,087,855
 Accounts receivable                                              2,659,189     3,140,890
 Other receivables                                                  284,133        89,319
 Prepaid expenses and other current assets                          796,627       848,614
                                                                -----------   -----------
     Total current assets                                         8,053,940     8,166,678
                                                                -----------   -----------
Plant and equipment - cogeneration facility (notes 3 and 4)     133,955,248   129,032,968
 Less accumulated depreciation                                   14,769,941    10,945,043
                                                                -----------   -----------
     Plant and equipment, net                                   119,185,307   118,087,925
                                                                -----------   -----------
 Deferred financing costs, less accumulated amortization of
  $2,769,773 and 2,026,509 at December 31, 1997 and 1996,
  respectively (note 4)                                           7,910,222     8,653,486
 Deferred fuel costs, less accumulated amortization of
  $13,268,928 and $9,131,070 at December 31, 1997 and 1996,
  respectively (note 6)                                          13,710,117    17,847,975
 Cash held in escrow (note 1)                                    10,752,980     9,413,071
 Other assets                                                       328,428       358,018
                                                                -----------   -----------
     Total other assets                                          32,701,747    36,272,550
                                                                -----------   -----------
     Total assets                                              $159,940,994   162,527,153
                                                                -----------   -----------
                                                                -----------   -----------
            Liabilities and Partners' Deficiency
Current liabilities:
 Loans payable - current (note 4)                                36,338,526    33,145,350
 Accounts payable                                                 3,825,910     6,427,021
 Retainage payable - construction (note 6)                               --        45,750
 Amounts due to related parties (note 7)                          2,587,790        53,064
 Accrued expenses and other current liabilities                      27,981       384,085
                                                                -----------   -----------
     Total current liabilities                                   42,780,207    40,055,270
 Loans payable, excluding current installments (note 4)         107,070,250   112,080,750
 Subordinated loans (note 6)                                     20,000,000    20,000,000
                                                                -----------   -----------
     Total liabilities                                          169,850,457   172,136,020
                                                                -----------   -----------
Partners' deficiency (note 2):
 General partners                                                (5,124,808)   (4,969,355)
 Limited partners                                                (4,784,655)   (4,639,512)
                                                                -----------   -----------
     Total partners' deficiency                                  (9,909,463)   (9,608,867)
 
Commitments (notes 4, 5, 6 and 9)                               -----------   -----------
     Total liabilities and partners' deficiency                $159,940,994   162,527,153
                                                                -----------   -----------
                                                                -----------   -----------
See accompanying notes to financial statements.
 
</TABLE>
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                            Statements of Operations
                  Years ended December 31, 1997, 1996 and 1995
 
<TABLE>
<CAPTION>
 
                                                      1997          1996            1995
 
 
<S>                                             <C>              <C>          <C>
Revenues (note 6)                                 $ 31,863,289    32,484,975      26,151,260
                                                   -----------   -----------     -----------
Operating expenses:
 Fuel (note 1)                                       2,913,941     4,434,907       2,447,715
 Operations and maintenance (note 6)                 1,124,594     1,015,063         967,150
 Overhaul (note 10)                                   (478,002)    2,721,823              --
 Rent (note 5)                                          25,774        47,223          47,023
 Management fee (note 7)                               509,810       292,693         337,992
 Insurance                                             527,229       541,759         600,983
 Depreciation                                        3,824,898     3,551,713       3,560,896
 Amortization of financing costs                       743,264       730,565         734,053
 Amortization of fuel costs                          4,137,858     4,137,412       4,138,681
 Utilities                                             686,497       559,768         107,639
 Property tax                                          278,065       224,886          95,933
 Other                                                 405,782       295,753         473,353
                                                   -----------   -----------     -----------
     Total operating expenses                       14,699,710    18,553,565      13,511,418
                                                   -----------   -----------     -----------
     Income from operations                         17,163,579    13,931,410      12,639,842
                                                   -----------   -----------     -----------
Other income (expense):
 Interest expense (note 9)                         (17,353,347)  (17,512,465)    (17,200,112)
 Interest income                                       679,555       646,462         728,454
 Other expense, net (note 8)                          (355,696)     (796,615)       (848,361
                                                   -----------   -----------     -----------
     Total other expense                           (17,029,488)  (17,662,618)    (17,320,019)
                                                   -----------   -----------     -----------
     Net income (loss)                            $    134,091    (3,731,208)     (4,680,177)
                                                   -----------   -----------     -----------
                                                   -----------   -----------     -----------
See accompanying notes to financial statements.
 
</TABLE>
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                       Statements of Partners' Deficiency
                  Years ended December 31, 1997, 1996 and 1995
 
<TABLE>
<CAPTION>
                                                    General      Limited         Total
                                                    partners     partners
 
<S>                                             <C>             <C>         <C>
 
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)
 
Net income (note 2)                                    69,345       64,746        134,091
Partners' distributions (note 2)                     (224,798)    (209,889)      (434,687)
                                                   ----------   ----------     ----------
Partners' deficiency at December 31, 1997         $(5,124,808)  (4,784,655)    (9,909,463)
                                                   ----------   ----------     ----------
                                                   ----------   ----------     ----------
See accompanying notes to financial statements.
 
</TABLE>
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
                            Statements of Cash Flows
                  Years ended December 31, 1997, 1996 and 1995
 
<TABLE>
<CAPTION>
                                                                1997        1996           1995
 
<S>                                                       <C>            <C>         <C>
Cash flows from operating activities:
 Net income (loss)                                          $   134,091  (3,731,208)     (4,680,177)
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
     Depreciation                                             3,824,898   3,551,713       3,560,896
     Amortization of deferred fuel costs                      4,137,858   4,137,412       4,138,681
     Amortization of financing costs                            743,264     730,565         734,053
     Changes in operating assets and liabilities:
       Decrease (increase) in accounts receivable               481,701  (1,005,227)        320,312
       (Increase) decrease in other receivables                (194,814)     34,592       3,232,484
       Decrease in prepaid expenses and other current
          assets                                                 51,987     578,098       1,240,534
       Decrease in other assets                                  29,590      47,224         118,797
       Increase in escrow accounts                           (1,339,909) (3,585,751)     (4,777,705)
       (Decrease) increase in accounts payable and other
          accrued expenses                                   (2,601,111)  2,458,218     (10,902,920)
       (Increase) decrease in due to related parties             34,726        (599)       (284,480)
                                                             ----------  ----------     -----------
          Net cash provided by (used in) operating
           activities                                         5,302,281   3,215,037      (7,299,525)
                                                             ----------- ------------   -------------
Cash flows from investing activities - construction and
  purchase of plant and equipment, net of amounts payable    (2,824,134) (1,722,750)     (4,670,988)
                                                             ----------  ----------     -----------
 
Cash flows from financing activities:
 Proceeds from loans payable                                  4,816,506   2,739,100      37,700.000
 Payments on loans payable                                   (6,633,830) (6,495,000)     (1,323,000)
 Payments on loan payable - bank                                     --          --     (24,500,000)
 Partners' distributions                                       (434,687)   (128,010)       (308,195)
 Increase in deferred financing costs                                --          --         (58,014)
                                                             ----------  ----------     -----------
          Net cash (used in) provided by financing
           activities                                        (2,252,011) (3,883,910)     11,510,791
                                                             ----------- ------------   -----------
 
          Net increase (decrease) in cash                       226,136  (2,391,623)       (459,722)
Cash at beginning of year                                     4,087,855   6,479,478       6,939,200
                                                             ----------  ----------     -----------
 
Cash at end of year                                         $ 4,313,991   4,087,855       6,479,478
                                                             ----------  ----------     -----------
                                                             ----------  ----------     -----------
Supplemental disclosure of cash flow information - cash
 paid during the year for interest                          $17,413,010  17,625,385      16,397,809
                                                             ----------  ----------     -----------
                                                             ----------  ----------     -----------
See accompanying notes to financial statements.
 
</TABLE>
 
 
<PAGE>
                         KAMINE/BESICORP SYRACUSE L.P.
 
                         Notes to Financial Statements
 
                           December 31, 1997 and 1996
 
(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 99%, 98% and 99% of
total revenues in 1997, 1996 and 1995, 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).
 
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 accommodate 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
 
<PAGE>
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 1997, 1996 and 1995 amounted to $296,150,
$450,786 and $150,721, respectively.
 
Financial Instruments
 
The carrying values of the Partnership's financial instruments at December 31,
1997 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.
 
The counterparty to the interest rate swap and interest rate cap agreements is a
major financial institution. 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's 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 revenues and expenses and the disclosure
of contingent assets and 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.
 
Risks and Uncertainties
 
<PAGE>
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 currently 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 (the
Commission) setting forth numerous restructuring proposals, including a
significant reduction in the price for power purchased from independent power
producers currently under contract with NIMO. NIMO stated in such filing that
its financial viability is threatened. In 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
 
(1), Continued
 
securities. An agreement in principle was announced on March 10, 1997 whereby
NIMO would restructure or terminate the power contracts for combinations of cash
and/or debt securities, common stock and new agreements. On July 10, 1997, NIMO
announced that a master restructuring agreement was signed with respect to 29
independent power contracts including the one held by the partnership. On
September 25, 1997, NIMO announced that it had reached an agreement in principle
with the staff of the New York Department of Public Service on a rate and
restructuring plan (including recommended approval of the master restructuring
agreement). After a series of hearings and testimony by interested parties, on
December 29, 1997 the assigned Administrative Law Judge recommended approval of
the rate and restructuring plan with some modifications. On February 24, 1998,
the Commission approved the master restructuring agreement. Any restructuring
remains subject to the approval of third parties for both the Partnership and
NIMO and there is no assurance that a restructuring will be completed or that
changes will not occur. The outcome of the industry trends, regulatory changes,
the NIMO negotiations and NIMO's financial viability cannot presently be
determined.
 
Cash Held in Escrow
 
The Partnership has established three 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 1996 and 1995 financial statements have been reclassified
to conform with the 1997 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.
 
(2), Continued
 
In addition, amounts required for payment of New York State franchise taxes by
the partners, based upon a 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 and 1995
<PAGE>
were for payment of such taxes. All partners' distributions in 1997 were for
payment of such taxes as well as net cash distributions.
 
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
 
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, 1997 and 1996 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 (13.6875% at December 31, 1997). 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
 
(4), Continued
 
request of the Partnership, converted 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 determined at the option of the Partnership
(8.1875% at December 31, 1997), with a maturity date of no later than October
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 is required to repay the aggregate unpaid
principal amount at least once each fiscal quarter. The working capital loan
bears interest at the base rate, as defined, plus a range of 1.5% to 1.625%.
There are no outstanding borrowings under this agreement as of December 31, 1997
and 1996. The Banks also agreed to provide letters of credit not to exceed
$5,800,000. At December 31, 1997 letters of credit totaling $431,132 are
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 ($28,531,776 was
<PAGE>
outstanding at December 31, 1997, the increase to the principal balance
represents accrued but unpaid interest). Interest on the LC Loan is equal to
LIBOR plus 3.0% (8.8125% at December 31, 1997). 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 available to the Partnership's 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 5.82% thereafter, with principal payments scheduled April
1, 1994 through January 1, 2003.
 
(4), Continued
 
The total scheduled amounts of loans payable due during each of the next five
years are as follows:
 
<TABLE>
<CAPTION>
 
<S>                               <C>
1998                                $36,338,526
1999                                  7,818,000
2000                                  9,111,000
2001                                  9,111,000
2002                                 10,533,300
                                     ----------
                                     ----------
 
</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 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 for 35 years from the
Commencement Date. In
 
(6), Continued
 
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
<PAGE>
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 to $.75 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 1997 or 1995.
 
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 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.
 
(6), Continued
 
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, 1997.
 
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, 1997 and 1996, $0 and $45,750, respectively, is due to Ansaldo under this
settlement.
 
(7)  Related-party Transactions
 
Additional development fee amounts of $5,000,000 were earned by the developers
on the permanent financing closing date based on the unspent amount of the
construction loan commitment after payment of all project costs. Of this amount
$2,500,000 was payable to these related parties at December 31, 1997.
 
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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 1997, 1996 and 1995 were
$509,810, $292,693 and $337,992, respectively, of which a portion thereof is
unpaid and included in amounts due to related parties at December 31, 1997, 1996
and 1995.
 
(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 year ended
December 31, 1995 are penalties of $21,159.
 
(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 1997, 1996 and 1995, this
contract resulted in interest charges of $2,154,558, $2,438,102 and $1,970,529,
respectively, for the excess of the fixed rate over the variable rate. The
notional principal amount at December 31, 1997 and 1996 is $101,738,000 and
$107,328,000, respectively. The fair value of the Partnership's future payment
obligation over the remaining life of the agreement is estimated to be
approximately $11,100,000, 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 1997 and 1996, $370,091 and $389,191, respectively, of costs resulted
from this contract. No costs resulted from this contract in 1995. 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 at December 31, 1997 and 1996. The fair
value of the Partnership's future payment obligation over the remaining life of
the agreement is estimated to be approximately $1,700,000, based on discounted
cash flows using current interest rates.
 
(10) Overhaul expense
 
The facility underwent a major overhaul during 1996. Significant expenses were
incurred related to the disassembly of the turbine, destacking of the rotor and
the inspection, refurbishment and repair of all the facility's components.
During 1997, the Partnership recovered $500,000 from the construction contractor
for the costs incurred during 1996. This amount was recorded as a reduction to
overhaul expense in 1997.
 
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