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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the Fiscal Year Ended December 31,
    2002.                                            
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the Transition Period
    from           to           .                                 

Commission File No. 333-84609 and
333-84609-01

LSP Energy Limited Partnership

LSP Batesville Funding Corporation


(Exact name of Registrant as specified in its
charter)


|                                                                                                        |  |                                         
|------------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                                |  | 22-3422042                              
|Delaware                                                                                                |  | 22-3615403                              
|(State or other jurisdiction of
    incorporation or organization)                                      |  | (I.R.S. Employer
    Identification No.)
|                                                                                                       
|901 Marquette Avenue, Suite 2300
    Minneapolis, Minnesota(Address of principal executive
    offices) |  | 55402(Zip Code)                         

(612) 373-5300

(Registrants telephone number, including
area code)


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

7.164% Series C Senior Secured Bonds due 2014


8.160% Series D Senior Secured Bonds due 2025


LSP Energy Limited Partnership and LSP
Batesville Funding Corporation meet the conditions set
forth

in General Instruction (I)(1) &
(2) of Form 10-K and are therefore filing this report
with the


reduced disclosure format set forth in General
Instruction (I)(2) to Form 10-K


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 þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.     þ

Indicate by check mark whether the registrant is
an accelerated filer as defined by Rule 12b-2 of the
Act.     Yes o          No þ

As of the last business day of the most recently
completed second fiscal quarter, no voting or non-voting common
equity was held by non-affiliates.

As of the latest practicable date, the 1% general
partnership interest in LSP Energy Limited Partnership was held
by LSP Energy, Inc. and the 99% limited partnership interest in
LSP Energy Limited Partnership was held by LSP Batesville
Holding, LLC. As of March 31, 2003, 100 shares of LSP
Batesville Funding Corporations common stock, par value
$.01 per share, were outstanding, and all of such shares
were held by LSP Batesville Holding, LLC.

Documents Incorporated by Reference:
None.



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TABLE OF CONTENTS



|                                  |                                                                                                           |  |  |  |  |  |  | 
|--------------------------------- | --------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                           
|                                  | Item 1 -- Business                                                                                       
|                                  | Item 2 -- Properties                                                                                     
|                                  | Item 3 -- Legal Proceedings                                                                              
|                                  | Item 4 -- Submission of Matters to a Vote of Security Holders                                            
|PART II                          
|                                  | Item 5 -- Market for Registrants Common Equity and Related Stockholder Matters                          
|                                  | Item 6 -- Selected Financial Data                                                                        
|                                  | Item 7 -- Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                  | Item 7A -- Quantitative and Qualitative Disclosure about Market Risk                                     
|                                  | Item 8 -- Financial Statements and Supplementary Data                                                    
|                                  | Item 9 -- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                         
|                                  | Item 10 -- Directors and Executive Officers of the Registrant                                            
|                                  | Item 11 -- Executive Compensation                                                                        
|                                  | Item 12 -- Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                  | Item 13 -- Certain Relationships and Related Transactions                                                
|                                  | Item 14 -- Controls and Procedures                                                                       
|PART IV                          
|                                  | Item 15 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|                                  | Item 15(a)(1) Financial Statements                                                                       
|INDEX TO THE FINANCIAL STATEMENTS
|SIGNATURES                       
|POWER OF ATTORNEY                
|POWER OF ATTORNEY                
|CERTIFICATIONS                   
|EXHIBIT INDEX                    
|Certification                    



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INDEX

|           |  |                                                                                                    |    |      |    | 
|---------- |  | -------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                                    |    | Page
|           |  |                                                                                                    |    | No. 
|           |  |                                                                                                    |    |     
|PART I    
|Item 1     |  | Business                                                                                           |    |      | 2  | 
|Item 2     |  | Properties                                                                                         |    |      | 8  | 
|Item 3     |  | Legal Proceedings                                                                                  |    |      | 8  | 
|Item 4     |  | Submission of Matters to a Vote of Security
    Holders                                            |    |      | 8  | 
|PART II   
|Item 5     |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |    |      | 8  | 
|Item 6     |  | Selected Financial Data                                                                            |    |      | 8  | 
|Item 7     |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |    |      | 8  | 
|Item 7A    |  | Quantitative and Qualitative Disclosure About
    Market Risk                                      |    |      | 18 | 
|Item 8     |  | Financial Statements and Supplementary Data                                                        |    |      | 18 | 
|Item 9     |  | Changes in & Disagreements With
    Accountants on Accounting and Financial Disclosure             |    |      | 18 | 
|PART III  
|Item 10    |  | Directors and Executive Officers of the
    Registrants                                            |    |      | 19 | 
|Item 11    |  | Executive Compensation                                                                             |    |      | 19 | 
|Item 12    |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |    |      | 19 | 
|Item 13    |  | Certain Relationships and Related Transactions                                                     |    |      | 19 | 
|Item 14    |  | Controls and Procedures                                                                            |    |      | 19 | 
|PART IV   
|Item 15    |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |    |      | 20 | 
|SIGNATURES |  |                                                                                                    | 62 |     

1



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PART I






|         |         
|-------- | --------
|Item 1  | Business

General

LSP Energy Limited Partnership (the Partnership)
is a Delaware limited partnership formed to develop, construct,
own and operate a gas-fired electric generating facility with a
design capacity of approximately 837 megawatts, located in
Batesville, Mississippi (the Power Facility), and is an
indirect, wholly owned subsidiary of NRG Energy, Inc. (NRG
Energy).

LSP Batesville Funding Corporation (Funding) was
established to maintain the activities necessary to facilitate
the acquisition of financing by the Partnership from the
institutional debt market and to offer debt securities. On
May 21, 1999, the Partnership and Funding issued two series
of senior secured bonds which are recorded on the books of the
Partnership. Funding is wholly owned by LSP Batesville Holding,
LLC (Holding), a Delaware limited liability company. Holding is
an indirect wholly owned subsidiary of NRG Energy, Inc.

NRG Energy, Inc. (NRG Energy) is an energy
company, primarily engaged in the ownership and operation of
power generation facilities and the sale of energy, capacity and
related products in the United States and internationally. NRG
Energy is a wholly owned subsidiary of Xcel Energy Inc. (Xcel
Energy), Xcel Energy directly owns six utility subsidiaries that
serve electric and natural gas customers in 12 states. Xcel
Energy also owns or has interest in a number of non-regulated
businesses, the largest of which is NRG Energy.

Due to a number of reasons, including the overall
down-turn in the energy industry, NRG Energys financial
condition has deteriorated significantly. As a direct
consequence, in 2002 NRG Energy entered into discussions with
its creditors in anticipation of a comprehensive restructuring.
NRG Energy is working toward this goal by selective divestiture
of non-core assets, consolidation of management, reorganization
and redirection of power marketing philosophy and activities and
an overall financial restructuring that will improve liquidity
and reduce debt. In connection with its restructuring efforts,
it is likely that NRG Energy (and certain of its subsidiaries)
will file for Chapter 11 bankruptcy protection. For more
information about NRG Energys restructuring process, refer
to the Form 10-K filed by NRG Energy on March 31, 2003.

The Partnership, Funding, NRG Energy, Inc. and
Xcel Energy Inc. file periodic reports and other documents with
the Securities and Exchange Commission. The public may read and
copy the materials filed with the SEC at the SECs Public
Reference Room at 450 Fifth Street, NW, Washington, DC
20549. The public may also obtain information on the operation
of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, electronic copies of these periodic
filings are available through the Commissions web site at
www.sec.gov.

Business of the Partnership



| |                                                  
| | -------------------------------------------------
| | The Power Facility and Related
    Infrastructure

The Power Facility is an approximately 837
megawatt natural gas-fired, combined-cycle electric generating
facility located in Batesville, Mississippi. The Power Facility
has three generating units, each consisting of a gas-fired
Westinghouse 501F combustion turbine, a heat recovery steam
generator, a steam turbine and auxiliary equipment. The
infrastructure to support the Power Facility includes
(1) an electrical substation and transmission line system,
(2) a gas lateral pipeline, (3) water intake
facilities and water supply and wastewater discharge pipelines
and (4) a water pretreatment system.

The Partnership sells power from two of the Power
Facilitys combined-cycle units (approximately
558 megawatts) to Dominion Virginia Power Corporation
(Dominion), and sells power from the other unit (approximately
279 megawatts) to Aquila Power Corporation (Aquila) under
long-term power purchase agreements. Dominion and Aquila supply
the natural gas needed for the Power Facility to produce the
power

2



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purchased by them. The Power Facility commenced
commercial operations under its power purchase agreements with
Dominion and Aquila on August 9, and August 8, 2000,
respectively. The initial term of the Dominion agreement is
13 years, beginning on June 1, 2000 and provides
Dominion with the option to extend the contract an additional
12 years. The initial term of the Aquila agreement is
15 years and 7 months, beginning on June 1, 2000,
and provides Aquila with the option to extend the contract an
additional 5 years.


The Power Facility is interconnected with the
electrical transmission systems of The Tennessee Valley
Authority (TVA) and Entergy Mississippi, Inc. (Entergy). The
Power Facility is interconnected with the interstate natural gas
pipeline systems of ANR Pipeline Company (ANR) and Tennessee Gas
Pipeline Company (Tennessee Gas). The water supply for the Power
Facility comes from Enid Lake, a United States government-owned
lake located approximately 15 miles from the site of the
Power Facility. The day to day operation and maintenance of the
Power Facility is performed by NRG South Central Operations Inc.
(the assignee of Cogentrix Batesville Operations, LLC), an
indirect wholly-owned subsidiary of NRG Energy.

The Partnership does not currently have any
employees. LS Power Management, LLC, which is now owned by
NRG Energy, provides day-to-day administrative and management
services for the Partnership.

Business of Funding

Funding conducts no business other than
activities associated with the financing of the development and
construction of the Power Facility and its related
infrastructure. Funding does not currently have any employees.

Regulation



| |                         
| | ------------------------
| | Environmental Regulation

The Partnership and the Power Facility are
subject to many federal, state and local laws that are designed
to protect human health and the environment and to ensure worker
safety. These laws impose numerous requirements on the
construction, ownership and operation of the Power Facility and
its infrastructure. For example, the Partnership must obtain and
comply with permits for air emissions, water withdrawal,
wastewater discharges, construction in wetlands and other
regulated activities. Each permit contains its own set of
requirements. The Partnership also must implement management
practices for handling hazardous materials, preventing spills,
planning for emergencies, ensuring worker safety and addressing
other operational issues. The Partnership could also be held
responsible under these laws for the cleanup of pollutant
releases at the Power Facility or at off-site locations where
the Partnership has sent wastes. The Partnership believes that
it has obtained all environmental permits and approvals
necessary for the operation of the Power Facility. In addition,
although the partnership can not provide assurance that this
will always be the case, the Partnership does not currently
anticipate that compliance with liability under applicable
environmental or safety requirements will have a material effect
on its capital expenditures, earnings or competitive position.
The Partnership does not expect to incur material capital
expenditures to comply with environmental and safety
requirements in this fiscal year or the succeeding fiscal year



| |                  
| | -----------------
| | Energy Regulation

Various federal and state laws pertaining to
power generation and sales also affect the Partnership and the
Power Facility. The Federal Power Act regulates the sale of
electricity in the wholesale market. The Federal Energy
Regulatory Commission (FERC) is an independent agency within The
Department of Energy that regulates the transmission and
wholesale sale of electricity in interstate commerce under the
authority of The Federal Power Act. FERC is also responsible for
licensing and inspecting private, municipal and state-owned
hydro electric projects. FERC determines whether a public
utility qualifies for exempt wholesale generator (EWG) status
under The Public Utility Holding Company Act, which was amended
by The Energy Policy Act of 1992.

Federal Power Act.The Federal Power Act gives FERC exclusive rate-making
jurisdiction over wholesale sales of electricity and
transmission of electricity in interstate commerce. FERC
regulates the

3



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owners of facilities used for the wholesale sale
of electricity and its transmission in interstate commerce as
public utilities under the Federal Power Act. The
Federal Power Act also gives FERC jurisdiction to review certain
transactions and numerous other activities of public utilities.


Under the Federal Power Act, an entity that sells
electricity in the wholesale market is a public utility, subject
to FERCs jurisdiction. Public utilities are required to
obtain FERCs acceptance of their rate schedules for
wholesale sales of electricity. Because the Partnership is
selling electricity in the wholesale market, the Partnership is
deemed to be a public utility for purposes of the Federal Power
Act. FERC has granted the Partnership the authority to sell
electricity at market-based rates. In New England,
New York, PJM (Pennsylvania, New Jersey, Maryland,
Delaware and parts of the Midwest) the Midwest and California,
FERC has established Independent System Operators (ISOs) which
file market based rate tariffs, subject to FERC Approval. These
tariffs/market rules dictate how the wholesale markets are to
operate and how entities with market based rates shall be
compensated within those markets. The ISOs in these regions also
control access to, pricing of and the operation of the
transmission grid within their footprint. Outside of ISO
controlled regions, the Partnership is allowed to sell at market
based rates as determined by willing buyers and sellers. Access
to, pricing for and operation of the transmission grid in such
regions is controlled by the local transmission owning utility
according to their Pro Forma Open Access Transmission Tariff
(OATT) filed with and approved by FERC.

Usually, FERCs orders which grant the
Partnership market-based rate authority reserve the right to
revoke or revise the Partnerships market-based rate
authority on a prospective basis if FERC subsequently determines
that the Partnership possesses excessive market power. If the
Partnership lost its market-based rate authority, the
Partnership may be required to obtain FERCs acceptance of
a cost-of-service rate schedule and may become subject to the
accounting, record-keeping and reporting requirements that are
imposed only on utilities with cost-based rate schedules. It
should be noted, however, that the Partnership does have the
right at any time to petition FERC to grant cost of service
based rates pursuant to Section 205 of the Federal Power
Act.

Public Utility Holding Company
Act.The Public Utility Holding
Company Act, known as PUHCA, provides that any entity that owns,
controls or has the power to vote 10% or more of the
outstanding voting securities of an electric utility
company, or a holding company for an electric utility
company, is subject to regulation under PUHCA.

Registered holding companies under PUHCA are
required to limit their utility operations to a single,
integrated utility system and divest any other operations that
are not functionally related to the operation of the utility
system. In addition, a company that is a subsidiary of a holding
company registered under PUHCA is subject to financial and
organizational regulation, including approval by the SEC of
certain financings and transactions. Under the Energy Policy Act
of 1992, however, FERC can determine that a company engaged
exclusively in the business of owning or operating an eligible
facility used for the generation of electric energy for sale at
wholesale is an EWG. Accordingly, it is exempt from PUHCA
requirements. In the case of facilities previously operated by
regulated utilities, FERC can make an exempt wholesale generator
determination only after the state utility commission finds that
allowing the facility or facilities to be eligible for EWG
status will benefit consumers, is in the public interest, and
does not violate state law. Each of the Partnerships
operating subsidiaries has been designated by FERC as an EWG or
is otherwise exempt from PUHCA because it is a Qualifying
Facility under the Public Utility Regulatory Policy Act of 1978.

The Partnership does not expect to engage in any
activities that will subject it to regulation under PUHCA. If
the Partnership were to lose its EWG status, it would become
subject to regulation under PUHCA. It would be difficult for the
Partnership to comply with PUHCA absent a substantial
restructuring.

Competition

The entire independent power industry in the
United States is in turmoil. Many of the Partnerships
competitors have announced plans to scale back their growth,
sell assets, and restructure their finances. The results of the
wholesale restructuring of the independent power industry are
impossible to predict, but they may include consolidation within
the industry, the sale or liquidation of certain competitors,
the re-regulation

4



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of certain markets, and the long-term reduction
in new investment into the industry. Under any scenario,
however, the Partnership anticipates that it will continue to
face competition from numerous companies in the industry, some
of which may have more extensive operating experience, larger
staffs, and greater financial resources than the Partnership
presently possesses.


Many companies in the regulated utility industry,
with which the independent power industry is closely linked, are
also restructuring or reviewing their strategies. Several of
these companies are discontinuing going forward with unregulated
investments, seeking to divest of their unregulated subsidiaries
or attempting to have their regulated subsidiaries acquire their
unregulated subsidiaries. This may lead to an increased
competition between the regulated utilities and the unregulated
power producers within certain markets. In such instances, the
Partnership may compete with regulated utilities in the
development of market designs and rulemaking.

FERC, however, is attempting to level the
competitive playing field between regulated utilities and
unregulated energy suppliers by providing open,
non-discriminatory access to electricity markets and the
transmission grid. In April 1996, FERC issued Orders 888 and 889
that required all public utilities to file open
access transmission tariffs that give wholesale
generators, as well as other wholesale sellers and buyers of
electricity, access to transmission facilities on a
non-discriminatory basis. This led to the formation of the ISOs
described above. On December 20, 1999, FERC issued Order
2000, encouraging the creation of Regional Transmission
Organizations (RTOs). Finally, on July 31, 2002, FERC
issued its Notice of Proposed Rulemaking regarding Standard
Market Design. All three orders were intended to eliminate
market discrimination by incumbent vertically integrated
utilities and to provide for open access to the transmission
grid.

The full effect of these changes on the
Partnership is uncertain at this time. At this time, five ISOs
have been approved and are operational; New England
(ISO-NE), New York (NYISO), Pennsylvania, NJ, Maryland, DE
and parts of the midwest (collectively PJM), Central Midwest
(MISO), South Central (SPP) and in California (CA ISO). Two
of these ISOs, PJM and MISO, have been found to also qualify as
RTOs. Three other entities have also requested that FERC approve
their organizations as RTOs; WestConnect (Desert Southwest); RTO
West (Pacific Northwest and Rockies) and Setrans (Southeast).

In the Southeast, Entergy and Southern Company
continue to support their RTO, Setrans. The future of Setrans is
uncertain given the recent loss of Santee Cooper.

Proposals have been introduced in Congress to
repeal PURPA and PUHCA, and FERC has publicly indicated support
for the PUHCA repeal effort. If the repeal of PURPA or PUHCA
occurs, either separately or as part of legislation designed to
encourage the broader introduction of wholesale and retail
competition, the significant competitive advantages that
independent power producers currently enjoy over certain
regulated utility companies would be eliminated or sharply
curtailed, and the ability of regulated utility companies to
compete more directly with independent power companies would be
increased. To the extent competitive pressures increase and the
pricing and sale of electricity assumes more characteristics of
a commodity business, the economics of domestic independent
power generation projects may come under increasing pressure.
Deregulation may not only continue to fuel the current trend
toward consolidation among domestic utilities, but may also
encourage the dis-aggregation of vertically-integrated utilities
into separate generation, transmission and distribution
businesses.

In addition, the independent system operators who
oversee most of the wholesale power markets have in the past
imposed, and may in the future continue to impose, price caps
and other mechanisms to address some of the volatility in these
markets. For example, the independent system operator for the
New York power pool and the California independent system
operator have imposed price caps. These types of price caps and
other mechanisms in New York, California, the New England Power
Pool and elsewhere may adversely impact the profitability of the
Partnership generation facilities that sell energy into the
wholesale power markets. Finally, the regulatory and legislative
changes that have recently been enacted in a number of states in
an effort to promote competition are novel and untested in many
respects. These new approaches to the sale of electric power
have very short operating histories, and it is not yet clear how
they will operate in times of market stress or pressure, given
the extreme volatility and lack of meaningful long-term price
history in many of these markets and the imposition of price
caps by independent system operators.

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At this time the Partnership cannot predict how
changing industry conditions may affect the future operation of
the Power Facility. The Partnerships long-term contracts
to sell electric generating capacity from the Power Facility to
Dominion and Aquila help position the Partnership in the
competitive marketplace. A termination of these power purchase
contracts would subject the power facility to increased merchant
market price volatility.

Customers

During 2002, two customers, Dominion and Aquila
accounted for 54.3% and 42.7%, respectively, of the
Partnerships total revenues. During 2001, Dominion and
Aquila accounted for 60.8% and 30.2%, respectively, of the
Partnerships total revenues. During 2000, Dominion and
Aquila accounted for 60.1% and 30.2%, respectively, of the
Partnerships total revenues.

Source and Availability of Raw
Materials

Natural Gas is the Partnerships primary raw
material requirement for the generation of electricity. The
Partnerships customers are responsible for supplying the
natural gas used by the Partnership for such generation.

Employees

The Partnership has no employees and has entered
into operation and maintenance agreements with subsidiaries of
NRG Operating Services, Inc., a wholly-owned subsidiary of NRG
Energy, Inc.

Segment Information

The Partnerships and Fundings operations
are not divided into financial or geographical segments.

Cautionary Statement Regarding Forward-Looking
Information

The information presented in this annual report
includes forward-looking statements in addition to historical
information. These statements involve known and unknown risks
and relate to future events, or projected business results. In
some cases forward-looking statements may be identified by their
use of such words as may, expects,
plans, anticipates,
contemplates, believes, and similar
terms. Forward-looking statements are only predictions or
expectations and actual results may differ materially from the
expectations expressed in any forward-looking statement. While
the Partnership and Funding believes that the expectations
expressed in such forward-looking statements are reasonable, the
Partnership and Funding can give no assurances that these
expectations will prove to have been correct. In addition to any
assumptions and other factors referred to specifically in
connection with such forward-looking statements, factors that
could cause actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The possibility of a bankruptcy filing in the
    near future by NRG Energy or one or more of its other
    subsidiaries, the entry of an order for relief by the Minnesota
    Bankruptcy Court in respect of a pending involuntary
    Chapter 11 petition in that court with respect to NRG
    Energy, or the filing of an involuntary bankruptcy petition in
    another court by a requisite number of creditors of NRG Energy
    or any subsidiary, as the case may be;
|
| |  | NRG Energys ability or the ability of any
    of its subsidiaries to reach agreements with its lenders,
    creditors and other stakeholders regarding a comprehensive
    restructuring of NRG Energy;                                                                                                                                                                                                                                                                       
|
| |  | Cost and other effects of legal and
    administrative proceedings, settlements, investigations and
    claims;                                                                                                                                                                                                                                                                                                                                                                
|
| |  | NRG Energys ability to sell assets in the
    amounts and on the time table assumed;                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | General economic conditions including inflation
    rates and monetary exchange rate fluctuations; the risk of a
    significant slowdown in growth in the U.S. economy or risk
    of delay in growth recovery in the U.S. as a consequence of
    the September 11, 2001 terrorist attacks and other factors;                                                                                                                                                                

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The effect on the U.S. economy as a
    consequence of an invasion of Iraq and other potential actions
    relating to the U.S. governments efforts to suppress
    terrorism;                                                                                                                                                                                                                                                                       
|
| |  | Trade, monetary, fiscal, taxation, and
    environmental policies of governments, agencies and similar
    organizations in geographic areas where the Partnership or
    Funding has a financial interest;                                                                                                                                                                                                                                           
|
| |  | Customer business conditions including demand for
    their products or services and supply of labor and materials
    used in creating their products and services;                                                                                                                                                                                                                                                                                  
|
| |  | Customer financial conditions, including solvency
    and the ability to pay invoices when due.                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Financial or regulatory accounting principles or
    policies imposed by the Financial Accounting Standards Board,
    the Securities and Exchange Commission, the Federal Energy
    Regulatory Commission and similar entities with regulatory
    oversight;                                                                                                                                                                                       
|
| |  | Factors affecting the availability or cost of
    capital such as changes in: interest rates; market perceptions
    of the power generation industry, the Partnership or its
    subsidiary; or credit ratings;                                                                                                                                                                                                                                      
|
| |  | Inability of the Partnership or Funding to
    adequately control or hedge against commodity price volatility
    due to constraints or limitations on available working capital
    or market credit.                                                                                                                                                                                                                                                
|
| |  | Factors affecting power generation operations
    such as unusual weather conditions; catastrophic weather-related
    damage; unscheduled generation outages, maintenance or repairs;
    unanticipated changes to fossil fuel, or gas supply costs or
    availability due to higher demand, shortages, transportation
    problems or other developments; environmental incidents; or
    electric transmission or gas pipeline system constraints;
|
| |  | Employee workforce factors including loss or
    retirement of key executives, collective bargaining agreements
    with union employees, or work stoppages;                                                                                                                                                                                                                                                                                          
|
| |  | Volatility of energy prices in a deregulated
    market environment:                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Increased competition in the power generation
    industry;                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Cost and other effects of legal and
    administrative proceedings, settlements, investigations and
    claims;                                                                                                                                                                                                                                                                                                                                       
|
| |  | Technological developments that result in
    competitive disadvantages and create the potential for
    impairment of existing assets;                                                                                                                                                                                                                                                                                                               
|
| |  | Limitations on the Partnerships or
    Fundings ability to control projects in which NRG Energy
    has less than 100% interest;                                                                                                                                                                                                                                                                                                                    
|
| |  | Limited operating history at recently acquired or
    constructed projects provide only a limited basis for management
    to project the results of future operations;                                                                                                                                                                                                                                                                               
|
| |  | Risks associated with timely completion of
    projects under construction, including obtaining competitive
    commercial agreements, obtaining regulatory and permitting
    approvals, local opposition, construction delays and other
    factors beyond the Partnerships or Fundings control;                                                                                                                                                  
|
| |  | Factors associated with various investments
    including competition, operating risks, dependence on certain
    suppliers and customers, and environmental and energy
    regulations;                                                                                                                                                                                                                                                              
|
| |  | Changes in government regulation or the
    implementation of new government regulations, or the outcome of
    any litigation which could adversely affect the continued
    deregulation of the electric industry;                                                                                                                                                                                                                                  
|
| |  | Changes in market design or implementation of
    rules that affect Partnerships ability to transmit or sell
    power in any market.                                                                                                                                                                                                                                                                                                                
|
| |  | Other business or investment considerations that
    may be disclosed from time to time in the Partnerships
    Securities and Exchange Commission filings or in other publicly
    disseminated written documents.                                                                                                                                                                                                                                  

7



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The Partnership and Funding undertakes no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise. The foregoing review of factors that could cause the
Partnerships or Fundings actual results to differ
materially from those contemplated in any forward-looking
statements included in this Form 10-K should not be
construed as exhaustive.




Item 2 
Properties

The Partnership holds title to the Power
Facility, the electrical substation and transmission lines, the
water pretreatment system and related equipment, all of which
are located in Batesville, Mississippi. The Partnership has the
right to use the gas lateral pipeline, water intake facilities
and water supply and wastewater discharge pipelines for the
Power Facility pursuant to 30-year lease agreements with the
Industrial Development Authority of Panola County, Mississippi.
The Partnership owns the approximately 60-acre site of the Power
Facility in fee simple. The Partnership granted a security
interest in its properties in connection with the financing of
the development and construction of the Power Facility and
related infrastructure.

Funding does not have any material properties.




Item 3  Legal
Proceedings

There are no pending material legal proceedings
to which the Partnership or Funding is a party or to which any
of the Partnerships or Fundings property is subject.




Item 4  Submission of
Matters to a Vote of Security Holders

Omitted Pursuant to General Instruction
(I)(1) & (2) of Form 10-K




PART II




Item 5  Market for
Registrants Common Equity and Related Stockholder
Matters

There is no public market for the partnership
interests in the Partnership or the capital stock of Funding.

The 1% general partnership interest in the
Partnership is owned by LSP Energy, Inc. and the 99% limited
partnership interest in the Partnership is owned by LSP
Batesville Holding, LLC. All of the capital stock of Funding is
owned by LSP Batesville Holding, LLC. All of the capital stock
of LSP Energy, Inc. is owned by LSP Batesville Holding, LLC.

The Partnership made no distributions to LSP
Batesville Holding, LLC during the years ended December 31,
2002 and 2001. Distributions of $7,247,000 were made to LSP
Batesville Holding, LLC during the year ended December 31,
2000. The Partnerships ability to make distributions to
its partners is limited by the terms of its financing
agreements, as described in Note 5 in the notes to
financial statements of the Partnership contained in
Item 15 Financial Statements and Supplementary Data below.

No equity securities of the Partnership or
Funding were sold during the fiscal years ended
December 31, 2002, 2001 and 2000 that were not registered
under the Securities Act.




Item 6  Selected Financial
Data

Omitted Pursuant to General Instruction
(I)(1) & (2) of Form 10-K




Item 7  Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Results of Operations



| |         
| | --------
| | Overview

Due to the factors discussed below, as well as
other matters discussed herein, NRG Energys (the parent
company of the Partnership and Funding) financial condition has
deteriorated significantly in the recent past.

8



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See Liquidity below. As a result, NRG
Energy does not contemplate that it will have sufficient funds
to make required principal and interest payments on its
corporate debt, which means that NRG Energy will remain in
default of the various corporate level debt obligations
discussed more fully herein. In the absence of a consensual plan
of reorganization, it is highly likely that NRG Energy will be
required to commence a voluntary chapter 11 bankruptcy
proceeding to allow it to implement its own plan of
reorganization. The commencement of a voluntary chapter 11
bankruptcy proceeding without a consensual plan of
reorganization will increase the possibility of a prolonged
bankruptcy proceeding.




| |                  
| | -----------------
| | Industry Dynamics

An unregulated merchant power company in the
United States can be characterized in two ways, as a generator
or as an energy merchant, with some companies having
characteristics of both. In the United States generators are
either outgrowths of regulated utilities, developers or are
independent aggregators of plants divested by utilities.
Generators have grown through acquisitions or the construction
of new power plants. Energy merchants have emphasized risk
management and trading skills over the ownership of physical
assets. Energy deregulation paved the way for development of
these companies, with utilities in some regions forced to sell
off some of their generating capacity and buy electricity on the
wholesale market or through power procurement agreements.

Both generators and energy merchants prospered in
the late 1990s. Starting in 1999, however, a number of
factors began to arise which had a negative effect on the
business model for merchant power companies. These factors
included:

California
When California restructured its electricity industry in the
mid-1990s, it required utilities to sell generation assets
and buy electricity on the wholesale spot market, without the
stability of long-term contracts. At the time, California had
adequate supplies of power, but the State of California was
experiencing unusually high electricity demand growth while new
capacity additions were not keeping pace. Supply began to lag
behind demand, and previously moderate weather gave way to dryer
conditions, reducing hydroelectric supply. Shortages and
blackouts ensued in 1999 and 2000. Meanwhile, as wholesale
electricity prices moved higher, utilities were not allowed to
pass higher costs on to consumers under Californias
regulatory regime. Unable to bear the financial burden, PG&E
sought Chapter 11 protection and California took over the
role of procuring electricity for the utilities. Politicians
have criticized the electricity generators and the energy
merchants, accusing them of improperly manipulating supply,
demand and prices. Merchant power companies in California are
now embroiled in protracted litigation with California and
private parties, which is discouraging new investment.

Economy
The United States economy, already headed towards a recession by
mid-2001, suffered a heavy blow on September 11, 2001.
This, along with a decrease in economically driven electricity
demand, exacerbated the drop in stock valuations of the energy
merchants. Other regions of the world economy have suffered
problems as well, which has exposed companies with international
assets to losses based on severe currency fluctuations.

Weather
On the whole, the summer of 2001, the winter of 2001/2002 and
the summer of 2002 were mild in the United States. This together
with excessive new construction in many markets has driven down
energy prices significantly.

Enron
The bankruptcy of Enron has devastated the merchant power
industry. The public and political perception created by Enron
put a stigma on the industry, drove investors away and increased
scrutiny of the industry. Enron also played a key role in the
energy trading markets, providing a widely used electronic
trading platform that accounted for an enormous amount of
trading volume. No other company has stepped in to fill this
role, and as a result the electricity markets have become far
less efficient and liquid.

Credit
ratings The credit rating
agencies were sharply criticized for not foreseeing Enrons
problems. As a result, the agencies have been quick to
scrutinize the rest of the industry, and have tightened their
criteria for creditworthiness. The agencies have downgraded
most, if not all, of the industry participants. Many of these
downgrades were severe  ratings at times were dropped
several notches at once, or dropped more than

9



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##### Table of Contents



once in a span of weeks. This has resulted in
most of the energy companies, generators and merchants having
non-investment grade credit ratings at this time.


Oversupply
As wholesale electricity prices and market liquidity increased
in the late 1990s the industry went on a building boom.
Through 2001 capital was readily available for the industry,
encouraging companies to build new generation facilities. The
years 2000 and 2001 saw record megawatt capacity additions in
the United States, and record years were on the horizon for 2002
and 2003. Even with steady economic growth this would have
created an oversupply of generation. Limited economic growth and
recession have exacerbated the oversupply situation.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | For the Year Ended December 31, 2002
    Compared to the Year Ended December 31, 2001

Net loss for the year ended December 31,
2002 was $6.5 million, a decrease of $11.4 million
compared to net income of $4.9 million for the year ended
December 31, 2001. This change was due to the factors
described below.



| |         
| | --------
| | Revenues

For the year ended December 31, 2002, the
Partnership had total revenues of $53.2 million, compared
to $52.5 million of revenue for the year ended
December 31, 2001. The revenues consisted primarily of
capacity sales under long-term sales agreements. Revenues for
the year ended December 31, 2002 are primarily comprised of
$28.9 million from the Dominion power purchase agreement,
and $22.7 million from the Aquila power purchase agreement.
Revenues for the year ended December 31, 2001 are primarily
comprised of $31.9 million from the Dominion power purchase
agreement, and $15.9 million from the Aquila power purchase
agreement.



| |                
| | ---------------
| | Operating Costs

Operating costs were $20.3 million for the
year ended December 31, 2002, which is an increase of
$11.5 million, or 130.8% over the prior year. Operating
costs represented 38.1% and 16.7% of revenues for the years
ended December 31, 2002 and 2001, respectively. Operating
costs consisted of fuel of $7.8 million, taxes and fees of
$2.2 million, labor and related benefits of
$1.9 million, maintenance expense of $8.2 million and
other miscellaneous operating costs of $0.2 million.
Operating expenses increased due to the cost of energy
($7.5 million) incurred to provide replacement power under
the contract with Aquila during a forced outage and major
repairs on the Combustion Turbines ($2.5 million). The
three Combustion Turbines were out of service from two to four
weeks in November and December 2002. Steam Turbine Unit 3
was out of service and under repair from Early March 2002 to
Early June 2002.



| |             
| | ------------
| | Depreciation

Depreciation costs were $14.4 million for
the year ended December 31, 2002, which is an increase of
$0.1 million, or 0.7% over the prior year. The depreciation
expense was primarily related to the acquisition costs of the
power generation facility, which is being depreciated over
thirty years.



| |                 
| | ----------------
| | Interest Expense

Interest expense for the year ended
December 31, 2002 was $25.0 million, representing a
decrease of $0.4 million, or 1.9% below the prior year.
Interest expense related to interest paid on the senior secured
bonds.



| |                                   
| | ----------------------------------
| | General and Administrative Expense

General and administrative expenses were
$0.7 million for the year ended December 31, 2002,
which is a decrease of $0.1 million. The expenses consisted
primarily of legal and accounting fees, and rating agency fees.

10



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| |                
| | ---------------
| | Interest Income

Interest income was $0.7 million for the
year ended December 31, 2002, which is a decrease of
$1.0 million or 58.8% over the prior year. The decrease is
due to lower average balances and a decline in interest rates
during the year ended December 31, 2002.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | For the Year Ended December 31, 2001
    Compared to the Year Ended December 31, 2000

Net income for the year ended December 31,
2001 was $4.9 million, an increase of $5.8 million
compared to a net loss of 0.9 million for the year ended
December 31, 2000. This change was due to the factors
described below.



| |         
| | --------
| | Revenues

For the year ended December 31, 2001, the
Partnership had total revenues of $52.5 million, compared
to $20.4 million of revenue for the year ended
December 31, 2000. The increase in revenue is due to
commercial operations not beginning until August, 2000. The
$52.5 million in revenues consisted primarily of capacity
sales under long-term sales agreements. Revenues for the year
ended December 31, 2001 are primarily comprised of
$31.9 million from the Dominion power purchase agreement,
and $15.9 million from the Aquila power purchase agreement.



| |                
| | ---------------
| | Operating Costs

Operating costs were $8.8 million for the
year ended December 31, 2001, which is an increase of
$2.7 million, or 45.4% over the prior year. Operating costs
represented 16.7% of revenues for the year ended
December 31, 2001. Operating costs consisted of taxes and
fees of $2.4 million, labor and related benefits of
$2.2 million, maintenance expense of $1.8 million,
insurance of $1.0 million and other miscellaneous operating
costs of $1.4 million. Operating costs were lower in 2000
because the plant did not become operational until August 2000.



| |             
| | ------------
| | Depreciation

Depreciation costs were $14.3 million for
the year ended December 31, 2001, which is an increase of
$8.5 million, or 146.8% over the prior year. The increase
is due to the plant not becoming operational until August 2000.
The depreciation expense was primarily related to the
acquisition costs of the power generation facility, which is
being depreciated over thirty years.



| |                 
| | ----------------
| | Interest Expense

Interest expense for the year ended
December 31, 2001 was $25.4 million, representing and
increase of $14.2 million, or 127.1% over the prior year.
The increase in interest expense is due to the discontinuance of
interest capitalization. Interest expense was capitalized as a
component of construction in progress until July 2000.
Approximately $14.3 million of interest expense was
capitalized as a component of construction in progress during
the year ended December 31, 2000.



| |                                   
| | ----------------------------------
| | General and Administrative Expense

General and administrative expenses were
$0.8 million for the year ended December 31, 2001,
which is an increase of $0.4 million or 105.9% over the
prior year. The expenses consisted primarily of legal and
accounting fees, and rating agency fees.



| |                
| | ---------------
| | Interest Income

Interest income was $1.7 million for the
year ended December 31, 2001, which is a decrease of
$0.5 million or 22.2% over the prior year. The decrease is
due to a decline in interest rates during the year ended
December 31, 2001.

11



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##### Table of Contents





| |                    
| | -------------------
| | Facility Operations

The Power Facility has three generating units,
each consisting of a gas-fired combustion turbine, a heat
recovery steam generator, a steam turbine and auxiliary
equipment. In the third and fourth quarters of 2001, two of the
Power Facilitys steam turbines experienced rotor failures,
causing a forced outage of those units. The Partnership took the
remaining unit out of service in March 2002 in order to carry
out modifications to that units steam turbine in response
to the failures of the other two steam turbines. The third unit
was back in service in June 2002. This situation has not created
an event of default under the Partnerships bond indentures
and has not lead to an acceleration of the project debt. The
Partnership and Funding to date have made all principal and
interest payments on the bonds as scheduled.

Critical Accounting Policies and
Estimates

The Partnership managements discussion and
analysis of its financial condition and results of operations
are based upon the Partnerships consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements and related
disclosures in compliance with generally accepted accounting
principles (GAAP) requires the application of appropriate
technical accounting rules and guidance as well as the use of
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. The
application of these policies necessarily involves judgments
regarding future events, including the likelihood of success of
particular projects, legal and regulatory challenges. These
judgments, in and of themselves, could materially impact the
financial statements and disclosures based on varying
assumptions, which may be appropriate to use. In addition, the
financial and operating environment also may have a significant
effect, not only on the operation of the business, but on the
results reported through the application of accounting measures
used in preparing the financial statements and related
disclosures, even if the nature of the accounting policies have
not changed.

On an ongoing basis, the Partnership evaluates
its estimates utilizing historic experience, consultation with
experts and other methods Partnership considers reasonable in
particular circumstances. In any case, actual results may differ
significantly from the Partnerships estimates. Any effects
on the Partnerships business, financial position or
results of operations resulting from revisions to these
estimates are recorded in the period in which the facts that
give rise to the revision become known.

The Partnerships significant accounting
policies are summarized in Item 15  Note 2
of the Consolidated Financial Statements. The following table
identifies certain of the significant accounting policies listed
in Item 15  Note 2 of the Consolidated
Financial Statements. The table also identifies the judgments
required and uncertainties involved in the application of each.
These policies, along with the underlying assumptions and
judgments made by the Partnerships management in their
application, have a significant impact on the Partnerships
consolidated financial statements. The Partnership identifies
its most critical accounting policies as those that are the most
pervasive and important to the portrayal of the
Partnerships financial position and results of operations,
and that require the most difficult, subjective and/or complex
judgments by management regarding estimates about matters that
are inherently uncertain.

|                                             |  |                                                                      
|-------------------------------------------- |  | ---------------------------------------------------------------------
|Accounting Policy                            |  | Judgments/Uncertainties Affecting Application                        
|                                             |  |                                                                      
|Capitalization Practices/Purchase Accounting |  |  Determination of beginning and ending
    of capitalization periods
|                                             |  |  Allocation of purchase prices to
    identified assets             

12



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|                                  |  |                                                                                            
|--------------------------------- |  | -------------------------------------------------------------------------------------------
|Accounting Policy                 |  | Judgments/Uncertainties Affecting Application                                              
|                                  |  |                                                                                            
|Asset Valuation and Impairment    |  |  Recoverability of investment through
    future operations                               
|                                  |  |  Regulatory and political environments
    and requirements                               
|                                  |  |  Estimated useful lives of assets                                                         
|                                  |  |  Environmental obligations and
    operational limitations                                
|                                  |  |  Estimates of future cash flows                                                           
|                                  |  |  Estimates of fair value                                                                  
|                                  |  |  Judgment about triggering events                                                         
|Revenue Recognition               |  |  Customer/counter-party dispute
    resolution practices                                  
|                                  |  |  Market maturity and economic
    conditions                                              
|                                  |  |  Contract interpretation                                                                  
|Uncollectible Receivables         |  |  Economic conditions affecting
    customers, counter parties, suppliers and market prices
|                                  |  |  Regulatory environment and impact on
    customer financial condition                    
|                                  |  |  Outcome of litigation and bankruptcy
    proceedings                                     
|Litigation Claims and Assessments |  |  Impacts of court decisions                                                               
|                                  |  |  Estimates of ultimate liabilities
    arising from legal claims                          

Of all of the accounting policies identified in
the above table, the Partnership believes that the following
policies and the application thereof to be those having the most
direct impact on the Partnerships financial position and
results of operations.



| |                                                     
| | ----------------------------------------------------
| | Capitalization Practices and Purchase
    Accounting

As of December 31, 2002, the Partnership has
a carrying value of approximately $306.9 million of net
property, plant and equipment, representing approximately 81.9%
of total assets. These amounts represent the estimated fair
values at the date of acquisition and construction. These
estimates may be adjusted based upon completion of certain
procedures including third party valuations.

For those assets that were or are being
constructed by the Partnership the carrying value reflects the
application of the Partnerships property, plant and
equipment policies which incorporate estimates, assumptions and
judgments by management relative to the capitalized costs and
useful lives of the Partnerships generating facilities.
Interest incurred on funds borrowed to finance projects expected
to require more than three months to complete is capitalized.
Capitalization of interest is discontinued when the asset under
construction is ready for its intended use or when construction
is terminated.



| |                                    
| | -----------------------------------
| | Impairment of Long Lived
    Assets

The Partnership evaluates property, plant and
equipment and intangible assets for impairment whenever
indicators of impairment exist. 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 asset, through considering project specific
assumptions for long-term power pool prices, escalated future
project operating costs and expected plant operations. 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 by
factoring in the probability weighting of different courses of
action available to the Partnership. Generally, fair value will
be determined using valuation techniques such as the present
value of expected

13



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future cash flows. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
the cost to sell. Asset impairment evaluations are, by nature,
highly subjective.




| |                                                      
| | -----------------------------------------------------
| | Revenue Recognition and Uncollectible
    Receivables

The Partnership is primarily an electric
generation company. Revenues are recorded based on capacity
provided and electrical output delivered at the lesser of
amounts billable under the power purchase contracts or the
average estimated contract rates over the initial term of the
power purchase contracts pursuant to their terms and conditions.
Transmission service credit revenues are recognized when actual
cash is received. The Partnership continually assesses the
collectibility of its receivables, and in the event it believes
a receivable to be uncollectible, an allowance for doubtful
accounts is recorded or, in the event of a contractual dispute,
the receivable and corresponding revenue may be considered
unlikely of recovery and not recorded in the financial
statements until management is satisfied that it will be
collected.

Off Balance-Sheet Items

As of December 31, 2002, the Partnership and
Funding does not have any significant relationships with
structured finance or special purpose entities that provide
liquidity, financing or incremental market risk or credit risk.

Liquidity and Capital Resources



| |                 
| | ----------------
| | Liquidity Issues



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Liquidity Issues of NRG Energy and Its
    Subsidiaries  Current Status and Chain of
    Events

In December 2001, Moodys Investor Service
(Moodys) placed NRG Energys long-term senior
unsecured debt rating on review for possible downgrade. In
response, Xcel Energy and NRG Energy put into effect a plan to
preserve NRG Energys investment grade rating and improve
its financial condition. This plan included financial support to
NRG Energy from Xcel Energy; marketing certain NRG Energy assets
for sale; canceling and deferring capital spending; and reducing
corporate expenses.

In response to a possible downgrade, during 2002,
Xcel Energy contributed $500 million to NRG Energy, and NRG
Energy and its subsidiaries sold assets and businesses that
provided NRG Energy in excess of $286 million in cash and
eliminated approximately $432.0 million in debt. NRG Energy
also cancelled or deferred construction of approximately
3,900 MW of new generation projects. On July 26, 2002,
Standard & Poors (S&P) downgraded NRG
Energys senior unsecured bonds to below investment grade,
and three days later Moodys also downgraded NRG
Energys senior unsecured debt rating to below investment
grade. Since July 2002, NRG Energy senior unsecured debt, as
well as the secured NRG Northeast Generating LLC bonds and the
secured NRG South Central Generating LLC bonds and Secured LSP
Energy (Batesville) bonds were downgraded multiple times. After
NRG Energy failed to make payments due under certain unsecured
bond obligations on September 16, 2002, both Moodys
and S&P lowered their ratings on NRG Energys and its
subsidiaries unsecured bonds once again. Currently, NRG
Energys unsecured bonds carry a rating of between CCC and
D at S&P and between Ca and C at Moodys, depending on
the specific debt issue.

As a result of the downgrade of NRG Energys
credit rating, declining power prices, increasing fuel prices,
the overall down-turn in the energy industry, and the overall
down-turn in the economy, NRG Energy has experienced severe
financial difficulties. These difficulties have caused NRG
Energy to, among other things, miss scheduled principal and
interest payments due to its corporate lenders and bondholders,
prepay for fuel and other related delivery and transportation
services and provide performance collateral in certain
instances. NRG Energy has also recorded asset impairment charges
of approximately $3.1 billion, related to various operating
projects as well as for projects that were under construction
which NRG Energy has stopped funding.

NRG Energy and its subsidiaries have failed to
timely make several interest and/or principal payments on its
indebtedness. These missed payments have resulted in
cross-defaults of numerous other non-recourse

14



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and limited recourse debt instruments of NRG
Energy and have caused the acceleration of multiple debt
instruments of NRG Energy, rendering such debt immediately due
and payable. For more specific information regarding NRG
Energys liquidity issues, refer to Liquidity
Issues in Item 1 of Form 10-K filed by NRG
Energy on March 31, 2003.


In addition to the payment defaults described
above, prior to the downgrades many corporate guarantees and
commitments of NRG Energy and its subsidiaries required that
they be supported or replaced with letter of credit or cash
collateral within 5 to 30 days of a ratings downgrade below
Baa3 or BBB- by Moodys or Standard & Poors,
respectively. As a result of the downgrades on July 26 and
July 29, NRG Energy received demands to post collateral
aggregating approximately $1.1 billion. NRG Energy is
presently working with various secured project lender groups
with respect to the issue of posting collateral and is working
toward establishing a comprehensive plan of restructuring.

In August 2002, NRG Energy retained financial and
legal restructuring advisors to assist its management in the
preparation of such comprehensive financial and operational
restructuring. NRG Energy and its advisors have been meeting
regularly to discuss restructuring issues with an ad hoc
committee of its bondholders and a steering committee of its
bank lenders (the Ad Hoc Creditors Committees). In November
2002, NRG Energy and Xcel Energy presented a comprehensive plan
of restructuring to the Ad Hoc Creditors Committees. The
restructuring plan has served as a basis for continuing
negotiations between the Ad Hoc Creditors Committees, NRG Energy
and Xcel Energy related to a consensual plan of reorganization
for NRG Energy. If a comprehensive plan of restructuring is
ultimately agreed to, it is highly probable that such a plan
would be implemented through the commencement of a voluntary
Chapter 11 bankruptcy proceeding. For more specific
information regarding NRG Energys restructuring efforts,
refer to Liquidity Issues in Item 1 of
Form 10-K filed by NRG Energy on March 31, 2003.

On November 22, 2002, five former NRG Energy
executives filed an involuntary Chapter 11 petition against
NRG Energy in U.S. Bankruptcy Court for the District of
Minnesota. Under provisions of federal law, NRG Energy has the
full authority to continue to operate its business as if the
involuntary petition had not been filed unless and until a court
hearing on the validity of the involuntary petition is resolved
adversely to NRG Energy. On December 16, 2002, NRG Energy
responded to the involuntary petition, contesting the
petitioners claims and filing a motion to dismiss the
case. On February 19, 2003, NRG Energy announced that it
had reached a settlement with the petitioners. The
U.S. Bankruptcy Court for the District of Minnesota will
hear NRG Energys motion to approve the settlement and
dismiss the involuntary petition. Two of NRG Energys
creditors have objected to the motion to dismiss. There can be
no assurance that the court will dismiss the involuntary
petition. The Bankruptcy Court has discretion in the review and
approval of the settlement agreement. There is a risk that the
Bankruptcy Court may, among other things, reject the settlement
agreement or enter an order for relief under Chapter 11.

On March 26, 2003, Xcel Energy announced
that its board of directors had approved a tentative settlement
agreement with holders of most of NRG Energys long-term
notes and the steering committee representing NRGs bank
lenders. The settlement is subject to certain conditions,
including the approval of at least a majority in dollar amount
of the NRG Energy bank lenders and long-term noteholders and
definitive documentation. There can be no assurance that such
approvals will be obtained. The terms of the settlement call for
Xcel Energy to make payments to NRG Energy over the next
13 months totaling up to $752 million for the benefit
of NRG Energys creditors in consideration for their waiver
of any existing and potential claims against Xcel Energy. Under
the settlement, Xcel Energy will make the following payments:
(i) $350 million at or shortly following the
consummation of a restructuring of NRG Energys debt. It is
expected this payment would be made prior to year-end 2003;
(ii) $50 million on January 1, 2004. At Xcel
Energys option, it may fill this requirement with either
cash or Xcel Energy common stock or any combination thereof; and
(iii) $352 million in April 2004.



| |                                                                  
| | -----------------------------------------------------------------
| | The Partnership and Funding Indebtedness and
    Liquidity Issues

On May 21, 1999, the Partnership and Funding
issued two series of senior secured bonds in the following total
principal amounts: $150,000,000 7.164% Series A Senior
Secured Bonds due 2014 and $176,000,000

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8.160% Series B Senior Secured Bonds due
2025. Principal and interest is payable semi-annually on each
January 15 and July 15. As of December 31, 2002
there remains $314.3 million of outstanding senior secured
bonds. The senior secured bonds currently carry a rating of B at
S&P and B1 at Moodys.


The outstanding bonds and current working capital
facility agreements of the Partnership generally restrict its
ability to make dividends or distributions or otherwise transfer
funds to NRG Energy under certain circumstances such as failure
to maintain a required minimum debt service ratio. As of
December 31, 2002, the Partnership did not meet the
required minimum debt service coverage ratios and is therefore
restricted from making distributions to NRG Energy. As of
March 31, 2003, the Partnership had cash and cash
equivalents (including amounts in restricted trustee accounts)
of approximately $38.2 million.



| |           
| | ----------
| | Cash Flows

|                                                        |  |                                 |      |      |  |      |        |  |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | ---- | ---- |  | ---- | ------ |  |  | - | ------- | -
|                                                        |  |                                
|                                                        |  | For the Year Ended December 31,
|                                                        |  |                                
|                                                        |  | 2002                            |      | 2001 |  | 2000
|                                                        |  |                                 |      |      |  |     
|                                                        |  |                                
|                                                        |  | (In thousands)                 
|Net cash (used in)/provided by operating
    activities |  | $                               | (204 | )    |  | $    | 20,051 |  |  | $ | (10,733 | )

Net cash (used in)/provided by operations for the
year ended December 31, 2002 decreased in comparison to
2001. The most significant changes in working capital related to
payments made on Accounts Payable-Affiliate and the Net Loss for
the year. Net cash (used in)/provided by operation for the year
ended December 31, 2001 increased in comparison to 2000.
The increase was primarily due to favorable operating results
and working capital changes.

|                                                        |  |                                 |       |      |  |      |         |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                        |  |                                
|                                                        |  | For the Year Ended December 31,
|                                                        |  |                                
|                                                        |  | 2002                            |       | 2001 |  | 2000
|                                                        |  |                                 |       |      |  |     
|                                                        |  |                                
|                                                        |  | (In thousands)                 
|Net cash (used in)/provided by investing
    activities |  | $                               | 7,779 |      |  | $    | (16,019 | ) |  | $ | (35,829 | )

Net cash provided by/(used in) investing for the
year ended December 31, 2002 increased in comparison to
2001. The increase is due to the draw down of Investments Held
By Trustee. Net cash used in investing activities for the year
ended December 31, 2001 decreased in comparison to 2000.
The decrease was due to a reduction in capital expenditures.

|                                      |  |                                 |        |      |  |      |        |   |  |   |        | 
|------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | 
|                                      |  |                                
|                                      |  | For the Year Ended December 31,
|                                      |  |                                
|                                      |  | 2002                            |        | 2001 |  | 2000
|                                      |  |                                 |        |      |  |     
|                                      |  |                                
|                                      |  | (In thousands)                 
|Net cash used in financing activities |  | $                               | (7,575 | )    |  | $    | (4,125 | ) |  | $ | 46,452 | 

Net cash used in financing for the year ended
December 31, 2002 increased in comparison to 2001. The
increase is primarily due to two payments made on the senior
secured bonds during 2002, only one payment was required in the
bonds first year. Net cash used in financing activities for the
year ended December 31, 2001 increased in comparison to
2000. The increase was due to a lack of capital contribution
from partners during 2001.



| |                    
| | -------------------
| | Capital Commitments



| |                                 
| | --------------------------------
| | Prospective Capital Requirements

Management forecasts capital expenditures, which
includes minor refurbishments and environmental compliance, to
total approximately $5 million in the year 2003. The
Partnership anticipates funding its ongoing capital requirements
through operating cash flows and existing cash. NRG
Energys capital expenditure program is subject to
continuing review and modification. The timing and actual amount
of expenditures may differ significantly based upon plant
operating history, unexpected plant outages, changes in the
regulatory environment, the availability of cash and
restructuring efforts.

16



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##### Table of Contents





| |                                                       
| | ------------------------------------------------------
| | Contractual Obligations and Commercial
    Commitments

The Partnership has a variety of contractual
obligations and other commercial commitments that represent
prospective cash requirements in addition to its capital
expenditure program. The following is a summarized table of
contractual obligations.

|                                   |  |                                     |         |            |  |           |       |           |  |               |        |  |  |   |        |  |  |   |         | 
|---------------------------------- |  | ----------------------------------- | ------- | ---------- |  | --------- | ----- | --------- |  | ------------- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                   |  |                                    
|                                   |  | Payments Due by Period as of       
|                                   |  | and Subsequent to December 31, 2002
|                                   |  |                                    
|                                   |  | Total                               |         | Short Term |  | 1-3 Years |       | 4-5 Years |  | After 5 Years
|                                   |  |                                     |         |            |  |           |       |           |  |              
|                                   |  |                                    
|                                   |  | (Thousands of dollars)             
|Long term debt                     |  | $                                   | 314,300 |            |  | $         | 7,125 |           |  | $             | 17,175 |  |  | $ | 24,450 |  |  | $ | 265,550 | 
|                                   |  |                                     |         |            |  |           |       |           |  |               |        |  |  |   |        |  |  |   |         | 
|Total contractual cash obligations |  | $                                   | 314,300 |            |  | $         | 7,125 |           |  | $             | 17,175 |  |  | $ | 24,450 |  |  | $ | 265,550 | 
|                                   |  |                                     |         |            |  |           |       |           |  |               |        |  |  |   |        |  |  |   |         | 

New Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations.
This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
SFAS No. 143 requires an entity to recognize the fair
value of a liability for an asset retirement obligation in the
period in which it is incurred. The liability is initially
capitalized as part of the cost of the related tangible
long-lived asset and thus depreciated over the assets
useful life. Accretion of the liabilities due to the passage of
time will be an operating expense. Retirement obligations
associated with long-lived assets included within the scope of
SFAS No. 143 are those for which a legal obligation
exists under enacted laws and statutes written or oral
contracts, including obligations arising under the doctrine of
promissory estoppel. The Partnership is required to adopt
SFAS No. 143 on January 1, 2003, the Partnership
is in the process of evaluating the impact of adopting
SFAS No. 143 on its financial condition.

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections, that supersedes previous
guidance for the reporting of gains and losses from
extinguishment of debt and accounting for leases, among other
things. SFAS No. 145 requires that only gains and
losses from the extinguishment of debt that meet the
requirements for classification as Extraordinary
Items, as prescribed in Accounting Practices Board Opinion
No. 30, should be disclosed as such in the financial
statements. Previous guidance required all gains and losses from
the extinguishment of debt to be classified as
Extraordinary Items. This portion of
SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002, with restatement of prior periods
required. The Partnership has no extraordinary gains or losses
resulting from extinguishment of debt during the three years
ended December 31, 2002, that will require restatement upon
adoption of this part of the statement.

In addition, SFAS No. 145 amends
SFAS No. 13, Accounting for Leases,
as it relates to accounting by a lessee for certain lease
modifications. Under SFAS No. 13, if a capital lease
is modified in such a way that the change gives rise to a new
agreement classified as an operating lease, the assets and
obligation are removed, a gain or loss is recognized and the new
lease is accounted for as an operating lease. Under
SFAS No. 145, capital leases that are modified so the
resulting lease agreement is classified as an operating lease
are to be accounted for under the sale-leaseback provisions of
SFAS No. 98, Accounting for Leases.
These provisions of SFAS No. 145 were effective for
transactions occurring after May 15, 2002. Adoption of
SFAS No. 145 is not expected to have a material impact
on the Partnership.

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities,
(SFAS No. 146), SFAS No. 146 addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue
No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 applies to
costs associated with an exit activity that does not involve an
entity newly acquired in a business combination or with a
disposal activity covered by SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated
after December 31, 2002.

17



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##### Table of Contents



In November 2002, The FASB issued FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The initial
recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002,
irrespective of the guarantors fiscal year-end. The
disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15,
2002. The interpretation addresses the disclosures to be made by
a guarantor in its interim and annual financial statements about
its obligations under guarantees. The interpretation also
clarifies the requirements related to the recognition of a
liability by a guarantor at the inception of the guarantee for
the obligations the guarantor has undertaken in issuing the
guarantee.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN No. 46).
FIN No. 46 requires an enterprises consolidated
financial statements to include subsidiaries in which the
enterprise has a controlling interest. Historically, that
requirement has been applied to subsidiaries in which an
enterprise has a majority voting interest, but in many
circumstances the enterprises consolidated financial
statements do not include the consolidation of variable interest
entities with which it has similar relationships but no majority
voting interest. Under FIN No. 46 the voting interest
approach is not effective in identifying controlling financial
interest. The new rule requires that for entities to be
consolidated that those assets be initially recorded at their
carrying amounts at the date the requirements of the new rule
first apply. If determining carrying amounts as required is
impractical, then the assets are to be measured at fair value
the first date the new rule applies. Any difference between the
net amount of any previously recognized interest in the newly
consolidated entity should be recognized as the cumulative
effect of an accounting change. FIN No. 46 becomes
effective in the third quarter of 2003. FIN No. 46 is
not expected to have a significant impact on the Partnership.




Item 7A  Quantitative and
Qualitative Disclosure about Market Risk

Interest Rate Risk

The Partnership primarily has fixed rate
long-term debt outstanding as of December 31, 2002. At
December 31, 2002 and 2001 the Partnership had
approximately $314.3 million and $322.0 million,
respectively, of outstanding bonds at an average fixed interest
rate of 7.7%. The Partnership is not significantly exposed to
the risk of loss associated with movements in market interest
rates primarily because its debt obligations bear fixed interest
rates.

Commodity Price Risk

Commodity price risk relates to price variability
in electricity and natural gas used to meet fuel requirements.
The Partnership sells its power generation under fixed-price,
long-term power sales contracts. Fuel requirements are provided
for under these contracts by the customer, therefore, the
Partnership is not exposed to any material commodity price
variability or risk.

Credit Risk

The Partnership is exposed to credit risk in its
risk management activities. Credit risk relates to the risk of
loss resulting from the non-performance by a counter party of
its contractual obligations. Through NRG Energys Treasury
department, the Partnership actively manages its counter party
credit risk. NRG Energy has an established credit policy in
place to minimize overall credit risk.




Item 8  Financial
Statements and Supplementary Data

The financial statements and schedules are listed
in Part IV, Item 15 of this Form 10-K.




Item 9  Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure

The Partnership and Funding announced their
termination of KPMG LLP as principal independent accountants and
their engagement of PricewaterhouseCoopers LLP as their new
principal independent

18



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##### Table of Contents



accountants as of May 9, 2001. In connection
with its audits for the two fiscal years ended December 31,
1999 and December 31, 2000, and through May 9, 2001,
there have been no disagreements with KPMG LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements
if not resolved to the satisfaction of KPMG LLP would have
caused them to make reference thereto in their report on the
financial statements for such years.





PART III






|          |                                                       
|--------- | ------------------------------------------------------
|Item 10  | Directors and Executive Officers of the
    Registrant

Omitted Pursuant to General
Instruction (I)(1) & (2) of
Form 10-K






|          |                       
|--------- | ----------------------
|Item 11  | Executive Compensation

Omitted Pursuant to General
Instruction (I)(1) & (2) of
Form 10-K






|          |                                                                                                       
|--------- | ------------------------------------------------------------------------------------------------------
|Item 12  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Omitted Pursuant to General Instruction
(I)(1) & (2) of Form 10-K






|          |                                                   
|--------- | --------------------------------------------------
|Item 13  | Certain Relationships and Related
    Transactions

Omitted Pursuant to General Instruction
(I)(1) & (2) of Form 10-K






|          |                        
|--------- | -----------------------
|Item 14  | Controls and Procedures

The President and Treasurer (the Certifying
Officers) have evaluated the Partnerships and
Fundings disclosure controls and procedures as defined in
the rules of the SEC within 90 days of the filing date of
this report and have determined that, except to the extent
indicated otherwise in this paragraph, disclosure controls and
procedures were effective in ensuring that material information
required to be disclosed by the Partnership and Funding in the
reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. During the
fourth quarter of 2002, the Certifying Officers determined that
there were certain deficiencies in the internal controls
relating to financial reporting at the Partnership and Funding
caused by NRG Energys (the Partnerships and
Fundings parent company) pending financial restructuring
and business realignment. During the second half of 2002, there
were material changes and vacancies in senior NRG Energy, the
Partnership and Funding management positions and a diversion of
financial and management resources to restructuring efforts.
These circumstances detracted from the Partnerships and
Fundings ability through its internal controls to timely
monitor and accurately assess the impact of certain
transactions, as would be expected in an effective financial
reporting control environment. the Partnership and Funding have
dedicated and will continue to dedicate in 2003 resources to
make corrections to those control deficiencies. Notwithstanding
the foregoing and as indicated in the certification accompanying
the signature page to this report, the Certifying Officers have
certified that, to the best of their knowledge, the financial
statements, and other financial information included in this
report on Form 10-K, fairly present in all material
respects the financial conditions, results of operations and
cash flows of the Partnership and Funding as of, and for the
periods presented in this report.

The Partnerships and Fundings
Certifying Officers are primarily responsible for the accuracy
of the financial information that is represented in this report.
To meet their responsibility for financial reporting, they have
established internal controls and procedures which, subject to
the disclosure in the foregoing paragraph, they believe are
adequate to provide reasonable assurance that the
Partnerships and Fundings assets are protected from
loss. There were no significant changes in internal controls or
in other factors that could significantly affect these controls
subsequent to the date of the Certifying Officers evaluation.

19



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##### Table of Contents






PART IV




Item 15  Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a) Documents filed as part of this
report.

(1) Financial Statements

The following financial statements of LSP
Batesville Funding Corporation and LSP Energy Limited
Partnership and related notes thereto, together with the reports
thereon of PricewaterhouseCoopers LLP and KPMG LLP, appearing on
pages 21 through 61 are included herein:

|                                    |                                                                                                              |  |  |    | 
|----------------------------------- | ------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|LSP Batesville Funding Corporation: |                                                                                                              |  |  |   
|                                    | Balance Sheets  December 31, 2002
    and 2001                                                              |  |  | 24 | 
|                                    | Statements of Operations 
    December 31, 2002, 2001 and 2000                                              |  |  | 25 | 
|                                    | Statements of Changes in Stockholders
    Equity (Deficit)  December 31, 2002, 2001 and
    2000           |  |  | 26 | 
|                                    | Statements of Cash Flows 
    December 31, 2002, 2001 and 2000                                              |  |  | 27 | 
|                                    | Notes to Financial Statements                                                                                |  |  | 28 | 
|LSP Energy Limited Partnership:     |                                                                                                              |  |  |   
|                                    | Consolidated Balance Sheets 
    December 31, 2002, and 2001                                                |  |  | 36 | 
|                                    | Consolidated Statements of Operations 
    December 31, 2002, 2001 and 2000                                 |  |  | 37 | 
|                                    | Consolidated Statements of Changes in
    Partners Capital (Deficit)  December 31,
    2002, 2001 and 2000 |  |  | 38 | 
|                                    | Consolidated Statements of Cash Flows 
    December 31, 2002, 2001 and 2000                                 |  |  | 39 | 
|                                    | Notes to Financial Statements                                                                                |  |  | 40 | 

(2) Financial Statement Schedules



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All other schedules have been omitted because
    they are not required, are not applicable or the information is
    otherwise set forth in the financial statements or notes thereto.

(3) Exhibits: See Exhibit Index
submitted as a separate section of this report.

(b) Reports on Form 8-K.The
Partnership filed reports on Form 8-K on the following
dates over the last fiscal year: November 27, 2002 and
October 24, 2002.

(c) Exhibits Required by Item 601 of
Regulation S-K.

Reference is made to Item 15(a)(3) above.

(d) Financial Statement Schedules.

Reference is made to Item 15(a)(2) above.

20



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##### Table of Contents








|              |                     
|------------- | --------------------
|Item 15(a)(1) | Financial Statements




INDEX TO THE FINANCIAL STATEMENTS

|                                                                                                                               |                                                                                                                      |      |    |    | 
|------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ---- | -- | -- | 
|Title                                                                                                                          |                                                                                                                      | Page
|                                                                                                                               |                                                                                                                      |     
|LSP Batesville Funding Corporation:                                                                                            |                                                                                                                      |      |    |   
|                                                                                                                               | Independent Auditors Report  PwC                                                                                   |      |    | 22 | 
|                                                                                                                               | Independent Auditors Report  KPMG                                                                                  |      |    | 23 | 
|                                                                                                                               | Balance Sheets as of December 31, 2002 and
    2001                                                                  |      |    | 24 | 
|                                                                                                                               | Statements of Operations for the years ended
    December 31, 2002, 2001 and 2000                                    |      |    | 25 | 
|                                                                                                                               | Statements of Changes in Stockholders
    Equity (Deficit) for the years ended December 31, 2002,
    2001 and 2000 |      |    | 26 | 
|                                                                                                                               | Statements of Cash Flows for the years ended
    December 31, 2002, 2001 and 2000                                    |      |    | 27 | 
|                                                                                                                               | Notes to Financial Statements                                                                                        |      |    | 28 | 
|LSP Energy Limited Partnership:                                                                                                |                                                                                                                      |      |    |   
|                                                                                                                               | Independent Auditors Report  PwC                                                                                   |      |    | 34 | 
|                                                                                                                               | Independent Auditors Report  KPMG                                                                                  |      |    | 35 | 
|Consolidated Balance Sheets as of
    December 31, 2002, and 2001                                                              |                                                                                                                      |      | 36 |   
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                                 |                                                                                                                      |      | 37 |   
|Consolidated Statements of Changes in
    Partners Capital (Deficit) for the years ended
    December 31, 2002, 2001 and 2000 |                                                                                                                      |      | 38 |   
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                                 |                                                                                                                      |      | 39 |   
|Notes to Financial Statements                                                                                                  |                                                                                                                      |      | 40 |   

21



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Management Committee of

LSP Batesville Funding Corporation:


In our opinion, the accompanying balance sheets
and the related statements of operations, of stockholders
equity and of cash flows present fairly, in all material
respects, the financial position of LSP Batesville Funding
Corporation at December 31, 2002 and 2001, and the results
of its operations and its cash flows for the two years in the
period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial
statements, the Companys parent, NRG Energy, Inc., is
experiencing credit and liquidity constraints and has various
credit arrangements that are in default. As a direct
consequence, during 2002 NRG Energy, Inc. entered into
discussions with its creditors to develop a comprehensive
restructuring plan. In connection with these restructuring
efforts, it is likely that NRG Energy, Inc. and certain of its
subsidiaries will file for Chapter 11 bankruptcy
protection. These conditions raise substantial doubt about the
Companys ability to continue as a going concern.
Managements plans in regard to these matters are also
described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota

March 28, 2003


22



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors

LSP Batesville Funding Corporation:


We have audited the accompanying statements of
operations, changes in stockholders deficit and cash
flows of LSP Batesville Funding Corporation for the year ended
December 31, 2000. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. 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 audit
provides a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the results
of operations and the cash flows of LSP Batesville Funding
Corporation for the year ended December 31, 2000, in
conformity with accounting principles generally accepted in the
United States of America.

KPMG LLP

Short Hills, New Jersey

March 20, 2001


23



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##### Table of Contents



LSP BATESVILLE FUNDING CORPORATION

BALANCE SHEETS

|                                                |                             |                   |     |      |    |   |     |    |    | 
|----------------------------------------------- | --------------------------- | ----------------- | --- | ---- | -- | - | --- | -- | -- | 
|                                                |                             |                  
|                                                |                             | December 31,     
|                                                |                             |                  
|                                                |                             | 2002              |     | 2001
|                                                |                             |                   |     |     
|                                                |                             |                  
|                                                |                             | (In thousands)   
|ASSETS                                         
|Current assets                                  |                             |                   |     |      |    |   |     |   
|                                                | Cash and cash equivalents   |                   | $   |     |    |   | $   |   |   
|                                                |                             |                   |     |      |    |   |     |   
|Total assets                                    |                             | $                 |    |      |    | $ |    |   
|                                                |                             |                   |     |      |    |   |     |   
|                                               
|LIABILITIES AND STOCKHOLDERS
    DEFICIT      
|Current liabilities                             |                             |                   |     |      |    |   |     |   
|                                                | Accounts payable-affiliates |                   | $   | 11   |    |   | $   | 10 |   
|                                                |                             | Total liabilities |     |      | 11 |   |     |    | 10 | 
|Commitments and contingencies                   |                             |                   |     |      |    |   |     |   
|Stockholders deficit                           |                             |                   | (11 | )    |    |   | (10 | ) 
|                                                |                             |                   |     |      |    |   |     |   
|Total liabilities and stockholders
    deficit |                             | $                 |    |      |    | $ |    |   
|                                                |                             |                   |     |      |    |   |     |   

See accompanying notes to financial statements.

24



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##### Table of Contents



LSP BATESVILLE FUNDING CORPORATION

STATEMENTS OF OPERATIONS

|                             |                                       |                |    |      |  |      |   |   |  |   |    |   | 
|---------------------------- | ------------------------------------- | -------------- | -- | ---- |  | ---- | - | - |  | - | -- | - | 
|                             |                                       |               
|                             |                                       | Year Ended    
|                             |                                       | December 31,  
|                             |                                       |               
|                             |                                       | 2002           |    | 2001 |  | 2000
|                             |                                       |                |    |      |  |     
|                             |                                       |               
|                             |                                       | (In thousands)
|Operating revenues           |                                       |                |    |      |  |      |   |   |  |   |    |  
|                             | Revenues from wholly-owned operations |                | $  |     |  |      | $ |  |  |   | $  |  | 
|Operating costs and expenses |                                       |                |    |      |  |      |   |   |  |   |    |  
|                             | Operating costs                       |                |    |     |  |      |   |  |  |   |    |  | 
|                             | Depreciation                          |                |    |     |  |      |   |  |  |   |    |  | 
|                             | General and administrative expenses   |                |    | 2    |  |      |   |  |  |   |    | 5 | 
|                             |                                       |                |    |      |  |      |   |   |  |   |    |  
|Operating loss               |                                       |                | (2 | )    |  |      |  |   |  |   | (5 | )
|Other income (expense)       |                                       |                |    |      |  |      |   |   |  |   |    |  
|                             | Other income, net                     |                |    |     |  |      |   |  |  |   |    |  | 
|                             | Interest expense                      |                |    |     |  |      |   |  |  |   |    |  | 
|                             |                                       |                |    |      |  |      |   |   |  |   |    |  
|Net loss                     |                                       | $              | (2 | )    |  | $    |  |   |  | $ | (5 | )
|                             |                                       |                |    |      |  |      |   |   |  |   |    |  

See accompanying notes to financial statements.

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LSP BATESVILLE FUNDING CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS
DEFICIT

|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |    |  
|---------------------------- | -------------------------- | -------------- |  | --------------- |  | ----------- | - | ------------- |  | - | --- | -- | - | - | --- | -- | -
|                             |                            |                |  |                 |  |             |   | Total        
|                             |                            | Common         |  | Additional      |  | Accumulated |   | Stockholders
|                             |                            | Stock          |  | Paid-In-Capital |  | Deficit     |   | Deficit      
|                             |                            |                |  |                 |  |             |   |              
|                             |                            |               
|                             |                            | (In thousands)
|Balance at December 31, 1999 |                            |                |  |                 |  | $           | 1 |               |  | $ | (6  | )  |   | $ | (5  | ) 
|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |   
|                             | Net Loss                   |                |  |                |  |             |   |              |  |   |     | (5 | ) |   |     | (5 | )
|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |   
|Balance at December 31, 2000 |                            |                |  |                 |  | $           | 1 |               |  | $ | (11 | )  |   | $ | (10 | ) 
|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |   
|                             | Net Loss                   |                |  |                |  |             |   |              |  |   |     |   |   |   |     |   |  
|                             | Capital contributions, net |                |  |                |  |             |   |              |  |   |     |   |   |   |     |   |  
|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |   
|Balance at December 31, 2001 |                            |                |  |                 |  | $           | 1 |               |  | $ | (11 | )  |   | $ | (10 | ) 
|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |   
|                             | Net Loss                   |                |  |                |  |             |   |              |  |   |     | (2 | ) |   |     | (2 | )
|                             | Capital contributions, net |                |  |                |  |             |   | 1             |  |   |     |   |   |   |     | 1  |  
|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |   
|Balance at December 31, 2002 |                            |                |  |                 |  | $           | 2 |               |  | $ | (13 | )  |   | $ | (11 | ) 
|                             |                            |                |  |                 |  |             |   |               |  |   |     |    |   |   |     |   

See accompanying notes to financial statements.

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LSP BATESVILLE FUNDING CORPORATION

STATEMENTS OF CASH FLOWS

|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |    |  
|------------------------------------------------ | -------------------------------------------------------- | -------------- | -- | ---- | - | ---- | -- | -- | - | - | - | -- | -
|                                                 |                                                          |               
|                                                 |                                                          | Year Ended    
|                                                 |                                                          | December 31,  
|                                                 |                                                          |               
|                                                 |                                                          | 2002           |    | 2001 |   | 2000
|                                                 |                                                          |                |    |      |   |     
|                                                 |                                                          |               
|                                                 |                                                          | (In thousands)
|Cash flows from operating activities             |                                                          |                |    |      |   |      |    |    |   |   |   |   
|                                                 | Net loss                                                 |                | $  | (2   | ) |      | $  |   |   |   | $ | (5 | )
|                                                 | Increase (decrease) in accounts
    payable  affiliates |                |    | 1    |   |      |    | (1 | ) |   |   | 5  |  
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   
|Net cash used in operating activities            |                                                          |                | (1 | )    |   |      | (1 | )  |   |   |  |   
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   
|Cash flows from investing activities             |                                                          |                |    |      |   |      |    |    |   |   |   |   
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   
|Net cash provided by investing activities        |                                                          |                |   |      |   |      |   |    |   |   |  |   
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   
|Cash flows from financing activities             |                                                          |                |    |      |   |      |    |    |   |   |   |   
|                                                 | Contributions from stockholders                         |                |    | 1    |   |      |    |   |   |   |   |   |  
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   
|Net cash provided by financing activities        |                                                          |                | 1  |      |   |      |   |    |   |   |  |   
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   
|Net decrease in cash and cash equivalents        |                                                          |                |   |      |   |      | (1 | )  |   |   |  |   
|Cash and cash equivalents at beginning of period |                                                          |                |   |      |   |      | 1  |    |   |   | 1 |   
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   
|Cash and cash equivalents at end of
    period   |                                                          | $              |   |      |   | $    |   |    |   | $ | 1 |   
|                                                 |                                                          |                |    |      |   |      |    |    |   |   |   |   

See accompanying notes to financial statements.

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LSP BATESVILLE FUNDING CORPORATION

NOTES TO FINANCIAL STATEMENTS



|         |             
|-------- | ------------
|Note 1  | Organization

LSP Batesville Funding Corporation
(Funding) was established on August 3, 1998.
Fundings business purpose is limited to maintaining its
organization and activities necessary to facilitate the
acquisition of financing by LSP Energy Limited Partnership
(the Partnership) from the institutional debt market
and to offering debt securities. On May 21, 1999, the
Partnership and Funding issued two series of senior secured
bonds (Note 2). Funding is wholly-owned by LSP Batesville
Holding, LLC (Holding), a Delaware limited liability
company, and ultimately a subsidiary of NRG Energy, Inc.

Holding was established on July 29, 1998 for
the purpose of owning and managing the limited partnership
interests of the Partnership, the common stock of LSP Energy,
Inc. (Energy), the general partner of the
Partnership, and the common stock of Funding.

The Partnership is a Delaware limited partnership
formed in February 1996 to develop, finance, construct, own and
operate a gas-fired electric generating facility with a design
capacity of approximately 837 megawatts located in
Batesville, Mississippi (the Facility). The Facility
commenced commercial operations under the Power Purchase
Agreement (Aquila PPA) with Aquila Energy Marketing
Corporation (Aquila) and Utilicorp United, Inc.
(Utilicorp) on August 8, 2000 and under the
Power Purchase Agreement (Dominion PPA) with
Dominion Virginia Power Corporation (Dominion) on
August 9, 2000. Prior to achieving commercial operations
under the Aquila PPA and the Dominion PPA, the Partnership had
been in the development stage and had not generated any
operating revenues.



| |                    
| | -------------------
| | Recent Developments

In December 2001, Moodys Investor Service
(Moodys) placed NRG Energys long-term senior
unsecured debt rating on review for possible downgrade. In
response, Xcel Energy and NRG Energy put into effect a plan to
preserve NRG Energys investment grade rating and improve
its financial condition. This plan included financial support to
NRG Energy from Xcel Energy; marketing certain NRG Energy assets
for sale; canceling and deferring capital spending; and reducing
corporate expenses.

In response to a possible downgrade, during 2002,
Xcel Energy contributed $500 million to NRG Energy, and NRG
Energy and its subsidiaries sold assets and businesses that
provided NRG Energy in excess of $286 million in cash and
eliminated approximately $432.0 million in debt. NRG Energy
also cancelled or deferred construction of approximately
3,900 MW of new generation projects. On July 26, 2002,
Standard & Poors (S&P) downgraded NRG
Energys senior unsecured bonds to below investment grade,
and three days later Moodys also downgraded NRG
Energys senior unsecured debt rating to below investment
grade. Since July 2002, NRG Energy senior unsecured debt, as
well as the secured NRG Northeast Generating LLC bonds, the
secured NRG South Central Generating LLC bonds and the Secured
LSP Energy (Batesville) bonds were downgraded multiple times.
After NRG Energy failed to make payments due under certain
unsecured bond obligations on September 16, 2002, both
Moodys and S&P lowered their ratings on NRG
Energys and its subsidiaries unsecured bonds once
again. Currently, NRG Energys unsecured bonds carry a
rating of between CCC and D at S&P and between Ca and C at
Moodys, depending on the specific debt issue. Currently,
NRG Energys unsecured bonds carry a rating of between CCC
and D at S&P and between Ca and C at Moodys, depending
on the specific debt issue. The Partnerships secured bonds
currently carry a rating of B at S&P and B1 at Moodys.

As a result of the downgrade of NRG Energys
credit rating, declining power prices, increasing fuel prices,
the overall down-turn in the energy industry, and the overall
down-turn in the economy, NRG Energy has experienced severe
financial difficulties. These difficulties have caused NRG
Energy to, among other things, miss scheduled principal and
interest payments due to its corporate lenders and bondholders,
prepay for fuel and other related delivery and transportation
services and provide performance collateral in certain instances
NRG Energy has also recorded asset impairment charges of
approximately $3.1 billion, related to

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LSP BATESVILLE FUNDING CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

various operating projects as well as for
projects that were under construction which NRG Energy has
stopped funding.

NRG Energy and its subsidiaries have failed to
timely make several interest and/or principal payments on its
indebtedness. These missed payments have resulted in
cross-defaults of numerous other non-recourse and limited
recourse debt instruments of NRG Energy and have caused the
acceleration of multiple debt instruments of NRG Energy,
rendering such debt immediately due and payable. For more
specific information regarding NRG Energys liquidity
issues, refer to Liquidity Issues in Item 1 of
Form 10-K filed by NRG Energy on March 31, 2003.

In addition to the payment defaults described
above, prior to the downgrades many corporate guarantees and
commitments of NRG Energy and its subsidiaries required that
they be supported or replaced with letter of credit or cash
collateral within 5 to 30 days of a ratings downgrade below
Baa3 or BBB- by Moodys or Standard & Poors,
respectively. As a result of the downgrades on July 26 and
July 29, NRG Energy received demands to post collateral
aggregating approximately $1.1 billion. NRG Energy is
presently working with various secured project lender groups
with respect to the issue of posting collateral and is working
toward establishing a comprehensive plan of restructuring.

In August 2002, NRG Energy retained financial and
legal restructuring advisors to assist its management in the
preparation of a comprehensive financial and operational
restructuring. NRG Energy and its advisors have been meeting
regularly to discuss restructuring issues with an ad hoc
committee of its bondholders and a steering committee of its
bank lenders (the Ad Hoc Creditors Committees).
In November 2002, NRG Energy and Xcel Energy presented a
comprehensive plan of restructuring to the Ad Hoc Creditors
Committees. The restructuring plan has served as a basis for
continuing negotiations between the Ad Hoc Creditors
Committees, NRG Energy and Xcel Energy related to a consensual
plan of reorganization for NRG Energy. If a comprehensive plan
of restructuring is ultimately agreed to, it is highly probable
that such a plan would be implemented through the commencement
of a voluntary Chapter 11 bankruptcy proceeding.

To aid in the design and implementation of a plan
of reorganization, in the fall of 2002, NRG Energy prepared a
comprehensive business plan and forecast. Anticipating that NRG
Energys creditors will own all or substantially all of the
NRG Energys equity interests after implementing the
restructuring plan, any plans and efforts to integrate NRG
Energys business operations with those of Xcel Energy were
terminated. Using commodity, emission and capacity prices
provided by an independent energy consulting firm to develop
forecasted cash flow information, management concluded that the
forecasted free cash flow available to NRG Energy after
servicing project level obligations will be insufficient to
service recourse debt obligations at the NRG Energy corporate
level.

On November 22, 2002, five former NRG Energy
executives filed an involuntary Chapter 11 petition against
NRG Energy in U.S. Bankruptcy Court for the District of
Minnesota. Under provisions of federal law, NRG Energy has the
full authority to continue to operate its business as if the
involuntary petition had not been filed unless and until a court
hearing on the validity of the involuntary petition is resolved
adversely to NRG Energy. On December 16, 2002, NRG Energy
responded to the involuntary petition, contesting the
petitioners claims and filing a motion to dismiss the
case. On February 19, 2003, NRG Energy announced that it
had reached a settlement with the petitioners. The
U.S. Bankruptcy Court for the District of Minnesota will
hear NRG Energys motion to consider the settlement and/or
dismiss the involuntary petition. Two of NRG Energys
creditors have objected to the motion to dismiss. There can be
no assurance that the court will dismiss the involuntary
petition. The Bankruptcy Court has discretion in the review and
approval of the settlement agreement. There is a risk that the
Bankruptcy Court may, among other things, reject the settlement
agreement or enter an order for relief under Chapter 11.

On March 26, 2003, Xcel Energy announced
that its board of directors had approved a tentative settlement
agreement with holders of most of NRG Energys long-term
notes and the steering committee

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LSP BATESVILLE FUNDING CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

representing NRGs bank lenders. The
settlement is subject to certain conditions, including the
approval of at least a majority in dollar amount of the NRG
Energy bank lenders and long-term noteholders and definitive
documentation. There can be no assurance that such approvals
will be obtained. The terms of the settlement call for Xcel
Energy to make payments to NRG Energy over the next
13 months totaling up to $752 million for the benefit
of NRG Energys creditors in consideration for their waiver
of any existing and potential claims against Xcel Energy. Under
the settlement, Xcel Energy will make the following payments:
(i) $350 million at or shortly following the
consummation of a restructuring of NRG Energys debt. It is
expected this payment would be made prior to year-end 2003;
(ii) $50 million on January 1, 2004. At Xcel
Energys option, it may fill this requirement with either
cash or Xcel Energy common stock or any combination thereof; and
(iii) $352 million in April 2004.

The outstanding bonds and current working capital
facility agreements of the Partnership generally restrict its
ability to make dividends or distributions or otherwise transfer
funds to NRG Energy under certain circumstances such as failure
to maintain a required minimum debt service ratio. As of
December 31, 2002, the Partnership did not meet the
required minimum debt service coverage ratios and is therefore
restricted from making distributions to NRG Energy.

NRG Energy expects to have cash available for
operations through 2003. This forecast does not assume further
investment by Xcel Energy or modification of NRG Energys
current debt obligations. In the event that NRG Energy is unable
to work through the issues as described above and is unable to
obtain adequate financing on terms acceptable to NRG Energy to
continue its operations, NRG Energy may have to file bankruptcy.
NRG Energys inability to obtain timely waivers and avoid
defaults on their credit obligations could lead to additional
involuntary bankruptcy proceedings. As a result, there is
substantial doubt as to NRG Energys and
Fundings ability to continue as a going concern.

The accompanying financial statements have been
prepared assuming Funding will continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



|         |          
|-------- | ---------
|Note 2  | Financing

Effective August 28, 1998, the Partnership
entered into agreements with a financial institution (the
Bank), that provided for financing in the amount of
$180,000,000 (the Tranche A Credit Facility).
Borrowings from this financing were used for the development and
construction of the Facility. These agreements also contemplated
circumstances under which LSP Batesville Funding Corporation
(Funding) and Holding would enter into agreements
whereby they would issue bonds in the amounts of $100,000,000
(the Tranche B Bond Facility) and $50,000,000
(the Tranche C Bond Facility), respectively, in
order to further finance the construction of the facility. The
terms and conditions of the Tranche B Bond Facility and
Tranche C Bond Facility were set forth in a letter
agreement (the Letter Agreement) entered into among
the Partnership, Holding and Funding (collectively, the
Borrowers) and the Bank. Bonds under the
Tranche B Bond Facility and Tranche C Bond Facility
were never issued.

Pursuant to the Letter Agreement, the Borrowers
and the Bank, as underwriter, also agreed to pursue a capital
markets offering during the last quarter of 1998. However, due
to unfavorable capital markets conditions, the capital markets
offering was not completed. Alternatively, on December 15,
1998, the Partnership amended and restated the financing
agreements entered into on August 28, 1998. The amended and
restated agreements provided for financing in the amount of
$305,000,000. The new financing consisted of a $305,000,000
three-year loan facility (the Bank Credit Facility)
entered into among the Partnership and a consortium of banks.

A common agreement (the Common
Agreement) tied all of the financing agreements together
and set forth, among other things: (a) terms and conditions
upon which loans and disbursements were to be made

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LSP BATESVILLE FUNDING CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

under the Bank Credit Facility; (b) the
mechanism for which loan proceeds, operating revenues, equity
contributions and other amounts received by the Partnership were
disbursed to pay construction costs, operations and maintenance
costs, debt service and other amounts due from the Partnership;
(c) the conditions which had to be satisfied prior to
making distributions from the Partnership; and (d) the
covenants and reporting requirements the Partnership was
required to be in compliance with during the term of the Common
Agreement.

The Common Agreement prohibited the Partnership
from making any distributions to its partners while loans made
under the Bank Credit Facility were outstanding.

The Common Agreement also required the
Partnership to set aside cash reserves for the cost of
performing periodic major maintenance on the Facility, including
turbine overhauls, and the credit support, if any, that the
Partnership is required to provide to Aquila under the Aquila
PPA.

Effective August 28, 1998, the Partnership
entered into a Letter of Credit and Reimbursement Agreement (the
LOC Agreement) with the Bank that provides for
letter of credit commitments aggregating $16,980,000. The LOC
Agreement provides for the Bank to issue three separate letters
of credit (Letter of Credit A, Letter of
Credit B and Letter of Credit C).
The letters of credit will be used to provide security in favor
of Dominion to support the Partnerships obligations under
the Dominion PPA. The LOC Agreement requires the Partnership to
pay commitment fees quarterly in arrears, at varying rates on
each letter of credit commitment until the expiration of each
letter of credit commitment. The Partnership is required to
reimburse the Bank for any drawings made by Dominion under the
letters of credit.

The Bank had issued Letter of Credit A and
Letter of Credit B each in the amount of $5,660,000 as
security for the Partnerships potential incremental
replacement power obligation under the Dominion PPA until the
earlier of June 1, 2000 and the commercial operations date.
On July 21, 2000, Dominion issued a draw of approximately
$4,650,000 on each of Letter of Credit A and Letter of
Credit B. The draws on Letter of Credit A and Letter
of Credit B each converted into 5-year loans (LOC
Loans). Principal amounts under each LOC loan were
repayable in 20 equal quarterly installments of approximately
$232,487 on each March 31, June 30, September 30,
and December 31 commencing on the first such date
subsequent to the commercial operations date of the Dominion
Units. On September 30, 2000, the Partnership made
principal payments under the LOC Loans aggregating approximately
$464,974. During 2000, the Partnership paid approximately
$307,000 in interest on the LOC Loans, Dominion reimbursed the
Partnership approximately $198,000 of such interest on the LOC
loans. Interest on the outstanding LOC Loans was based on 1.50%
to 1.625% above the selected London Interbank Offered Rate
(LIBOR) term of one month. On December 13,
2000, Dominion repaid the Partnerships outstanding LOC
loans of $9,300,000 in full.

Letter of Credit C was issued in the amount
of $5,660,000 on the commercial operations date of the Dominion
Units as security for the Partnerships future obligations
under the Dominion PPA.

On May 21, 1999, the Partnership and Funding
issued two series of Senior Secured Bonds (the
Bonds) in the following total principal amounts:
$150,000,000 7.164% Series A Senior Secured Bonds due 2014
and $176,000,000 8.160% Series B Senior Secured Bonds due
2025. Interest is payable semiannually on each January 15
and July 15, commencing January 15, 2000, to the
holders of record on the immediately proceeding January 1 and
July 1. Interest is computed on the basis of a 360-day year
consisting of twelve 30-day months. The interest rate on the
Bonds may be increased under the circumstances described below.

A portion of the proceeds from the issuance of
the Bonds was used to repay the $136,000,000 of outstanding
loans under the Bank Credit Facility. The remaining proceeds
from the issuance of the Bonds were used to pay a portion of the
costs of completing the Facility.

Effective May 21, 1999, the Common Agreement
was amended and restated in connection with the issuance of the
Bonds (the Amended and Restated Common Agreement).
The Amended and Restated

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LSP BATESVILLE FUNDING CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

Common Agreement sets forth, among other things:
(a) the mechanism by which Bond proceeds, operating
revenues, equity contributions and other amounts received by the
Partnership are disbursed to pay construction costs, operations
and maintenance costs, debt service and other amounts due from
the Partnership and (b) the conditions which must be
satisfied prior to making distributions from the Partnership.

The Amended and Restated Common Agreement
provides that the following conditions must be satisfied before
making distributions from the Partnership to its partners:
(1) the Partnership must have made all required
disbursements to pay operating and maintenance expenses,
management fees and expenses and debt service; (2) the
Partnership must have set aside sufficient reserves to pay
principal and interest payments on the Exchange Bonds and its
other senior secured debt; (3) there cannot exist any
default or event of default under the Trust Indenture for
the Exchange Bonds; (4) the Partnerships historical
and projected debt service coverage ratios must equal or exceed
the required levels; (5) the Partnership must have
sufficient funds in its accounts to meet its ongoing working
capital needs; (6) the Facility must be complete; and
(7) the distributions must be made after the last business
day of September 2000.

The Amended and Restated Common Agreement
requires that the Partnership set aside reserves for:
(1) payments of scheduled principal and interest on the
Exchange Bonds and other senior secured debt of the Partnership
and the Funding Corporation; (2) the cost of performing
periodic major maintenance on the Facility, including turbine
overhauls; and (3) the credit support, if any, that the
Partnership is required to provide to Aquila under the Aquila
PPA. As of December 31, 2001 and 2002, the Partnership has
funded reserve accounts for scheduled principal and interest on
the Exchange Bonds and periodic major maintenance on the
Facility in the amounts of $24.4 million, and
$24.9 million, respectively. Such reserve accounts are
reflected as Investments held by Trustee-restricted on the
Partnerships December 31, 2002 and 2001 balance
sheets.

The Partnership and Funding filed a registration
statement with the Securities and Exchange Commission (the
SEC) for a registered offer to exchange the Bonds
for two series of debt securities (the Exchange
Bonds) which are in all material respects substantially
identical to the Bonds. The registration statement became
effective on March 7, 2000. Upon such registration becoming
effective, the Partnership and Funding offered the Exchange
Bonds in return for surrender of the Bonds. Interest on each
Exchange Bond accrued from January 15, 2000, the last date
interest on the surrendered Bonds was paid.

Principal payments are payable on each
January 15 and July 15, commencing on July 15,
2001. Scheduled maturities of the Exchange Bonds are as follows:

|           |  |         |             | 
|---------- |  | ------- | ----------- | 
|           |  | Amounts
|           |  |        
|2003       |  | $       | 7,125,000   | 
|2004       |  |         | 7,575,000   | 
|2005       |  |         | 9,600,000   | 
|2006       |  |         | 11,925,000  | 
|2007       |  |         | 12,525,000  | 
|Thereafter |  |         | 265,550,000 | 
|           |  |         |             | 
|Total      |  | $       | 314,300,000 | 
|           |  |         |             | 

The Exchange Bonds are secured by substantially
all of the personal property and contract rights of the
Partnership and Funding. In addition, Holding and Energy have
pledged all of their interests in the Partnership, and Holding
has pledged all of the common stock of Energy and all of the
common stock of Funding.

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LSP BATESVILLE FUNDING CORPORATION


NOTES TO
FINANCIAL STATEMENTS  (Continued)

The Exchange Bonds are senior secured obligations
of the Partnership and Funding, rank equivalent in right of
payment to all other senior secured obligations of the
Partnership and Funding and rank senior in right of payment to
all existing and future subordinated debt of the Partnership and
Funding.

The Exchange Bonds are redeemable, at the option
of the Partnership and Funding, at any time in whole or from
time to time in part, on not less than 30 nor more than
60 days prior notice to the holders of that series of
Exchange Bonds, on any date prior to its maturity at a
redemption price equal to 100% of the outstanding principal
amount of the Exchange Bonds being redeemed, plus accrued and
unpaid interest on the Exchange Bonds being redeemed and a
make-whole premium. In no event will the redemption price ever
be less than 100% of the principal amount of the Exchange Bonds
being redeemed plus accrued and unpaid interest thereon.

The Exchange Bonds are redeemable at the option
of the bondholders if funds remain on deposit in the
distribution account for at least 12 months in a row, and
the Partnership and Funding cause the bondholders to vote on
whether the Partnership and Funding should use those funds to
redeem the Exchange Bonds, and holders of at least 66 2/3%
of the outstanding Bonds vote to require the Partnership and
Funding to use those funds to redeem the Exchange Bonds. If the
Partnership is required to redeem Bonds with those funds, then
the redemption price will be 100% of the principal amount of the
Exchange Bonds being redeemed plus accrued and unpaid interest
on the Exchange Bonds being redeemed. In addition, if
LS Power, LLC, Cogentrix Energy, Inc. and/or any qualified
transferee collectively cease to own, directly or indirectly, at
least 51% of the capital stock of Energy (unless any or all of
them maintain management control of the Partnership), or
LS Power, LLC, Cogentrix Energy, Inc. and/or any qualified
transferee collectively cease to own, directly or indirectly, at
least 10% of the ownership in the Partnership, then the
Partnership and Funding must offer to purchase all of the
Exchange Bonds at a purchase price equal to 101% of the
outstanding principal amount of the Exchange Bonds plus accrued
and unpaid interest unless the Partnership and Funding receive a
confirmation of the then current ratings of the Bonds or at
least 66 2/3% of the holders of the outstanding Bonds
approve the change in ownership.

The Trust Indenture for the Exchange Bonds (the
Trust Indenture) entered into among the Partnership,
Funding and The Bank of New York, as Trustee (the
Trustee) contains covenants including, among others,
limitations and restrictions relating to additional debt other
than the Exchange Bonds, Partnership distributions, new and
existing agreements, disposition of assets, and other
activities. The Trust Indenture also describes events of default
which include, among others, events involving bankruptcy of the
Partnership or Funding, failure to make any payment of interest
or principal on the Exchange Bonds and failure to perform or
observe in any material respect any covenant or agreement
contained in the Trust Indenture.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Management Committee of

LSP Energy Limited Partnership:


In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of partners capital and of cash flows present
fairly, in all material respects, the financial position of
LSP Energy Limited Partnership and its Subsidiary at
December 31, 2002 and 2001, and the results of their
operations and their cash flows for the two years in the period
ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Partnerships management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

The accompanying consolidated financial
statements have been prepared assuming that the Partnership will
continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Partnerships
parent, NRG Energy, Inc., is experiencing credit and liquidity
constraints and has various credit arrangements that are in
default. As a direct consequence, during 2002 NRG Energy, Inc.
entered into discussion with its creditors to develop a
comprehensive restructuring plan. In connection with its
restructuring efforts, it is likely that NRG Energy and certain
of its subsidiaries will file for Chapter 11 bankruptcy
protection. These conditions raise substantial doubt about the
Partnerships ability to continue as a going concern.
Managements plans in regard to these matters are also
described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota

March 28, 2003


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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Partners

LSP Energy Limited Partnership:


We have audited the accompanying statements of
operations, changes in partners capital (deficit) and cash
flows of LSP Energy Limited Partnership for the year ended
December 31, 2000. These financial statements are the
responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. 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 audit
provides a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the results
of operations and the cash flows of LSP Energy Limited
Partnership for the year ended December 31, 2000, in
conformity with accounting principles generally accepted in the
United States of America.

KPMG LLP

Short Hills, New Jersey

March 20, 2001


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LSP ENERGY LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS

|                                                                                          |                   |                                             |         |        |         |   |         |        |         | 
|----------------------------------------------------------------------------------------- | ----------------- | ------------------------------------------- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                                          |                   |                                            
|                                                                                          |                   | December 31,                               
|                                                                                          |                   |                                            
|                                                                                          |                   | 2002                                        |         | 2001  
|                                                                                          |                   |                                             |         |       
|                                                                                          |                   |                                            
|                                                                                          |                   | (In thousands)                             
|ASSETS                                                                                   
|Current assets                                                                            |                   |                                             |         |        |         |   |         |       
|Cash and cash equivalents                                                                 |                   | $                                           |        |        |         | $ |        |       
|Investments held by trustee  restricted                                                  |                   |                                             | 46,178  |        |         |   | 53,957  |       
|Accounts receivable                                                                       |                   |                                             | 5,405   |        |         |   | 4,005   |       
|Spare parts inventory                                                                     |                   |                                             | 7,148   |        |         |   | 5,999   |       
|Prepaid expenses and other current assets                                                 |                   |                                             | 1,615   |        |         |   | 300     |       
|                                                                                          |                   |                                             |         |        |         |   |         |       
|                                                                                          |                   | Total current assets                        |         |        | 60,346  |   |         |        | 64,261  | 
|                                                                                          |                   |                                             |         |        |         |   |         |       
|Property, plant and equipment, net of accumulated
    depreciation of $32,126 and $19,827 |                   |                                             | 306,918 |        |         |   | 317,046 |       
|Deferred finance costs, net of accumulated
    amortization of $7,552 and $6,976          |                   |                                             | 7,317   |        |         |   | 7,893   |       
|                                                                                          |                   |                                             |         |        |         |   |         |       
|                                                                                          |                   | Total assets                                |         | $      | 374,581 |   |         | $      | 389,200 | 
|                                                                                          |                   |                                             |         |        |         |   |         |       
|                                                                                         
|LIABILITIES AND PARTNERS
    CAPITAL                                                    
|Current liabilities                                                                       |                   |                                             |         |        |         |   |         |       
|Current portion of long-term debt                                                         |                   | $                                           | 7,125   |        |         | $ | 7,575   |       
|Accounts payable  trade                                                                  |                   |                                             | 499     |        |         |   | 805     |       
|Accounts payable  affiliates                                                             |                   |                                             | 1,633   |        |         |   | 4,398   |       
|Accrued interest                                                                          |                   |                                             | 10,993  |        |         |   | 11,259  |       
|Other current accrued liabilities                                                         |                   |                                             | 5,994   |        |         |   | 3,202   |       
|                                                                                          |                   |                                             |         |        |         |   |         |       
|                                                                                          |                   | Total current liabilities                   |         |        | 26,244  |   |         |        | 27,239  | 
|Long-term debt                                                                            |                   |                                             | 307,175 |        |         |   | 314,300 |       
|                                                                                          |                   |                                             |         |        |         |   |         |       
|                                                                                          |                   | Total liabilities                           |         |        | 333,419 |   |         |        | 341,539 | 
|Commitments and contingencies                                                             |                   |                                             |         |        |         |   |         |       
|                                                                                          | Partners capital |                                             |         | 41,162 |         |   |         | 47,661 |        
|                                                                                          |                   |                                             |         |        |         |   |         |       
|                                                                                          |                   | Total liabilities and partners
    capital |         | $      | 374,581 |   |         | $      | 389,200 | 
|                                                                                          |                   |                                             |         |        |         |   |         |       

See accompanying notes to financial statements.

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LSP ENERGY LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                             |                                     |                         |        |         |   |      |        |         |   |   |       |         |  
|---------------------------- | ----------------------------------- | ----------------------- | ------ | ------- | - | ---- | ------ | ------- | - | - | ----- | ------- | -
|                             |                                     |                        
|                             |                                     | Year Ended December 31,
|                             |                                     |                        
|                             |                                     | 2002                    |        | 2001    |   | 2000
|                             |                                     |                         |        |         |   |     
|                             |                                     |                        
|                             |                                     | (In thousands)         
|Operating revenues           |                                     |                         |        |         |   |      |        |         |   |   |       |        
|                             | Operating revenues                  |                         | $      | 53,211  |   |      | $      | 52,512  |   |   | $     | 20,385  |  
|Operating costs and expenses |                                     |                         |        |         |   |      |        |         |   |   |       |        
|                             | Operating costs                     |                         |        | 20,271  |   |      |        | 8,784   |   |   |       | 6,041   |  
|                             | Depreciation                        |                         |        | 14,415  |   |      |        | 14,292  |   |   |       | 5,793   |  
|                             | General and administrative expenses |                         |        | 739     |   |      |        | 770     |   |   |       | 374     |  
|                             |                                     |                         |        |         |   |      |        |         |   |   |       |        
|Operating income             |                                     |                         | 17,786 |         |   |      | 28,666 |         |   |   | 8,177 |        
|                             |                                     |                         |        |         |   |      |        |         |   |   |       |        
|Other income (expense)       |                                     |                         |        |         |   |      |        |         |   |   |       |        
|                             | Interest income                     |                         |        | 678     |   |      |        | 1,692   |   |   |       | 2,174   |  
|                             | Interest expense                    |                         |        | (24,963 | ) |      |        | (25,444 | ) |   |       | (11,204 | )
|                             |                                     |                         |        |         |   |      |        |         |   |   |       |        
|Net (loss)/income            |                                     | $                       | (6,499 | )       |   | $    | 4,914  |         |   | $ | (853  | )      
|                             |                                     |                         |        |         |   |      |        |         |   |   |       |        

See accompanying notes to financial statements.

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LSP ENERGY LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN
PARTNERS CAPITAL (DEFICIT)

|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |        |  
|---------------------------- | -------------------------- | --------------- | ------ | ---------------- | - | ----------------- | --- | --- | - | - | ------ | ------ | -
|                             |                            | 99%             |        |                  |   |                  
|                             |                            | Limited Partner |        | 1%               |   |                  
|                             |                            | LSP Batesville  |        | General Partner  |   | Total Partners  
|                             |                            | Holding, LLC    |        | LSP Energy, Inc. |   | Capital (Deficit)
|                             |                            |                 |        |                  |   |                  
|                             |                            |                
|                             |                            | (In thousands) 
|Balance at December 31, 1999 |                            | $               | (3,121 | )                |   | $                 | (31 | )   |   | $ | (3,152 | )     
|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |       
|                             | Capital contributions, net |                 |        | 54,000           |   |                   |     |    |   |   |        | 54,000 |  
|                             | Distributions to partners |                 |        | (7,248           | ) |                   |     |    |   |   |        | (7,248 | )
|                             | Net loss                   |                 |        | (843             | ) |                   |     | (10 | ) |   |        | (853   | )
|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |       
|Balance at December 31, 2000 |                            | $               | 42,788 |                  |   | $                 | (41 | )   |   | $ | 42,747 |       
|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |       
|                             | Net income                 |                 |        | 4,865            |   |                   |     | 49  |   |   |        | 4,914  |  
|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |       
|Balance at December 31, 2001 |                            | $               | 47,653 |                  |   | $                 | 8   |     |   | $ | 47,661 |       
|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |       
|                             | Net loss                   |                 |        | (6,454           | ) |                   |     | (45 | ) |   |        | (6,499 | )
|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |       
|Balance at December 31, 2002 |                            | $               | 41,199 |                  |   | $                 | (37 | )   |   | $ | 41,162 |       
|                             |                            |                 |        |                  |   |                   |     |     |   |   |        |       

See accompanying notes to financial statements.

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LSP ENERGY LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |         |        |  
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------- | ------ | ------ | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ------ | -
|                                                                |                                                                                              |                                         
|                                                                |                                                                                              | Year Ended December 31,                 
|                                                                |                                                                                              |                                         
|                                                                |                                                                                              | 2002                                     |        | 2001   |        | 2000
|                                                                |                                                                                              |                                          |        |        |        |     
|                                                                |                                                                                              |                                         
|                                                                |                                                                                              | (In thousands)                          
|Cash flows from operating activities                            |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|                                                                | Net (loss) income                                                                            |                                          | $      | (6,499 | )      |      | $       | 4,914   |        |   | $       | (853    | )     
|                                                                | Adjustments to reconcile net (loss) income to net
    cash provided by operating activities: |                                          |        |        |        |      |         |         |        |   |         |         |       
|                                                                |                                                                                              | Depreciation                             |        |        | 14,415 |      |         |         | 14,292 |   |         |         | 5,793  |  
|                                                                |                                                                                              | Amortization of deferred financing costs |        |        | 576    |      |         |         | 423    |   |         |         |       |  
|                                                                | Changes in assets and liabilities:                                                           |                                          |        |        |        |      |         |         |        |   |         |         |       
|                                                                |                                                                                              | Accounts receivable, net                 |        |        | (1,400 | )    |         |         | (312   | ) |         |         | (3,692 | )
|                                                                |                                                                                              | Spare parts inventory                    |        |        | (4,042 | )    |         |         | (1,897 | ) |         |         | (3,369 | )
|                                                                |                                                                                              | Prepayments and other current assets     |        |        | (1,315 | )    |         |         | 172    |   |         |         | (298   | )
|                                                                |                                                                                              | Accounts payable, net                    |        |        | (306   | )    |         |         | (4,419 | ) |         |         | (4,287 | )
|                                                                |                                                                                              | Accounts payable  affiliates            |        |        | (4,159 | )    |         |         | 4,175  |   |         |         | (189   | )
|                                                                |                                                                                              | Accrued interest                         |        |        | (266   | )    |         |         | (249   | ) |         |         | (3,838 | )
|                                                                |                                                                                              | Other current liabilities                |        |        | 2,792  |      |         |         | 2,952  |   |         |         |       |  
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Net cash (used in) provided by operating
    activities         |                                                                                              |                                          | (204   | )      |        |      | 20,051  |         |        |   | (10,733 | )      
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Cash flows from investing activities                            |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|                                                                | Net change in investments held by trustee                                                    |                                          |        | 7,779  |        |      |         | (18,392 | )      |   |         | (63,761 | )     
|                                                                | Investments drawn for property, plant and
    equipment                                      |                                          |        |       |        |      |         |        |        |   |         | 81,742  |       
|                                                                | Capital expenditures                                                                         |                                          |        |       |        |      |         |        |        |   |         | (53,810 | )     
|                                                                | Proceeds from disposition of property, plant and
    equipment                               |                                          |        |       |        |      |         | 2,373   |        |   |         |        |       
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Net cash provided by (used in) investing
    activities         |                                                                                              |                                          | 7,779  |        |        |      | (16,019 | )       |        |   | (35,829 | )      
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Cash flows from financing activities                            |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|                                                                | Debt issuance and financing costs                                                            |                                          |        |       |        |      |         |        |        |   |         | (301    | )     
|                                                                | Proceeds from issuance of loans                                                              |                                          |        |       |        |      |         |        |        |   |         | 9,299   |       
|                                                                | Repayment of loans                                                                           |                                          |        | (7,575 | )      |      |         | (4,125  | )      |   |         | (9,299  | )     
|                                                                | Capital contributions                                                                        |                                          |        |       |        |      |         |        |        |   |         | 54,000  |       
|                                                                | Distributions to partners                                                                    |                                          |        |       |        |      |         |        |        |   |         | (7,247  | )     
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Net cash (used in) provided by financing
    activities         |                                                                                              |                                          | (7,575 | )      |        |      | (4,125  | )       |        |   | 46,452  |        
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Net decrease cash and cash
    equivalents                      |                                                                                              |                                          |       |        |        |      | (93     | )       |        |   | (110    | )      
|Cash and cash equivalents at beginning of
    period            |                                                                                              |                                          |       |        |        |      | 93      |         |        |   | 203     |        
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Cash and cash equivalents at end of
    period                  |                                                                                              | $                                        |       |        |        | $    |        |         |        | $ | 93      |        
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Supplemental disclosures of cash flow
    information:          |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|                                                                | Cash paid for interest                                                                       |                                          | $      | 25,230 |        |      | $       | 25,701  |        |   | $       | 12,947  |       
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Reconciliation of changes in property, plant
    and equipment: |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Increase in property, plant and equipment                       |                                                                                              |                                          |       |        |        |      |        |         |        |   | (42,389 | )      
|Decrease in contract retainer payable                           |                                                                                              |                                          |       |        |        |      |        |         |        |   | (11,694 | )      
|Amortization of debt issuance and financing costs               |                                                                                              |                                          |       |        |        |      |        |         |        |   | 273     |        
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        
|Payments on property, plant and equipment                       |                                                                                              |                                          |       |        |        |      |        |         |        |   | (53,810 | )      
|                                                                |                                                                                              |                                          |        |        |        |      |         |         |        |   |         |        

See accompanying notes to financial statements.

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##### Table of Contents



LSP ENERGY LIMITED PARTNERSHIP

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  Organization

LSP Energy Limited Partnership (the
Partnership) is a Delaware limited partnership
formed in February 1996 to develop, construct, own and operate a
gas-fired electric generating facility with a design capacity of
approximately 837 megawatts located in Batesville,
Mississippi (the Facility). The Facility commenced
operations in August 2000. The Partnership owns 100% of NRG
Batesville LLC (Batesville), an inactive subsidiary with no
operations. The 1% general partner of the Partnership is LSP
Energy, Inc. (Energy). The 99% limited partner
of the Partnership is LSP Batesville Holding, LLC
(Holding), a Delaware limited liability company
established on July 29, 1998. Holding is owned by Granite
Power Partners II LP (Granite), a Delaware
limited partnership formed to develop independent power projects
throughout the United States.

On November 3, 2000, the partners of Granite
entered into a purchase agreement for the sale of all of
(i) the partnership interests in Granite, the indirect
owner of the Partnership and LSP Batesville Funding Corporation
(Funding), and (ii) all of the membership
interests in LS Power Management, LLC, the manager of the
Facility, to NRG Energy, Inc., and its affiliates (NRG
Energy). The sale closed on January 29, 2001. The
sale did not result in a change of control under the
Trust Indenture (Trust Indenture) dated as
of May 21, 1999 among Funding, the Partnership and The Bank
of New York. On February 6, 2001, NRG Energy entered into a
purchase agreement for the remaining 51.37% membership interest
in Holding. The sale closed on March 30, 2001. As a result
of these transactions, the Partnership is an indirect,
wholly-owned subsidiary of NRG Energy. The purchase price paid
by NRG Energy in these transactions was not pushed down to the
Partnership.



| |                    
| | -------------------
| | Recent Developments

In December 2001, Moodys Investor Service
(Moodys) placed NRG Energys long-term senior
unsecured debt rating on review for possible downgrade. In
response, Xcel Energy and NRG Energy put into effect a plan to
preserve NRG Energys investment grade rating and improve
its financial condition. This plan included financial support to
NRG Energy from Xcel Energy; marketing certain NRG Energy assets
for sale; canceling and deferring capital spending; and reducing
corporate expenses.

In response to a possible downgrade, during 2002,
Xcel Energy contributed $500 million to NRG Energy, and NRG
Energy and its subsidiaries sold assets and businesses that
provided NRG Energy in excess of $286 million in cash and
eliminated approximately $432.0 million in debt. NRG Energy
also cancelled or deferred construction of approximately
3,900 MW of new generation projects. On July 26, 2002,
Standard & Poors (S&P) downgraded NRG
Energys senior unsecured bonds to below investment grade,
and three days later Moodys also downgraded NRG
Energys senior unsecured debt rating to below investment
grade. Since July 2002, NRG Energy senior unsecured debt, as
well as the secured NRG Northeast Generating LLC bonds, the
secured NRG South Central Generating LLC bonds and the secured
LSP Energy (Batesville) bonds were downgraded multiple times.
After NRG Energy failed to make payments due under certain
unsecured bond obligations on September 16, 2002, both
Moodys and S&P lowered their ratings on NRG
Energys and its subsidiaries unsecured bonds once
again. Currently, NRG Energys unsecured bonds carry a
rating of between CCC and D at S&P and between Ca and C at
Moodys, depending on the specific debt issue. The
Partnerships secured bonds currently carry a rating of B
at S&P and B1 at Moodys.

As a result of the downgrade of NRG Energys
credit rating, declining power prices, increasing fuel prices,
the overall down-turn in the energy industry, and the overall
down-turn in the economy, NRG Energy has experienced severe
financial difficulties. These difficulties have caused NRG
Energy to, among other things, miss scheduled principal and
interest payments due to its corporate lenders and bondholders,
prepay for fuel and other related delivery and transportation
services and provide performance collateral in certain
instances. NRG Energy has also recorded asset impairment charges
of approximately $3.1 billion, related to

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

various operating projects as well as for
projects that were under construction which NRG Energy has
stopped funding.

NRG Energy and its subsidiaries have failed to
timely make several interest and/or principal payments on its
indebtedness. These missed payments have resulted in
cross-defaults of numerous other non-recourse and limited
recourse debt instruments of NRG Energy and have caused the
acceleration of multiple debt instruments of NRG Energy,
rendering such debt immediately due and payable. For more
specific information regarding NRG Energys liquidity
issues, refer to Liquidity Issues in Item 1 of
Form 10-K filed by NRG Energy on March 31, 2003.

In addition to the payment defaults described
above, prior to the downgrades many corporate guarantees and
commitments of NRG Energy and its subsidiaries required that
they be supported or replaced with letter of credit or cash
collateral within 5 to 30 days of a ratings downgrade below
Baa3 or BBB- by Moodys or Standard & Poors,
respectively. As a result of the downgrades on July 26 and
July 29, NRG Energy received demands to post collateral
aggregating approximately $1.1 billion. NRG Energy is
presently working with various secured project lender groups
with respect to the issue of posting collateral and is working
toward establishing a comprehensive plan of restructuring.

In August 2002, NRG Energy retained financial and
legal restructuring advisors to assist its management in the
preparation of a comprehensive financial and operational
restructuring. NRG Energy and its advisors have been meeting
regularly to discuss restructuring issues with an ad hoc
committee of its bondholders and a steering committee of its
bank lenders (the Ad Hoc Creditors Committees).
In November 2002, NRG Energy and Xcel Energy presented a
comprehensive plan of restructuring to the Ad Hoc Creditors
Committees. The restructuring plan has served as a basis for
continuing negotiations between the Ad Hoc Creditors
Committees, NRG Energy and Xcel Energy related to a consensual
plan of reorganization for NRG Energy. If a comprehensive plan
of restructuring is ultimately agreed to, it is highly probable
that such a plan would be implemented through the commencement
of a voluntary Chapter 11 bankruptcy proceeding.

To aid in the design and implementation of a plan
of reorganization, in the fall of 2002, NRG Energy prepared a
comprehensive business plan and forecast. Anticipating that NRG
Energys creditors will own all or substantially all of the
NRG Energys equity interests after implementing the
restructuring plan, any plans and efforts to integrate NRG
Energys business operations with those of Xcel Energy were
terminated. Using commodity, emission and capacity prices
provided by an independent energy consulting firm to develop
forecasted cash flow information, management concluded that the
forecasted free cash flow available to NRG Energy after
servicing project level obligations will be insufficient to
service recourse debt obligations at the NRG Energy corporate
level.

On November 22, 2002, five former NRG Energy
executives filed an involuntary Chapter 11 petition against
NRG Energy in U.S. Bankruptcy Court for the District of
Minnesota. Under provisions of federal law, NRG Energy has the
full authority to continue to operate its business as if the
involuntary petition had not been filed unless and until a court
hearing on the validity of the involuntary petition is resolved
adversely to NRG Energy. On December 16, 2002, NRG Energy
responded to the involuntary petition, contesting the
petitioners claims and filing a motion to dismiss the
case. On February 19, 2003, NRG Energy announced that it
had reached a settlement with the petitioners. The
U.S. Bankruptcy Court for the District of Minnesota will
hear NRG Energys motion to consider the settlement and/or
dismiss the involuntary petition. Two of NRG Energys
creditors have objected to the motion to dismiss. There can be
no assurance that the court will dismiss the involuntary
petition. The Bankruptcy Court has discretion in the review and
approval of the settlement agreement. There is a risk that the
Bankruptcy Court may, among other things, reject the settlement
agreement or enter an order for relief under Chapter 11.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

On March 26, 2003, Xcel Energy announced
that its board of directors had approved a tentative settlement
agreement with holders of most of NRG Energys long-term
notes and the steering committee representing NRGs bank
lenders. The settlement is subject to certain conditions,
including the approval of at least a majority in dollar amount
of the NRG Energy bank lenders and long-term noteholders and
definitive documentation. There can be no assurance that such
approvals will be obtained. The terms of the settlement call for
Xcel Energy to make payments to NRG Energy over the next
13 months totaling up to $752 million for the benefit
of NRG Energys creditors in consideration for their waiver
of any existing and potential claims against Xcel Energy. Under
the settlement, Xcel Energy will make the following payments:
(i) $350 million at or shortly following the
consummation of a restructuring of NRG Energys debt. It is
expected this payment would be made prior to year-end 2003;
(ii) $50 million on January 1, 2004. At Xcel
Energys option, it may fill this requirement with either
cash or Xcel Energy common stock or any combination thereof; and
(iii) $352 million in April 2004.

The outstanding bonds and current working capital
facility agreements of the Partnership generally restrict its
ability to make dividends or distributions or otherwise transfer
funds to NRG Energy under certain circumstances such as failure
to maintain a required minimum debt service ratio. As of
December 31, 2002, the Partnership did not meet the minimum
debt service coverage ratios and is therefore restricted from
making distributions to NRG Energy.

NRG Energy expects to have cash available for
operations through 2003. This forecast does not assume further
investment by Xcel Energy or modification of NRG Energys
current debt obligations. In the event that NRG Energy is unable
to work through the issues as described above and is unable to
obtain adequate financing on terms acceptable to NRG Energy to
continue its operations, NRG Energy may have to file bankruptcy.
NRG Energys inability to obtain timely waivers and avoid
defaults on their credit obligations could lead to additional
involuntary bankruptcy proceedings. As a result, there is
substantial doubt as to NRG Energys and the
Partnerships ability to continue as a going concern.

The accompanying financial statements have been
prepared assuming the Partnership will continue as a going
concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Note 2  Summary of Significant
Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The financial statements of the Partnership have
been prepared in accordance with accounting principles generally
accepted in the United States of America. The consolidated
financial statements include the accounts of the Partnership and
Batesville. All significant intercompany transactions have been
eliminated in consolidation.



| |                     
| | --------------------
| | Nature of Operations

The principal business of the Partnership is the
ownership and operation, of power generation facilities and the
sale of energy, capacity and related products.



| |                 
| | ----------------
| | Use of Estimates

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 that affect reported amounts of assets and
liabilities at the date of the financial statements, disclosure
of contingent assets and liabilities a the date of the financial
statements and reported amounts of revenue and expenses during
the reporting period. Actual results may differ from those
estimates.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

In recording transactions and balances resulting
from business operations, the Partnership uses estimates based
on the best information available. Estimates are used for such
items as plant depreciable lives and uncollectible accounts
among others. In addition, estimates are used to test long-lived
assets for impairment and to determine fair value of impaired
assets. As better information becomes available (or actual
amounts are determinable), the recorded estimates are revised.
Consequently, operating results can be affected by revisions to
prior accounting estimates.



| |                  
| | -----------------
| | Reclassifications

Certain prior-year amounts have been reclassified
for comparative purposes. These reclassifications had no effect
on net income or partners capital as previously reported.



| |                        
| | -----------------------
| | Risks and Uncertainties

As with any power generation facility, operation
of the Facility will involve risk, including performance of the
Facility below expected levels of output and efficiency,
shut-downs due to the breakdown or failure of equipment or
processes, violations of permit requirements, operator error,
labor disputes, or catastrophic events such as fires,
earthquakes, explosions, floods or other similar occurrences
affecting a power generation facility or its power purchasers.
The occurrence of any of these events could significantly reduce
or eliminate revenues generated by the Facility or significantly
increase the expenses of the Facility, adversely impacting the
Partnerships ability to make payments of principal and
interest on its debt when due.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Partnership considers cash to include cash
and short-term investments with original maturities of three
months or less.



| |                            
| | ---------------------------
| | Investments Held by Trustee

At December 31, 2002 and 2001, Investments
Held by Trustee referred to in Note 4, consisted of
commercial paper with original maturities primarily of
90 days or less. The Partnership acquired and classified
these debt securities as held-to-maturity because of its intent
and ability to hold them to maturity. At December 31, 2002
and 2001, the fair value of each of these investment securities
approximated its amortized cost.

Held-to-maturity securities are carried at
amortized cost, adjusted for amortization of premiums or
accretion of discounts. Such amortization and accretion is
included in interest income. Interest income is recognized when
earned. Realized gains and losses, and declines in value judged
to be other-than-temporary, are included in investment
securities gains (losses). There were no sales of investment
securities during 2002 and 2001. Maturities of investment
securities used to pay for property, plant and equipment are
reflected as investments drawn for property, plant and equipment
on the statement of cash flows.

The Partnership has recorded investments held by
Trustee that have been deposited in specific accounts to meet
debt service reserve and major maintenance reserve requirements
as required under the terms of the Trust Indenture, and
these investments are classified as current or non-current
assets based upon when the designated debt service and
maintenance requirements are payable.

The Trustee holds all of these investments and
the use of the proceeds from maturities is restricted under the
terms of the Trust Indenture.

43



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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                      
| | ---------------------
| | Spare Parts Inventory

Spare parts consist primarily of spare parts for
the Facilitys combustion turbines and are carried at the
lower of cost or market, cost determined using the first-in,
first-out method.



| |                 
| | ----------------
| | Prepaid Expenses

Prepaid expenses include prepaid property taxes
and insurance.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost.
Significant additions or improvements extending asset lives are
capitalized, while repairs and maintenance that do not improve
or extend the life of the respective asset are charged to
expense as incurred. Depreciation is computed using the
straight-line method. The assets and related accumulated
depreciation amounts are adjusted for asset retirements and
disposals with the resulting gain or loss included in
operations. The Partnership expenses all repair and maintenance
as incurred, including planned major maintenance.



| |                  
| | -----------------
| | Asset Impairments

Long-lived assets and intangibles that are held
and used are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. Such reviews are performed in accordance
with SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, (SFAS NO. 144) in
2002 and SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SFAS No. 121) in prior years. An
impairment loss is recognized if the total future estimated
undiscounted cash flows expected from an asset is less than its
carrying value. An impairment charge is measured by the
difference between an assets carrying amount and fair
value. Fair values are determined by a variety of valuation
methods, including appraisals, sales prices of similar assets
and present value techniques.



| |                                      
| | -------------------------------------
| | Debt Issuance and Financing
    Costs

The Partnership amortizes deferred debt issuance
and financing costs as interest expense on a basis which
approximates the effective interest method over the terms of the
related debt.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The carrying amount of cash and cash equivalents,
receivables, accounts payables and accrued liabilities
approximate fair value because of the short maturity of these
instruments. The fair value of long-term debt is estimated based
on quoted market prices.



| |                     
| | --------------------
| | Comprehensive Income

For all periods, net income is equal to
comprehensive income as there were no additional items impacting
comprehensive income for these years.



| |                    
| | -------------------
| | Revenue Recognition

Revenues are recorded based on capacity provided
and electrical output delivered at the lesser of amounts
billable under the power purchase contracts or the average
estimated contract rates over the initial term of the power
purchase contracts pursuant to their terms and conditions.
Transmission service credit revenues are recognized when actual
cash is received.

44



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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                              
| | -----------------------------
| | Concentrations of Credit Risk

Financial instruments that potentially subject
the Partnership to concentrations of credit risk consist
primarily of cash and accounts receivable. Cash accounts are
generally held in federally insured banks. Accounts receivable
are concentrated within entities engaged in the energy industry.
These industry concentrations may impact the Partnerships
overall exposure to credit risk, either positively or
negatively, in that the customers may be similarly affected by
changes in economic, industry or other conditions. Receivables
are generally not collateralized.



| |             
| | ------------
| | Income Taxes

The Partnership is not an income tax paying
entity as income taxes are assessed at the partner level. The
financial statements of the partnership do not reflect any
income tax effects.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations.
This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs.
SFAS No. 143 requires an entity to recognize the fair
value of a liability for an asset retirement obligation in the
period in which it is incurred. The liability is initially
capitalized as part of the cost of the related tangible
long-lived asset and thus depreciated over the assets
useful life. Accretion of the liabilities due to the passage of
time will be an operating expense. Retirement obligations
associated with long-lived assets included within the scope of
SFAS No. 143 are those for which a legal obligation
exists under enacted laws and statutes written or oral
contracts, including obligations arising under the doctrine of
promissory estoppel. The Partnership is required to adopt
SFAS No. 143 on January 1, 2003. The Partnership
is in the process of evaluating the impact of adopting
SFAS No. 143 on its financial condition.

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections, that supersedes previous
guidance for the reporting of gains and losses from
extinguishment of debt and accounting for leases, among other
things. SFAS No. 145 requires that only gains and
losses from the extinguishment of debt that meet the
requirements for classification as Extraordinary
Items, as prescribed in Accounting Practices Board Opinion
No. 30, should be disclosed as such in the financial
statements. Previous guidance required all gains and losses from
the extinguishment of debt to be classified as
Extraordinary Items. This portion of
SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002, with restatement of prior periods
required. The Partnership has no extraordinary gains or losses
resulting from extinguishment of debt during the three years
ended December 31, 2002, that will require restatement upon
adoption of this part of the statement.

In addition, SFAS No. 145 amends
SFAS No. 13, Accounting for Leases,
asit relates to accounting by a lessee for certain lease
modifications. Under SFAS No. 13, if a capital lease
is modified in such a way that the change gives rise to a new
agreement classified as an operating lease, the assets and
obligation are removed, a gain or loss is recognized and the new
lease is accounted for as an operating lease. Under
SFAS No. 145, capital leases that are modified so the
resulting lease agreement is classified as an operating lease
are to be accounted for under the sale-leaseback provisions of
SFAS No. 98, Accounting for Leases.
These provisions of SFAS No. 145 were effective for
transactions occurring after May 15, 2002. Adoption of
SFAS No. 145 is not expected to have a material impact
on the Partnership.

In June 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities,
(SFAS No. 146), SFAS No. 146 addresses
financial accounting and reporting for costs associated with
exit or disposal activities and nullifies EITF Issue
No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring).

45



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##### Table of Contents



LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

SFAS No. 146 applies to costs
associated with an exit activity that does not involve an entity
newly acquired in a business combination or with a disposal
activity covered by SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.
The provisions of SFAS No. 146 are effective for exit
or disposal activities that are initiated after
December 31, 2002.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The initial
recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002,
irrespective of the guarantors fiscal year-end. The
disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15,
2002. The interpretation addresses the disclosures to be made by
a guarantor in its interim and annual financial statements about
its obligations under guarantees. The interpretation also
clarifies the requirements related to the recognition of a
liability by a guarantor at the inception of the guarantee for
the obligations the guarantor has undertaken in issuing the
guarantee.

In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN No. 46). FIN No. 46
requires an enterprises consolidated financial statements
to include subsidiaries in which the enterprise has a
controlling interest. Historically, that requirement has been
applied to subsidiaries in which an enterprise has a majority
voting interest, but in many circumstances the enterprises
consolidated financial statements do not include the
consolidation of variable interest entities with which it has
similar relationships but no majority voting interest. Under FIN
No. 46 the voting interest approach is not effective in
identifying controlling financial interest. Assets of entities
consolidated upon adoption of the new standard will be initially
recorded at their carrying amounts at the date the requirements
of the new rule first apply. If determining carrying amounts as
required is impractical, then the assets are to be measured at
fair value the first date the new rule applies. Any difference
between the net amount of any previously recognized interest in
the newly consolidated entity should be recognized as the
cumulative effect of an accounting change. FIN No. 46
becomes effective in the third quarter of 2003. Fin No. 46
is not expected to have a significant impact on the Partnership.

Note 3  Property, Plant
and Equipment

Property, plant and equipment are stated at cost.
Depreciation is computed on a straight-line basis over the
estimated useful life of 30 years.

Property, plant and equipment consists of the
following:

|                                    |  |                |         |              |  |   |         |  
|----------------------------------- |  | -------------- | ------- | ------------ |  | - | ------- | -
|                                    |  | December 31,   |         | December 31,
|                                    |  | 2002           |         | 2001        
|                                    |  |                |         |             
|                                    |  |               
|                                    |  | (In thousands)
|Land                                |  | $              | 678     |              |  | $ | 673     |  
|Facilities, machinery and equipment |  |                | 338,366 |              |  |   | 336,200 |  
|Less: Accumulated depreciation      |  |                | (32,126 | )            |  |   | (19,827 | )
|                                    |  |                |         |              |  |   |         |  
|Property, plant and equipment (net) |  | $              | 306,918 |              |  | $ | 317,046 |  
|                                    |  |                |         |              |  |   |         |  

Certain components within the facility will
require replacement or overhaul at various times during the
estimated life of the plant. These components are being
depreciated using the straight-line method over their estimated
useful lives ranging from two to twelve years. The cost of
replacements and overhaul of these components is capitalized and
depreciated over their estimated useful lives. Routine
maintenance and repairs are charged to expense as incurred.

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##### Table of Contents



LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 4  Financing

Effective August 28, 1998, the Partnership
entered into agreements with a financial institution (the
Bank), that provided for financing in the amount of
$180,000,000 (the Tranche A Credit Facility).
Borrowings from this financing were used for the development and
construction of the Facility. These agreements also contemplated
circumstances under which LSP Batesville Funding Corporation
(Funding) and Holding would enter into agreements
whereby they would issue bonds in the amounts of $100,000,000
(the Tranche B Bond Facility) and $50,000,000
(the Tranche C Bond Facility), respectively, in
order to further finance the construction of the facility. The
terms and conditions of the Tranche B Bond Facility and
Tranche C Bond Facility were set forth in a letter
agreement (the Letter Agreement) entered into among
the Partnership, Holding and Funding (collectively, the
Borrowers) and the Bank. Bonds under the
Tranche B Bond Facility and Tranche C Bond Facility
were never issued.

Pursuant to the Letter Agreement, the Borrowers
and the Bank, as underwriter, also agreed to pursue a capital
markets offering during the last quarter of 1998. However, due
to unfavorable capital markets conditions, the capital markets
offering was not completed. Alternatively, on December 15,
1998, the Partnership amended and restated the financing
agreements entered into on August 28, 1998. The amended and
restated agreements provided for financing in the amount of
$305,000,000. The new financing consisted of a $305,000,000
three-year loan facility (the Bank Credit Facility)
entered into among the Partnership and a consortium of banks.

A common agreement (the Common
Agreement) tied all of the financing agreements together
and set forth, among other things: (a) terms and conditions
upon which loans and disbursements were to be made under the
Bank Credit Facility; (b) the mechanism for which loan
proceeds, operating revenues, equity contributions and other
amounts received by the Partnership were disbursed to pay
construction costs, operations and maintenance costs, debt
service and other amounts due from the Partnership; (c) the
conditions which had to be satisfied prior to making
distributions from the Partnership; and (d) the covenants
and reporting requirements the Partnership was required to be in
compliance with during the term of the Common Agreement.

The Common Agreement prohibited the Partnership
from making any distributions to its partners while loans made
under the Bank Credit Facility were outstanding.

The Common Agreement also required the
Partnership to set aside cash reserves for the cost of
performing periodic major maintenance on the Facility, including
turbine overhauls, and the credit support, if any, that the
Partnership is required to provide to Aquila under the Aquila
PPA.

Effective August 28, 1998, the Partnership
entered into a Letter of Credit and Reimbursement Agreement (the
LOC Agreement) with the Bank that provides for
letter of credit commitments aggregating $16,980,000. The LOC
Agreement provides for the Bank to issue three separate letters
of credit (Letter of Credit A, Letter of
Credit B and Letter of Credit C).
The letters of credit will be used to provide security in favor
of Dominion to support the Partnerships obligations under
the Dominion PPA. The LOC Agreement requires the Partnership to
pay commitment fees quarterly in arrears, at varying rates on
each letter of credit commitment until the expiration of each
letter of credit commitment. The Partnership is required to
reimburse the Bank for any drawings made by Dominion under the
letters of credit.

The Bank had issued Letter of Credit A and
Letter of Credit B each in the amount of $5,660,000 as
security for the Partnerships potential incremental
replacement power obligation under the Dominion PPA until the
earlier of June 1, 2000 and the commercial operations date.
On July 21, 2000, Dominion issued a draw of approximately
$4,650,000 on each of Letter of Credit A and Letter of
Credit B (see Note 4). The draws on Letter of
Credit A and Letter of Credit B each converted into
5-year loans (LOC Loans). Principal amounts under
each LOC loan were repayable in 20 equal quarterly installments
of approximately $232,487 on each March 31, June 30,
September 30, and December 31 commencing on the first
such date

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

subsequent to the commercial operations date of
the Dominion Units. On September 30, 2000, the Partnership
made principal payments under the LOC Loans aggregating
approximately $464,974. During 2000, the Partnership paid
approximately $307,000 in interest on the LOC Loans, Dominion
reimbursed the Partnership approximately $198,000 of such
interest on the LOC loans. Interest on the outstanding LOC Loans
was based on 1.50% to 1.625% above the selected London Interbank
Offered Rate (LIBOR) term of one month. On
December 13, 2000, Dominion repaid the Partnerships
outstanding LOC loans of $9,300,000 in full.

Letter of Credit C was issued in the amount
of $5,660,000 on the commercial operations date of the Dominion
Units as security for the Partnerships future obligations
under the Dominion PPA.

On May 21, 1999, the Partnership and Funding
issued two series of Senior Secured Bonds (the
Bonds) in the following total principal amounts:
$150,000,00 7.164% Series A Senior Secured Bonds due 2014
and $176,000,000 8.160% Series B Senior Secured Bonds due
2025. Interest is payable semi-annually on each January 15
and July 15, commencing January 15, 2000, to the
holders of record on the immediately proceeding January 1
and July 1. As of December 31, 2002, there remains
$314.3 million of outstanding bonds. The Partnerships
secured bonds currently carry a rating of B at S&P and B1 at
Moodys. The interest rate on the Bonds may be increased
under the circumstances described below.

A portion of the proceeds from the issuance of
the Bonds was used to repay the $136,000,000 of outstanding
loans under the Bank Credit Facility. The remaining proceeds
from the issuance of the Bonds were used to pay a portion of the
costs of completing the Facility.

Effective May 21, 1999, the Common Agreement
was amended and restated in connection with the issuance of the
Bonds (the Amended and Restated Common Agreement).
The Amended and Restated Common Agreement sets forth, among
other things: (a) the mechanism by which Bond proceeds,
operating revenues, equity contributions and other amounts
received by the Partnership are disbursed to pay construction
costs, operations and maintenance costs, debt service and other
amounts due from the Partnership and (b) the conditions
which must be satisfied prior to making distributions from the
Partnership.

The Amended and Restated Common Agreement
provides that the following conditions must be satisfied before
making distributions from the Partnership to its partners:
(1) the Partnership must have made all required
disbursements to pay operating and maintenance expenses,
management fees and expenses and debt service; (2) the
Partnership must have set aside sufficient reserves to pay
principal and interest payments on the Exchange Bonds and its
other senior secured debt; (3) there cannot exist any
default or event of default under the Trust Indenture for
the Exchange Bonds; (4) the Partnerships historical
and projected debt service coverage ratios must equal or exceed
the required levels; (5) the Partnership must have
sufficient funds in its accounts to meet its ongoing working
capital needs; (6) the Facility must be complete; and
(7) the distributions must be made after the last business
day of September 2000.

The Amended and Restated Common Agreement
requires that the Partnership set aside reserves for:
(1) payments of scheduled principal and interest on the
Exchange Bonds and other senior secured debt of the Partnership
and the Funding Corporation; (2) the cost of performing
periodic major maintenance on the Facility, including turbine
overhauls; and (3) the credit support, if any, that the
Partnership is required to provide to Aquila under the Aquila
PPA. As of December 31, 2001 and 2002, the Partnership has
funded reserve accounts for scheduled principal and interest on
the Exchange Bonds and periodic major maintenance on the
Facility in the amounts of $24.4 million and
$24.9 million, respectively. Such reserve accounts are
reflected as Investments held by Trustee-restricted on the
accompanying December 31, 2002 balance sheet.

The Partnership and Funding filed a registration
statement with the Securities and Exchange Commission (the
SEC) for a registered offer to exchange the Bonds
for two series of debt securities (the Exchange
Bonds) which are in all material respects substantially
identical to the Bonds. The registration statement became
effective on March 7, 2000. Upon such registration becoming
effective, the Partnership and Funding

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##### Table of Contents



LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

offered the Exchange Bonds in return for
surrender of the Bonds. Interest on each Exchange Bond accrued
from January 15, 2000, the last date interest on the
surrendered Bonds was paid.

Principal payments are payable on each
January 15 and July 15, commencing on July 15,
2001. Scheduled maturities of the Exchange Bonds are as follows:

|           |  |         |             | 
|---------- |  | ------- | ----------- | 
|           |  | Amounts
|           |  |        
|2003       |  | $       | 7,125,000   | 
|2004       |  |         | 7,575,000   | 
|2005       |  |         | 9,600,000   | 
|2006       |  |         | 11,925,000  | 
|2007       |  |         | 12,525,000  | 
|Thereafter |  |         | 265,550,000 | 
|           |  |         |             | 
|Total      |  | $       | 314,300,000 | 
|           |  |         |             | 

The Exchange Bonds are secured by substantially
all of the personal property and contract rights of the
Partnership and Funding. In addition, Holding and Energy have
pledged all of their interests in the Partnership, and Holding
has pledged all of the common stock of Energy and all of the
common stock of Funding.

The Exchange Bonds are senior secured obligations
of the Partnership and Funding, rank equivalent in right of
payment to all other senior secured obligations of the
Partnership and Funding and rank senior in right of payment to
all existing and future subordinated debt of the Partnership and
Funding.

The Exchange Bonds are redeemable, at the option
of the Partnership and Funding, at any time in whole or from
time to time in part, on not less than 30 nor more than
60 days prior notice to the holders of that series of
Exchange Bonds, on any date prior to its maturity at a
redemption price equal to 101% of the outstanding principal
amount of the Exchange Bonds being redeemed, plus accrued and
unpaid interest on the Exchange Bonds being redeemed and a
make-whole premium. In no event will the redemption price ever
be less than 100% of the principal amount of the Exchange Bonds
being redeemed plus accrued and unpaid interest thereon.

The Exchange Bonds are redeemable at the option
of the bondholders if funds remain on deposit in the
distribution account for at least 12 months in a row, and
the Partnership and Funding cause the bondholders to vote on
whether the Partnership and Funding should use those funds to
redeem the Exchange Bonds, and holders of at least 66 2/3%
of the outstanding Bonds vote to require the Partnership and
Funding to use those funds to redeem the Exchange Bonds. If the
Partnership is required to redeem Bonds with those funds, then
the redemption price will be 100% of the principal amount of the
Exchange Bonds being redeemed plus accrued and unpaid interest
on the Exchange Bonds being redeemed. In addition, if LS Power,
LLC, Cogentrix Energy, Inc. and/or any qualified transferee
collectively cease to own, directly or indirectly, at least 51%
of the capital stock of Energy (unless any or all of them
maintain management control of the Partnership), or LS Power,
LLC, Cogentrix Energy, Inc. and/or any qualified transferee
collectively cease to own, directly or indirectly, at least 10%
of the ownership in the Partnership, then the Partnership and
Funding must offer to purchase all of the Exchange Bonds at a
purchase price equal to 101% of the outstanding principal amount
of the Exchange Bonds plus accrued and unpaid interest unless
the Partnership and Funding receive a confirmation of the then
current ratings of the Bonds or at least 66 2/3% of the
holders of the outstanding Bonds approve the change in ownership.

The Trust Indenture for the Exchange Bonds
(the Trust Indenture) entered into among the
Partnership, Funding and The Bank of New York, as Trustee (the
Trustee) contains covenants including, among others,
limitations and restrictions relating to additional debt other
than the Exchange Bonds,

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Partnership distributions, new and existing
agreements, disposition of assets, and other activities. The
Trust Indenture also describes events of default which
include, among others, events involving bankruptcy of the
Partnership or Funding, failure to make any payment of interest
or principal on the Exchange Bonds and failure to perform or
observe in any material respect any covenant or agreement
contained in the Trust Indenture. The Partnership is
currently restricted from making distributions to LSP Batesville
Holding, LLC as a result of insufficient Debt Coverage Service
Ratio.

Note 5  Facility
Contracts

On May 18, 1998, the Partnership entered
into the Dominion PPA. Under the terms of the Dominion PPA, the
Partnership is obligated to sell, and Dominion is obligated to
purchase, approximately 558 megawatts of electrical capacity and
dispatchable energy generated from two of the three Combined
Cycle Units (Unit or Units) at the
Facility at prices set forth in the Dominion PPA. The initial
term of the Dominion PPA is thirteen years, beginning on
June 1, 2000. Dominion has the option of extending the term
of the Dominion PPA for an additional twelve years by providing
the Partnership written notice at least two years prior to the
expiration of the initial term. The extended term may be
terminated at any time by Dominion with 18 months prior
notice to the Partnership.

The Dominion PPA specified an energy delivery
milestone deadline of June 1, 2000 for the Dominion Unit.
On August 9, 2000, the energy delivery milestone for the
Dominion Units was achieved. As a result of the delay in
achieving the energy delivery milestone, the Partnership was
potentially responsible for the cost of incremental replacement
power during the period of delay, subject to a maximum of
$20 per kilowatt ($5,660,000) of committed capacity from
each Dominion Unit. The Partnership issued two letters of credit
each in the amount of $5,660,000 as security for this
obligation. Dominion claimed that the Partnership was
responsible for an aggregate amount of approximately $9,300,000
of incremental replacement power costs for the period
June 1, 2000 through July 19, 2000 and had drawn
approximately $4,650,000 on each of the two letters of credit.
The draws on the letters of credit each converted into 5-year
loans. The Partnership disputed the validity of the draws on the
two letters of credit, the amount of the incremental replacement
power costs and the methodology used by Dominion to calculate
the incremental replacement power costs, including the failure
by Dominion to acknowledge the force majeure events notice
issued by the Partnership to Dominion claiming delays of the
energy delivery milestone date of June 1, 2000, under the
Dominion PPA as a result of transportation delays in the
delivery of one of the Dominion Units steam turbine
generator to the Facility. The Partnership claimed a 21-day
delay in the energy delivery milestone date for the first
Dominion Unit and a 9-day delay in the energy delivery milestone
date for the second Dominion Unit. In connection with this
dispute, and as a result of the draw on the letters of credit,
the Partnership issued a notice of default to Dominion. In
response to this notice of default, on August 17, 2000,
Dominion repaid the Partnership accrued interest on the letter
of credit loans through August 31, 2000 and placed an
amount equal to the draws on the two letters of credit into an
escrow account pursuant to an escrow agreement dated
August 17, 2000 among Dominion, the Partnership and the
Chase Manhattan Bank, as escrow agent, (the Escrow
Agreement) pending final resolution of this dispute.

On December 13, 2000, the Partnership and
Dominion entered into a settlement agreement (Settlement
Agreement) relating to certain matters occurring or
failing to occur prior to the date of the Settlement Agreement,
including failure to achieve the energy delivery milestone and
the force majeure claim as described above. Effective with the
Settlement Agreement, the Escrow Agreement was terminated and
the outstanding LOC loans of $9,300,000 were repaid in full.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

On December 13, 2000, the Partnership and
Dominion entered into the Fourth Amendment to the Dominion PPA
(the Fourth Amendment). The following is a brief
description of the significant provisions contained within the
Fourth Amendment:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Additional energy
    payment  The Dominion PPA specifies a monthly
    energy payment based on the amount of electricity delivered to
    Dominion and an energy rate. The energy rate is $1.00 per
    megawatt-hour escalated by 3% per year. Under the terms of
    the Fourth Amendment, an additional energy payment ranging from
    $.30 per megawatt-hour to $1 per megawatt-hour based
    upon the average number of operating hours per start for the
    month will be earned by the Partnership. The lower the average
    operating hours per start the higher the additional energy
    payment. Both the energy payment and the additional energy
    payment are escalated by 3% per year.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (b) Reservation payment
    adjustment  The reservation payment for each
    month of the initial term of the Dominion PPA will be reduced by
    approximately $23,500 for each of the two Dominion Units, for a
    total monthly reduction of approximately $47,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (c) The Fourth Amendment establishes the
    Batesville control area as an authorized control center and
    clarified some of the provisions of the Dominion PPA as they
    relate to forced outage hours and imbalance charges. Dominion
    will hold the Partnership harmless from costs associated with
    Dominions control area redesignation and will pay for
    additional work performed by the Partnership related to the
    control center. Such costs would include any charges imposed by
    the Tennessee Valley Authority (TVA) or Entergy
    Mississippi, Inc. (Entergy) to bring about the
    change in control center. Deviation bands were established to
    limit the Partnerships responsibility for forced outage
    hours when the Batesville control area is the designated control
    area. In exchange, Dominion was provided the ability to elect
    that the Partnership share responsibility for imbalance charges
    assessed by TVA or Entergy in lieu of accumulating forced outage
    hours for mismatches in generation in the event Dominion elects
    to disestablish the Batesville control area.
|
| | (d) The Partnership agreed to include CMS
    Trunkline as a valid interstate pipeline under the Dominion PPA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Under the terms of the Dominion PPA, Dominion
provided natural gas for the testing and commissioning of each
of its Units. The Partnership was obligated to reimburse
Dominion for the delivered cost of such natural gas. The
Partnership purchased approximately $7,375,000 of natural gas
from Dominion for the testing and commissioning of each of its
Units.

The terms of the Dominion PPA, as amended,
require Dominion to make payments to the Partnership including a
reservation payment, an energy payment, an additional energy
payment, a start-up payment, a system upgrade payment and a
guaranteed heat rate payment.

The reservation payment is a monthly payment
based on the tested capacity of each Dominion Unit adjusted to
specific ambient conditions and the applicable reservation
charge. The standard capacity reservation charge is
$5.00 per megawatt per month, $6.00 per megawatt per
month, and $4.50 per megawatt per month for contract years
1-5, 6-13, and 14-25, respectively. The supplemental (or
augmented) capacity reservation charge is $3.25 per
megawatt per month, $3.50 per megawatt per month, and
$3.00 per megawatt per month for contract years 1-5, 6-13,
and 14-25, respectively. The reservation payment may be adjusted
downward due to low Unit reliability or availability. However,
in the event of an extended forced outage the Partnership may
elect to pay for or provide Dominion with replacement power and,
thereby, avoid a reduction in the reservation payment due to
reduced availability. The Partnership invoiced Dominion
approximately $28.1 million, $31.9 million and
$12.0 million for reservation payments for fiscal years
2002 and 2001 and the period from commercial operation date
through December 31, 2000, respectively. Under the terms of
the Fourth Amendment, reservation payments for each month of the
initial term was reduced by approximately $23,500 for each of
the two Dominion Units, for a total monthly reduction of
approximately $47,000.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Beginning in 2001 and through the end of the
initial term the total reservation payment due from Dominion
will be reduced by approximately $47,000 per month.

Due to the unavailability of testing data at the
time of commercial operation of the Dominion units, Dominion and
the Partnership agreed to fix the standard and supplemental
capacities of the Dominion Units under the power purchase
agreement at 243 megawatts and 40 megawatts,
respectively. The Partnership committed to retest for the
standard capacity and supplemental capacity of the Dominion
units by September 30, 2000 and November 30, 2000,
respectively. However due to the combustion turbine
manufacturers 80% load limitation, as described below, the
retests were not conducted until after the removal of such
advisory. The retests for Dominion Unit No. 1 and Dominion
Unit No. 2 were completed on January 19, 2001 and
December 22, 2000, respectively. As a result of the retests
the standard capacity and supplemental capacity of Dominion Unit
No. 1 were adjusted to 243 megawatts and
38 megawatts, respectively, and the standard capacity and
supplemental capacity of Dominion Unit No. 2 were adjusted
to 242 megawatts and 39 megawatts, respectively. The
results of the standard and supplemental capacity tests became
effective on the first day following the completion of such
retests.

The energy payment is a monthly payment based on
the amount of electricity delivered to Dominion and an energy
rate. The energy rate is $1.00 per megawatt-hour plus an
additional energy payment ranging from $.30 to $1.00 per
megawatt-hour. Both Energy payment and the additional energy
payment are escalated by 3% per year. The Partnership
invoiced Dominion approximately $1.0 million,
$1.2 million and $0.3 million for energy payments for
fiscal year 2002, 2001 and the period from the commercial
operations date through December 31, 2000, respectively.

The start-up payment is a monthly payment based
on the number of starts for each Dominion Unit in excess of
250 per year and a start-up charge. The start charge is
equal to $5,000 per Unit per start in excess of
250 starts per year. There were no start up payments earned
during fiscal years 2002, 2001 or the period from the commercial
operations date through December 31, 2000.

The system upgrade payment is a monthly payment
based on Dominions receipt of a credit or discount for
transmission service from the TVA and Entergy due to the
Partnerships payment for system upgrades on TVAs or
Entergys transmission systems. The system upgrade payment
is due only to the extent that Dominion receives such
transmission service credit or discount. As of December 31,
2002, 2001 and 2000, Dominion has received no credit or discount
from TVA or Entergy for use of the TVA and Entergy transmission
system upgrades. TVA and Entergy have been collecting the
transmission service fees and have been providing the system
upgrade payments directly to the Partnership as described below.

The guaranteed heat rate payment is a monthly
payment based on the difference between the actual operating
efficiency of the Dominion Units and the operating efficiency
that the Partnership has guaranteed. If the actual operating
efficiency of the Dominion Units is higher than the operating
efficiency that the Partnership has guaranteed, Dominion is
required to pay the Partnership the fuel cost savings that
resulted from such higher efficiency. If the actual operating
efficiency of the Dominion Units is lower than the operating
efficiency that the Partnership has guaranteed, the Partnership
is required to pay Dominion the fuel cost expense that resulted
from such lower efficiency. During fiscal year 2002, 2001 and
the period from the date of commercial operations through
December 31, 2000, the Partnership was charged
approximately $117,000, $101,000 and $62,000, respectively, by
Dominion, relating to the guaranteed heat rate.

The Dominion PPA is a tolling arrangement,
whereby Dominion is obligated to supply natural gas to each
Dominion Unit. Dominion is obligated to arrange, procure,
nominate, balance, transport and deliver to the Facilitys
lateral pipeline the amount of fuel necessary for each Dominion
Unit to generate its net electrical output.

The Dominion PPA requires the Partnership and
Dominion to work together to develop an annual schedule for the
maintenance based upon Dominions projected dispatch
schedule. The Partnership has agreed

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

not to schedule maintenance during the months of
June, July, August, September, January and February without
Dominions consent.

On May 21, 1998, the Partnership entered
into the Aquila PPA. Under the terms of the Aquila PPA, the
Partnership is obligated to sell, and Aquila is obligated to
purchase, approximately 281 megawatts of electrical
capacity and dispatchable energy generated from one of the three
Units at the Facility at prices set forth in the Aquila PPA.
Utilicorp has appointed Aquila as its agent under the Aquila
PPA. The initial term of the Aquila PPA is fifteen years and
seven months, beginning on June 1, 2000. Aquila has the
option of extending the term of the Aquila PPA for an additional
five years by providing the Partnership written notice by the
later of July 2013 or twenty-nine months prior to the expiration
of the initial term.

The Aquila PPA specified an energy delivery
milestone deadline of June 1, 2000 for the Aquila Unit. On
August 8, 2000, the energy delivery milestone of the Aquila
Unit was achieved. During the period of delay, the Partnership
had the option of electing to incur an adjustment to the
reservation payment to be received under the Aquila PPA or to be
responsible for the incremental replacement power costs during
the period of delay. The Partnership elected to incur an
adjustment to the reservation payments to be received under the
Aquila PPA. The adjustment to the future reservation payments
was determined by contract capacity, the duration of delay and a
percentage factor for the month in which the delay occurred. As
a result of the delay in achieving the energy delivery
milestone, the reduction in reservation payments received for
the period from the commercial operations date through
December 31, 2000 approximated $1,335,000. The delay which
caused the aforementioned reduction in reservation payments will
have no impact on reservation payments earned under the Aquila
PPA subsequent to December 31, 2000.

Under the terms of the Aquila PPA, Aquila
provided natural gas for the testing and commissioning of its
Unit. The Partnership was obligated to reimburse Aquila for the
delivered cost of such natural gas. The Partnership purchased
approximately $4,602,000 of natural gas from Aquila for the
testing and commissioning of its Unit.

Under the terms of the Aquila PPA, Aquila acted
as the Partnerships agent for the purpose of marketing and
selling test energy generated during the testing and
commissioning of the Aquila Unit. In return for Aquilas
services, the Partnership was obligated to pay Aquila a
marketing fee equal to $0.25 per MW hour of test energy
sold plus a reimbursement for any reasonable costs related to
the sale of such test energy. For the period from May 23,
2000 through the commercial operations date under the Aquila
PPA, the Partnership recorded approximately $2,940,000, net of
related marketing fees, from the sale of test energy during
construction under this arrangement with Aquila.

The terms of the Aquila PPA require Aquila to
make payments to the Partnership including a reservation
payment, an energy payment, a start-up payment, a system upgrade
payment and a guaranteed heat rate payment.

The reservation payment is a monthly payment
based on the tested contract capacity of each Aquila Unit
adjusted to specific ambient conditions and the applicable
reservation charge. The capacity reservation charge for all
contract capacity up to 267-megawatts is $4.90 per megawatt
per month for the first 60 months and $5.00 per
megawatt per month thereafter. The capacity reservation charge
for all capacity in excess of 267-megawatts is $2.50 per
megawatt per month through the term of the Aquila PPA. The
reservation payment may be adjusted downward due to low Unit
reliability or availability. However, in the event of an
extended forced outage the Partnership may elect to pay for or
provide Aquila with replacement power and, thereby, avoid a
reduction in the reservation payment due to reduced
availability. The Partnership invoiced Aquila approximately
$16.0 million, $15.9 million and $6.0 million for
reservation payments during fiscal years 2002, 2001 and for the
period from commercial operations through December 31,
2000, respectively. The amount for fiscal year 2000 was then
reduced by a delay adjustment of approximately $1.3 million.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Due to the unavailability of testing data at the
time of commercial operation of the Aquila Unit, Aquila and the
Partnership agreed to fix the standard and supplemental
capacities of the Aquila Units under the power purchase
agreement at 243 megawatts and 38 megawatts,
respectively. The Partnership, committed to retest for the
standard and supplemental capacity of the Aquila Unit by
November 30, 2000. However, due to the combustion turbine
manufacturers 80% load limitation, as described below, the
Partnership was not able to perform the retests on or before
November 30, 2000. The retests were completed on
February 12, 2001. As a result of the retests the contract
capacity and surplus supplemental capacity were adjusted to
267 megawatts and 14 megawatts, respectively. The
results of such tests became effective on February 13, 2001.

The energy payment is a monthly payment based on
the amount of electricity delivered to Aquila and an energy
rate. The energy rate is $1.00 per megawatt-hour escalated
by the rate of change in the gross domestic product implicit
price deflator index.

The start-up payment is a monthly payment based
on the number of starts for the Aquila Unit is excess of
200 per year and a start charge. The start charge is equal
to $5,000 per Unit per start.

The system upgrade payment is a monthly payment
based on Aquilas receipt of a credit or discount for
transmission service from TVA or Entergy due to the
Partnerships payment for system upgrades on TVAs or
Entergys transmission systems. The system upgrade payment
is due only to the extent that Aquila receives such transmission
service credit or discount. As of the end of December 2000,
Aquila had received no credit or discount from TVA or Entergy
for use of the TVA and Entergy transmission system upgrades. TVA
and Entergy have been collecting the transmission service fees
and have been providing the system upgrade payment directly to
the Partnership as described below.

The guaranteed heat rate payment is a monthly
payment based on the difference between the actual operating
efficiency of the Aquila Unit and the operating efficiency that
the Partnership has guaranteed. If the actual operating
efficiency of the Aquila Unit is higher than the operating
efficiency that the Partnership has guaranteed, Aquila is
required to pay the Partnership the fuel cost savings that
resulted from such higher efficiency. If the actual operating
efficiency of the Aquila Units is lower than the operating
efficiency that the Partnership has guaranteed, the Partnership
is required to pay Aquila the fuel cost expense that resulted
from such lower efficiency.

The Aquila PPA is a tolling arrangement, whereby
Aquila is obligated to supply natural gas to the Aquila Unit.
Aquila is obligated to arrange, procure, nominate, balance,
transport and deliver to the Facilitys lateral pipeline
the amount of fuel necessary for the Aquila Unit to generate its
net electrical output.

The Aquila PPA requires the Partnership and
Aquila to work together to develop an annual schedule for the
maintenance of the Aquila Unit based upon Aquilas
projected dispatch schedule. The Partnership has agreed not to
schedule maintenance during the period from June 15 through
September 15 of any calendar year without Aquilas
consent.

The Partnership is entitled to receive
transmission system upgrade credits in the amount of incremental
revenue received by the TVA and Energy for transmission services
procured for the delivery of energy from the Facility.

On July 22, 1998, the Partnership entered
into a $241 million fixed price Turnkey Engineering,
Procurement and Construction Contract (Construction
Agreement), including change orders, with BVZ Power
Partners/ Batesville (BVZ), a joint venture formed
by H.B. Zachary Company and a subsidiary of Black &
Veatch, LLP. The obligations of BVZ are guaranteed by
Black & Veatch, LLP and the entire Construction
Agreement is backed by a performance bond. Under the terms of
the Construction Agreement, BVZ had committed to develop and
construct the Facility subject to the terms, deadlines and
conditions set forth in the Construction Agreement. In the event
the construction and start-up to specified performance levels of
the two Dominion Units and the Aquila Unit had not occurred on
or prior to August 2, 2000, July 31,

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

2000 and July 31, 2000, as adjusted under
the terms of the Construction Agreement (Guaranteed
Completion Dates), respectively, then BVZ would be
required under the contract to pay liquidated damages, subject
to limits. The Guaranteed Completion Dates included extensions
as a result of; (1) the settlement of a force majeure
event, and (2) resolutions of issues related to the quality
of water provided by the Partnership. In addition, the
Partnership reimbursed BVZ approximately $325,000 of the costs
associated with the work performed on the water treatment system.

BVZ was required to pay delay liquidated damages
of $43,333 per day per Unit for failure to complete the
construction and start-up of any Unit to specified minimum
performance levels on or prior to one day after the Guaranteed
Completion Date. Based on the dates of completion of
construction and start-up of the Aquila Unit and the Dominion
Units, BVZ paid the Partnership approximately $693,000 of delay
liquidated damages. The delay liquidated damages did not fully
compensate the Partnership for the delay delivery adjustments
under the Aquila PPA or other costs associated with delays.

On September 18, 2000, the Partnership
received a technical advisory from the combustion turbine
manufacturer on which warned of the potential for hot gas
leakage from flanged connections within the turbine enclosure
and limited all three combustion turbines to 80% load. In
response to this technical advisory, the combustion turbine
manufacturer issued a product modification to upgrade the flange
connections and to install additional equipment monitors. Work
on the product modifications began before the end of November
2000 and all work was completed and the 80% load restriction was
removed by January 12, 2001.

During an inspection of the second Dominion
Units combustion turbine on May 9, 2000, damage to
the compressor blades was discovered. The combustion turbine
manufacturer was notified and additional technical support was
dispatched to the Facility to determine the cause and extent of
the damage and to assist in repairs. During the subsequent
investigation and inspection to determine the cause of the
damage, impact and/or rubbing damage were identified in each of
the 16 stages of the second Dominion Units
compressor. All compressor and combustion turbine repairs were
completed and the Unit resumed testing on June 12, 2000.
Excluding the costs incurred by the Partnership, the cost of the
repairs was approximately $1,698,080. Included in such amount is
approximately $595,000 of costs recovered by BVZ as a named
insured under the Partnerships insurance policy. These
costs were substantially covered through insurance. On
March 9, 2001, the Partnership submitted a claim of
approximately $1,675,000 to the insurance company. This amount
represents the direct costs and delay in opening costs incurred
by the Partnership as a result of the compressor damage.

The Partnership entered into electrical
interconnection agreements with Tennessee Valley Authority (the
TVA Interconnection Agreement) and with Entergy
Mississippi, Inc. (the Entergy Interconnection
Agreement and together with the TVA Interconnection
Agreement, the Interconnection Agreements).

The TVA Interconnection Agreement has a term of
thirty-five years, subject to certain amendments for regulatory
conformance on a non-discriminatory basis, which amendments
could be proposed by the Tennessee Valley Authority at any time
after five years from commencement of commercial operations. If
the Partnership and TVA fail to reach agreement on such
amendment within six months, TVA may terminate the TVA
Interconnection Agreement upon giving the Partnership one
years notice.

The TVA Interconnection Agreement provided for
the cost of the interconnection facilities of approximately
$4,730,000 and system upgrades of approximately $7,731,000 to be
paid by the Partnership. As of December 31, 2000, the
interconnection facilities and upgrades have been completed and
total costs incurred under the TVA Interconnection Agreement
were approximately $12,461,000. The Partnership is entitled to
receive system upgrade credits in the amount of incremental
revenue received by Tennessee Valley Authority for future
transmission services procured for the delivery of energy from
the Facility. The amount of such credits may not exceed the
total cost of the system upgrades of $7,731,000 paid for by the
Partnership.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Entergy Interconnection Agreement has a term
of thirty-five years from the date when the interconnection
facilities was completed, automatically extending for subsequent
five-year periods.

The Entergy Interconnection Agreement provided
for the cost of the interconnection facilities of approximately
$966,000 and system upgrades of approximately $6,560,000 to be
paid by the Partnership. As of December 31, 2000, the
interconnection facilities and system upgrades have been
completed and total costs incurred under the Entergy
Interconnection Agreement were approximately $7,526,000. The
Partnership is entitled to receive system upgrade credits in the
amounts of incremental revenue received by Entergy for future
transmission services procured for the delivery of energy from
the Facility. The amount of such credits may not exceed the
total cost of the system upgrades of $6,560,000 paid for by the
Partnership. Entergy completed repaying the system upgrade
credits in December 2001.

The Partnership entered into an interconnection
agreement with ANR Pipeline Company (ANR) dated
July 29, 1998 to establish an interconnection between the
ANR interstate natural gas pipeline system and the
Partnerships lateral natural gas pipeline. Each party was
required to design, engineer, and construct its portion of the
interconnection, own title to its interconnection and is
responsible for insuring those interests.

Under the terms of the interconnection agreement
the Partnership was required to reimburse ANR for all reasonable
costs, up to $250,000, incurred by ANR with respect to the
design, engineering, construction, testing and placing in
service of the ANR interconnection facilities. The Partnership
may also be required to reimburse ANR for, and hold ANR harmless
against, any incremental federal taxes that will be due by ANR
if the costs of the ANR interconnection facilities are deemed to
be a contribution in aid of construction under the Internal
Revenue Code. ANR must use commercially reasonable efforts to
minimize such costs.

Each party is generally responsible for the
operation, repair and replacement of its portion of the
interconnection facilities, and for all associated cost, expense
and risk. ANR operates and performs minor maintenance within the
capability of ANRs technicians on the gas measurement
equipment, operates, but does not maintain, that portion of the
Partnerships interconnection facilities located on ANR
owned land, and, in the case of an emergency involving the
Partnerships interconnection facilities, will take such
steps and incur such expense as ANR determines are necessary to
abate the emergency and to safeguard life and property. The
Partnership will reimburse ANR for all costs and expenses
incurred by ANR with respect to such emergencies.

All gas delivered by ANR to the Partnership at
the interconnection facilities must conform to specifications
set forth in ANRs tariff and is delivered at ANRs
prevailing line pressure. The Partnership and ANR must each make
reasonable efforts to control their respective prevailing line
pressure to permit gas to enter the Partnerships lateral
pipeline.

Custody of the gas transfers from ANR to the
Partnerships power purchasers after it passes through the
custody transfer point. The custody transfer point is located
where the ANR interconnection facilities and the
Partnerships interconnection facilities are connected. The
actual quantity of gas delivered by ANR to the Partnership is
determined using the recorded meter information at this custody
transfer point.

The ANR interconnection agreement is in full
force and effect until terminated by the mutual agreement of
both parties or the Partnerships final removal and/or
abandonment of the Partnerships interconnection
facilities. Upon notice, either party may terminate the ANR
interconnection agreement if the other party materially breaches
its obligations.

The Partnership entered into a facilities
agreement with Tennessee Gas Pipeline Company (Tennessee
Gas) dated June 23, 1998 to establish tap facilities
and connecting facilities for an interconnection between the
Tennessee Gas natural gas pipeline system and the
Partnerships lateral natural gas pipeline. Tennessee Gas
was required to design, engineer, install, construct, inspect,
test and own the tap facilities. The Partnership was required to
design, install, construct and test the connecting facilities.
Tennessee Gas has the right of

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

access to the connecting facilities installed by
the Partnership to install tap facilities and to inspect, test
and witness the Partnerships testing of the connecting
facilities. Each party was required to ensure its work under the
facilities agreement was in accordance with Tennessee Gass
design specifications, sound and prudent gas industry practice
and applicable laws.

Under the terms of the facilities agreement the
Partnership was required to reimburse Tennessee Gas for all
costs incurred by Tennessee Gas with respect to the design,
engineering, installation, construction and testing of the trap
facilities and any expenses incurred by Tennessee Gas with
respect to the installation of the connecting facilities.

Tennessee Gas is responsible for the operation,
repair, replacement and maintenance of the tap facilities, and
for all associated cost, expense and risk. The Partnership will
provide support for any regulatory authorization or permitting
requirements for the tap facilities. Tennessee Gas has the right
to inspect the connecting facilities at all reasonable times to
ensure that the facilities are installed, operated and
maintained correctly.

The Tennessee Gas interconnection agreement is in
full force and effect until the final removal and/or abandonment
of the tap facilities and connecting facilities, unless
terminated by the partnership or by Tennessee Gas as a result of
the Partnerships failure to make timely payments, if gas
has not flowed through the connecting facilities for the
previous period of 12 consecutive months or in the event
the Partnership has caused the connecting facilities to be
disconnected or removed. Tennessee Gas cannot cause the final
removal and/or abandonment of the tap facilities and connecting
facilities without approval of the Federal Energy Regulatory
Commission.

The Partnership entered into three contracts
aggregating approximately $9,164,000, including change orders
for the design and construction of an electrical substation and
transmission line system (the Partnerships
Interconnection Facilities). The Partnerships
Interconnection Facilities are designed to enable the
Partnership to deliver the output of the Facility to the
Tennessee Valley Authority and Entergy Mississippi, Inc.
interconnection facilities.

The Partnership entered into three contracts
aggregating approximately $18,686,000, including change orders
for the construction of the Facilitys gas lateral pipeline
and the pipelines through which the Facility receives water and
disposes of waste water (collectively the
Infrastructure). Pursuant to change orders effective
November 1, 1999, the Partnership transferred these
contracts to Panola County, Mississippi (Panola
County). As described more fully below, the Partnership
has leased the Infrastructure under terms which provide the
Partnership with the operational control and responsibility for
the Infrastructure, and with the use of the Infrastructure for
the full projected requirements of the Facility.

The Partnership entered into agreements with
State of Mississippi governmental entities. Under an
Inducement Agreement, (i) the State of
Mississippi agreed to issue general obligations bonds (the
Municipal Bonds) to finance the Infrastructure,
(ii) Panola Country (and ultimately the Industrial
Development Authority of Panola County (IDA)) agreed
to assume ownership of the Infrastructure, and (iii) the
Partnership agreed to operate and maintain both the Facility and
the Infrastructure. As contemplated by the inducement Agreement,
the Partnership has transferred to Panola County the
construction contracts relating to the Infrastructure and its
title to the Infrastructure together with permanent easements
and real estate rights relating to the Infrastructure sites. The
Partnership paid the cost of constructing the Infrastructure
until the State of Mississippi issued the Municipal Bonds to
finance the Infrastructure and these transfers had been made.
The State of Mississippi has reimbursed the Partnership for the
costs that it incurred for development and easement acquisition
activities and for the construction of the Infrastructure after
April 11, 1999 and has paid substantially all remaining
costs due under the Infrastructure contracts. The maximum
aggregate amount of costs paid by the State of Mississippi under
the Infrastructure contracts could not exceed

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

$17,000,000. As of December 31, 2000, the
State of Mississippi had expended approximately $16,159,000 of
such funds. The Partnership received approximately $14,278,000
in 1999 of these funds as a reimbursement.

Under the Inducement Agreement, the Partnership
must maintain the Facility and keep the Facility capable of
being operated other than during periods when the Facility is
not available because of maintenance or repair or for reasons
beyond the Partnerships control, and to perform the
Partnerships obligations under the other Infrastructure
agreements. In the event the Partnership fails to do so, the
Partnership would be responsible for paying to the State an
amount equal to (1) the outstanding principal amount of the
Municipal Bonds times a fraction the numerator of which is the
number of months remaining in the term of these bonds and the
denominator of which is the original number of months in the
term of these bonds plus (2) accrued interest on that
principal amount plus (3) the costs of redeeming these
bonds.

The Partnership entered into agreements with the
County and the IDA that allows the Partnership to use the
Infrastructure. The Partnership entered into one agreement with
respect to the natural gas lateral pipeline and one with respect
to the water supply and wastewater discharge systems. Each of
these agreements is in the form of a lease each with an initial
term of 30 years. In return for the Partnerships use
of the Infrastructure, the Partnership must operate and
maintain, or arrange for the operation and maintenance of, the
Infrastructure and to pay for all operation and maintenance
expenses. The operation and maintenance of the natural gas
lateral pipeline is currently performed by Reliant Energy
Pipeline Services, Inc. (Reliant) and the operation
of the water supply and wastewater discharge systems is
performed by LSP energy. The Partnership pays Reliant a monthly
fee of approximately $5,625 to maintain the natural gas lateral
pipeline. Maintenance of the water supply and wastewater
discharge systems is outsourced to a third party. The
Partnership pays Aquila Energy Marketing Corporation a monthly
fee of approximately $10,000 to manage the natural gas that
flows through the natural gas lateral pipeline. The Partnership
currently expects that the City of Batesville, Mississippi will
be an additional user of the capacity of the natural gas lateral
pipeline which is in excess of the capacity required to operate
the Facility. The Partnership currently expects that there may
be additional users in the future of the water supply and
wastewater discharge systems. In the case of any such additional
user of the water infrastructure, the Partnership has approval
rights over the terms and conditions (including cost sharing,
indemnification and any restrictions resulting from regulatory
limitations) pursuant to which such additional users will be
provided access to use the water infrastructure.

In consideration for the approval to locate a
portion of the Infrastructure in Yalobusha County, Mississippi
and the Coffeeville School District, the Partnership entered
into an agreement with Yalobusha County, Mississippi, and the
Coffeeville School District to pay them an aggregate amount
equal to $1,500,000. This payment is due on or before the first
day of February following the first full calendar year after the
year in which the Facility was certified substantially complete
which occurred on December 5, 2000. This payment
constituted a credit against future amounts, if any, of any ad
valorem real and/or personal property taxes assessable against
and leviable on or with respect to the assessable interest of
the Partnership in the water intake Infrastructure. This payment
was made in January 2002.

Finally, in consideration for its use of the
Infrastructure, the Partnership pays Panola Partnership, Inc. (a
County governmental entity) a yearly payment equal to $300,000,
which escalates annually, so long as the Inducement Agreement
and the use agreements described above remain in effect and are
not terminated, other than as a result of a default by the
Partnership.

The Partnership entered into a water supply
storage agreement with the United States of America (the
Government), represented by the District Engineer of the
Vicksburg District of the United States Army Corps of Engineers
(the District Engineer), that provides for storage
in Enid Lake of the Partnerships industrial water supply.
Enid Lake is approximately 15 miles south of the site of
the Facility. The United States Army Corps of Engineers pursuant
to the Flood Control Act of March 28, 1928, as amended,
constructed and now operates the lake to control flooding in the
region.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Water Supply Storage Agreement continues for
the life of the Governments Enid Lake project. In the
event the Government no longer operates Enid Lake, the
Partnerships rights associated with storage may continue
subject to the execution of a separate agreement or additional
supplemental agreement with the new operator.

The Partnership has an undivided 7.8% of the
storage space in Enid Lake that is estimated to contain
4,500 acre-feet after adjustments for sediment deposits.
The Partnership may withdraw water from Enid Lake to the extent
that its storage space allows.

The Partnership must pay to the Government an
amount equal to the cost allocated to the water storage rights
acquired by the Partnership, which is 7.8% of the water storage
rights at Enid Lake. The Partnerships cost is estimated to
be $1,100,000, subject to adjustments of the year the initial
payment is made. This cost is payable over the life of the Enid
Lake flood control project, but not to exceed 30 years from
the due date of the first annual payment. The first payment was
required to be made on the earlier of 30 days after the
Partnerships initial use of the storage or within
24 months after the Partnerships notification by the
District Engineer that this water supply storage agreement is
effective.

The unpaid balance of the Partnerships
storage cost will accrue interest at a rate determined pursuant
to Section 932 of the 1986 Water Resources Development Act.
In 1998, the rate was 6.75%. At this interest rate the
Partnerships combined yearly principal and interest
payments would total approximately $81,800, with the first
payment to be applied solely against the principal Subsequent to
the first payment in 2000, the interest rate will be adjusted at
five-year intervals.

In addition to the annual water storage cost, the
Partnership must pay, annually, 0.682% of (i) the costs of
any repair, rehabilitation or replacement of Enid Lake features
as a result of any joint use with another entity utilizing Enid
Lake and (ii) the annual joint use operation and
maintenance expenses.

The Partnership entered into an Ad Valorem Tax
Contract dated as of August 28, 1998 with the County of
Panola, Mississippi, the City of Batesville, Mississippi, the
Mississippi Department of Economic and Community Development
acting for and on behalf of the State of Mississippi and the
Panola County Tax Assessor/ Collector (the Government
Entities). The Government Entities granted to the
Partnership several tax reductions and incentives to construct
the Facility in Batesville. The Government Entities have agreed
that the Partnership is eligible for a fee-in-lieu-of-taxes of
not less than one-third of the Partnerships state and
local taxes.

The fee-in-lieu-of-taxes amount which the
Partnership must pay equals one-third of the taxes assessed
against the Partnership, the Facility, inventories and any
assessable interest of the industrial water supply system, the
wastewater disposal system, the fire protection system and the
lateral gas pipeline, provided that the fee-in-lieu-of-taxes
amount will never be less than $1,900,000 per year. The
fee-in-lieu-of-taxes is also subject to all mileage changes.

The fee-in-lieu-of-taxes is for a 10-year period
beginning on the first January 1st after the Facility was
substantially completed, which occurred on December 5,
2000. To the extent lawfully available, the Government Entities
will apply this agreement to any expansions, improvements or
equipment replacements provided that the Partnership complies
with its material obligations under this ad valorem tax
agreement.

The Partnership must maintain the Facility and
keep it capable of being operated other than during periods when
the Facility is not available because of maintenance or repair
or for reasons beyond the Partnerships control. If the
Partnership fails to do so, this agreement will terminate on the
January 1st following the Partnerships failure.

Through a letter agreement dated July 20,
1998, the Partnership committed to purchase, and Westinghouse
Power Generation agreed to sell, combustion turbine parts for
the Facility. The price for the initial order

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

of parts was approximately $2,096,000. The
Partnership receives a 20% discount from the original agreement
price adjusted for inflation for any subsequent orders.

These and other contracts and activities incident
to operation of the Facility require various other commitments
and obligations by the Partnership. Additionally, the contracts
contain various restrictive covenants, which allow the
contracted party to terminate the contract upon the occurrence
of specified events or, in certain cases, default under other
contractual commitments.



|         |                                                
|-------- | -----------------------------------------------
|Note 6  | Derivative Instruments and Hedging
    Activity

On January 1, 2001, the Partnership adopted
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133), as amended by SFAS No. 137
and SFAS No. 138. SFAS No. 133 requires the
Partnership to record all derivatives on the balance sheet at
fair value. Changes in the fair value of non-hedge derivatives
will be immediately recognized in earnings. Derivatives that
have been designated as hedges of assets, liabilities or firm
commitments, will be accounted for using the fair value method.
Changes in the fair value of these instruments will be
recognized in earnings as offsets to the changes in the fair
value of the related hedged assets, liabilities and firm
commitments. Derivatives that have been designated as hedges of
forecasted transactions will be accounted for using the cash
flow method. Changes in the fair value of these instruments will
be deferred and recorded as a component of other accumulated
comprehensive income (OCI) until the hedged transactions occur
and are recognized in earnings.

During the years ended December 31, 2002 and
2001 the Partnership had no derivative instruments as defined by
SFAS No. 133.



|         |                                    
|-------- | -----------------------------------
|Note 7  | Fair Value of Financial Instruments

The carrying amounts of the Partnerships
cash, investments held by Trustee, accounts payable and contract
retainage payable approximate their fair value because of the
short maturities of these instruments. The estimated fair value
of the Partnerships bonds payable at December 31,
2002 and 2001 was approximately $224 million and
$293 million, respectively. The estimated fair value of the
Partnerships bonds payable was determined based on quoted
market prices as of December 31, 2002 and 2001 for similar
instruments.



|         |                            
|-------- | ---------------------------
|Note 8  | Partners Capital (Deficit)

The amended and restated partnership agreement of
the Partnership provides that profits and losses are generally
allocated between the Partnerships partners, Energy and
Holding, in proportion to the partners respective
partnership interests. Regular distributions made by the
Partnership with available funds are first used to repay loans
made by the partners to the Partnership and are then paid to the
partners in proportion to their respective partnership
interests. Any amounts available for distribution which are
comprised of (1) the excess of (x) the net proceeds of
the Bonds and committed equity contributions to the Partnership
over (y) the aggregate of the project costs for the
Facility, or (2) funds released from the debt service
reserve account to the Partnership upon the posting of a letter
of credit for that account, will be distributed to or as
directed by Holding. The Amended and Restated Common Agreement
includes conditions that the Partnership must satisfy before
making distributions to its partners. In December 2000, the
Partnership made a distribution totaling $7,247,000 to Holding
in accordance with the terms of the Amended and Restated Common
Agreement. No distributions were made in 2002 or 2001.

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LSP ENERGY LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|         |                           
|-------- | --------------------------
|Note 9  | Related Party Transactions

The Company has no employees and has entered into
operation and maintenance agreements with subsidiaries of NRG
Operating Services, Inc., a wholly-owned subsidiary of NRG (NRG
Operating Services). The agreements were assigned by Cogentrix
and are effective for twenty-seven years. Under the agreements,
the NRG Operating Services company operator operates and
maintains its respective facility, including
(i) coordinating fuel delivery, (ii) managing facility
spare parts, (iii) meeting external performance standards
for transmission of electricity, (iv) providing operating
and maintenance consulting and (v) cooperating with and
assisting the Partnership in performing the Companys
obligations under agreements related to its facilities.

The Partnership has the option of extending the
term of the agreement for successive two-year terms with one
hundred and eighty days notice. Under the terms of the agreement
the Partnership is required to pay the Operator a fixed monthly
fee of approximately $42,000 during operation of the Facility.
The Partnership is also required to reimburse the Operator for
all labor costs, including payroll and taxes, and other costs
deemed reimbursable by the Partnership. The operations and
maintenance fee will be adjusted annually based on published
indices.

During 2002, 2001 and 2000, the Partnership
incurred annual operating costs related to the above agreement
totaling $394,800, $129,900 and $435,500, respectively. As of
December 31, 2002 and 2001, the Partnership had outstanding
amounts payable to NRG Operating Services of $43,900 and $0,
respectively.

As of December 31, 2002 and 2001, the
balances of accounts payable to affiliate primarily related to
labor and operating costs pending payment by the Partnership.



|          |                              
|--------- | -----------------------------
|Note 10  | Commitments and Contingencies

The Partnership is a party to certain claims
arising in the ordinary course of business. The Partnership is
of the opinion that final disposition of these claims will not
have a material adverse effect on the Partnerships
financial position, results of operations or cash flows.



|          |                            
|--------- | ---------------------------
|Note 11  | Dependence on Third Parties

The Partnership is highly dependent on the
Operator for the operation and maintenance of the Facility and
during the terms of the Dominion PPA and Aquila PPA, the
Partnership will be highly dependent on two utilities for the
purchase of electric generating capacity and dispatchable energy
from their respective units at the Facility. Any material breach
by any one of these parties of their respective obligations to
the Partnership could affect the ability of the Partnership to
make payments under the various financing agreements. In
addition, bankruptcy or insolvency of other parties or default
by such parties relative to their contractual or regulatory
obligations could adversely affect the ability of the
Partnership to make payments under the various financing
agreements. If an agreement were to be terminated due to a
breach of such agreement, the Partnerships ability to
enter into a substitute agreement having substantially
equivalent terms and conditions, or with an equally creditworthy
third party, is uncertain and there can be no assurance that the
Partnership will be able to make payments under the various
financing agreements.

During 2002, two customers, Dominion and Aquila
accounted for 54.3% and 42.7%, respectively of the
Partnerships total revenues. During 2001, Dominion and
Aquila accounted for 60.8% and 30.2%, respectively, of the
Partnerships total revenues. During 2000, Dominion and
Aquila accounted for 60.1% and 30.2%, respectively, of the
Partnerships total revenues.

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                               
| | ------------------------------
| | LSP ENERGY LIMITED PARTNERSHIP
| | (Registrant)                  
|
| | /s/ LSP ENERGY, INC.,         
| | its general partner           
|
| | /s/ RICHARD C. KELLY          
| |                               
| | Richard C. Kelly              
| | President and Director        

Date: April 14, 2003






POWER OF ATTORNEY


Each person whose signature appears below
constitutes and appoints Richard C. Kelly and George Schaefer,
each or any of them, such persons true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution for such person and in such persons name,
place and stead, in any and all capacities, to sign any and all
amendments to this report on Form 10-K, and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing necessary or desirable to be done in and
about the premises, as fully to all intents and purposes as such
person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or his or their
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

In accordance with the Exchange Act, this report
has been signed by the following persons on behalf of the
registrant in the capacities indicated on April 14, 2003:

|                                       |  |                                                          |  | 
|-------------------------------------- |  | -------------------------------------------------------- |  | 
|                                       |  |                                                         
|Signature                              |  | Title                                                   
|                                       |  |                                                         
|/s/ RICHARD C. KELLYRichard C. Kelly   |  | President (Principal Executive Officer) and
    Director
|                                      
|/s/ GEORGE SCHAEFERGeorge Schaefer     |  | Treasurer (Principal Financial Officer)                 
|                                      
|/s/ SCOTT J. DAVIDOScott J. Davido     |  | Vice President and Director                             
|                                      
|/s/ ANDREW STIDDAndrew Stidd           |  | Director                                                
|                                      
|/s/ WILLIAM T. PIEPERWilliam T. Pieper |  | Controller (Principal Accounting Officer)               

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

An annual report will not be sent to security
holders. No proxy material will be sent to security holders.

62



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##### Table of Contents



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                                   
| | ----------------------------------
| | LSP BATESVILLE FUNDING CORPORATION
| | (Registrant)                      
|
| | /s/ RICHARD C. KELLY              
| |                                   
| | Richard C. Kelly                  
| | President and Director            

Date: April 14, 2003




POWER OF ATTORNEY

Each person whose signature appears below
constitutes and appoints Richard C. Kelly and George Schaefer,
each or any of them, such persons true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution for such person and in such persons name,
place and stead, in any and all capacities, to sign any and all
amendments to this report on Form 10-K, and to file the
same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each
and every act and thing necessary or desirable to be done in and
about the premises, as fully to all intents and purposes as such
person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them or his or their
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

In accordance with the Exchange Act, this report
has been signed by the following persons on behalf of the
registrant in the capacities indicated on April 14, 2003:

|                                       |  |                                                          |  | 
|-------------------------------------- |  | -------------------------------------------------------- |  | 
|                                       |  |                                                         
|Signature                              |  | Title                                                   
|                                       |  |                                                         
|/s/ RICHARD C. KELLYRichard C. Kelly   |  | President (Principal Executive Officer) and
    Director
|                                      
|/s/ GEORGE SCHAEFERGeorge Schaefer     |  | Treasurer (Principal Financial Officer)                 
|                                      
|/s/ SCOTT J. DAVIDOScott J. Davido     |  | Vice President and Director                             
|                                      
|/s/ ANDREW STIDDAndrew Stidd           |  | Director                                                
|                                      
|/s/ WILLIAM T. PIEPERWilliam T. Pieper |  | Controller (Principal Accounting Officer)               

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

An annual report will not be sent to security
holders. No proxy material will be sent to security holders.

63



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##### Table of Contents






CERTIFICATIONS

I, Richard C. Kelly, certify that:

1. I have reviewed this annual report on
Form 10-K of LSP Energy Limited Partnership and LSP
Batesville Funding Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this quarterly report whether
or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                       
| | ----------------------
| | /s/ RICHARD C. KELLY  
| |                       
| | Richard C. Kelly      
| | President and Director

Dated: April 14, 2003

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##### Table of Contents



CERTIFICATIONS

I, George Schaefer, certify that:

1. I have reviewed this annual report on
Form 10-K of LSP Energy Limited Partnership and LSP
Batesville Funding Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or
persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this quarterly report whether
or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                    
| | -------------------
| | /s/ GEORGE SCHAEFER
| |                    
| | George Schaefer    
| | Treasurer          

Dated: April 14, 2003

65



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##### Table of Contents






EXHIBIT INDEX

| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                          
| | ------ |  |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ***2.1 |  |  |  |  | Purchase Agreement, dated as of November 3,
    2000, among NRG Energy, Inc., NRG Granite Acquisition LLC, LS
    Power, LLC, CB Capital Investors, LLC, Cogen Grantor Trust UA
    and Granite Power Partners II, L.P.                                                                                                                                                                                  
| | ***2.2 |  |  |  |  | Securities Purchase Agreement, dated as of
    February 6, 2001, as amended by the First Amendment dated
    as of March 14, 2001, between NRG Energy, Inc. and
    Cogentrix/ Batesville, LLC.                                                                                                                                                                                                          
| | *3.1   |  |  |  |  | Amended and Restated Certificate of Incorporation
    of LSP Batesville Funding Corporation.                                                                                                                                                                                                                                                                                                             
| | *3.2   |  |  |  |  | Amended and Restated Limited Partnership
    Agreement of LSP Energy Limited Partnership.                                                                                                                                                                                                                                                                                                                
| | *3.3   |  |  |  |  | By-Laws of LSP Batesville Funding Corporation.                                                                                                                                                                                                                                                                                                                                                           
| | *3.4   |  |  |  |  | Certificate of Limited Partnership of LSP Energy
    Limited Partnership.                                                                                                                                                                                                                                                                                                                                
| | *4.1   |  |  |  |  | Indenture, dated as of May 21, 1999, among
    LSP Batesville Funding Corporation, LSP Energy Limited
    Partnership and the Bank of New York, as trustee.                                                                                                                                                                                                                                              
| | *4.2   |  |  |  |  | First Supplemental Indenture, dated as of
    May 21, 1999, among LSP Batesville Funding Corporation, LSP
    Energy Limited Partnership and The Bank of New York, as Trustee,
    relating to $150,000,000 aggregate principal amount of 7.164%
    Series A Senior Secured Bonds due 2014.                                                                                                             
| | *4.3   |  |  |  |  | Second Supplemental Indenture, dated as of
    May 21, 1999, among LSP Batesville Funding Corporation, LSP
    Energy Limited Partnership and The Bank of New York, as Trustee,
    relating to $176,000,000 aggregate principal amount of 8.160%
    Series B Senior Secured Bonds due 2025.                                                                                                            
| | ***4.4 |  |  |  |  | Third Supplemental Indenture, dated as of
    April 11, 2000 among LSP Batesville Funding Corporation,
    LSP Energy Limited Partnership and The Bank of New York, as
    Trustee, relating to $150,000,000 aggregate principal amount of
    7.164% Series C Senior Secured Bonds due 2014.                                                                                                           
| | ***4.5 |  |  |  |  | Fourth Supplemental Indenture, dated as of
    April 11, 2000, among LSP Batesville Funding Corporation,
    LSP Energy Limited Partnership and The Bank of New York, as
    Trustee, relating to $176,000,000 aggregate principal amount of
    8.160% Series D Senior Secured Bonds due 2025.                                                                                                         
| | *4.6   |  |  |  |  | Specimen Certificate of 7.164% Series A
    Senior Secured Bonds due 2014.                                                                                                                                                                                                                                                                                                                               
| | *4.7   |  |  |  |  | Specimen Certificate of 8.160% Series B
    Senior Secured Bonds due 2025.                                                                                                                                                                                                                                                                                                                               
| | ***4.8 |  |  |  |  | Specimen Certificate of 7.164% Series C
    Senior Secured Bonds due 2014.                                                                                                                                                                                                                                                                                                                               
| | ***4.9 |  |  |  |  | Specimen Certificate of 8.160% Series D
    Senior Secured Bonds due 2025.                                                                                                                                                                                                                                                                                                                               
| | *4.10  |  |  |  |  | Exchange and Registration Rights Agreement, dated
    as of May 21, 1999, among LSP Batesville Funding
    Corporation, LSP Energy Limited Partnership, Credit Suisse First
    Boston Corporation, Scotia Capital Markets (USA) Inc. and
    TD Securities (USA) Inc.                                                                                                                                   
| | *4.11  |  |  |  |  | Second Amended and Restated Common Agreement,
    dated as of May 21, 1999, among LSP Batesville Funding
    Corporation, LSP Energy Limited Partnership and The Bank of New
    York, as Collateral Agent, Administrative Agent and
    Intercreditor Agent.                                                                                                                                            
| | *4.12  |  |  |  |  | Intercreditor Agreement, dated as of May 21,
    1999, among LSP Batesville Funding Corporation, LSP Energy
    Limited Partnership, Credit Suisse First Boston, as Dominion L/
    C Agent, and The Bank of New York, as Collateral Agent, Trustee,
    Administrative Agent and Intercreditor Agent.                                                                                                   
| | *4.13  |  |  |  |  | Second Amended and Restated Equity Contribution
    Agreement, dated as of May 21, 1999, among LSP Batesville
    Holding, LLC, LSP Energy Limited Partnership and The Bank of New
    York, as Collateral Agent.                                                                                                                                                                                        
| | *4.14  |  |  |  |  | Second Amended and Restated Collateral Agency
    Agreement, dated as of May 21, 1999, among LSP Batesville
    Funding Corporation, LSP Energy Limited Partnership, the Senior
    Secured Parties party thereto from time to time, The Bank of New
    York, as Administrative Agent, Collateral Agent and
    Intercreditor Agent, and Credit Suisse First Boston, as
    Additional Collateral Agent.
| | *4.15  |  |  |  |  | Pledge and Security Agreement, dated as of
    May 21, 1999 (Funding Corporations Stock), between
    LSP Batesville Holding, LLC and The Bank of New York, as
    Collateral Agent.                                                                                                                                                                                                                    
| | *4.16  |  |  |  |  | Second Amendment and Restated Pledge and Security
    Agreement (LSP Energy, Inc.s Stock), dated as of
    May 21, 1999, between LSP Batesville Holding, LLC and The
    Bank of New York, as Collateral Agent.                                                                                                                                                                                         



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##### Table of Contents



| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                          
| | ------ |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *4.17  |  |  |  |  | Second Amended and Restated Pledge and Security
    Agreement (Limited Partnership Interest in the Partnership),
    dated as of May 21, 1999, between LSP Batesville Holding,
    LLC and The Bank of New York, as Collateral Agent.                                                                                                    
| | *4.18  |  |  |  |  | Second Amended and Restated Pledge and Security
    Agreement (General Partnership Interest in the Partnership),
    dated as of May 21, 1999, between LSP Energy, Inc. and The
    Bank of New York, as Collateral Agent.                                                                                                               
| | *4.19  |  |  |  |  | Second Amended and Restated Security Agreement,
    dated as of May 21, 1999, between LSP Energy Limited
    Partnership and The Bank of New York, as Collateral Agent.                                                                                                                                                                  
| | *4.20  |  |  |  |  | Security Agreement, dated as of May 21,
    1999, between LSP Batesville Funding Corporation and The Bank of
    New York, as Collateral Agent.                                                                                                                                                                                          
| | *4.21  |  |  |  |  | Deed of Trust, Security Agreement, Assignment of
    Leases and Rents and Fixture Filing, dated as of May 21,
    1999, by LSP Limited Partnership, as trustor, to James W.
    OMara, as trustee, for the benefit of The Bank of New
    York, as Collateral Agent.                                                                    
| | *4.22  |  |  |  |  | Second Amended and Restated Securities Account
    Control Agreement, dated as of May 21, 1999, among LSP
    Batesville Funding Corporation, LSP Energy Limited Partnership
    and The Bank of New York, as Collateral Agent and Securities
    Intermediary.                                                                          
| | *10.1  |  |  |  |  | Purchase Agreement, dated May 13, 1999,
    among LSP Energy Limited Partnership, LSP Batesville Funding
    Corporation, Credit Suisse First Boston Corporation, Scotia
    Capital Markets (USA) Inc. and TD Securities (USA) Inc.                                                                                                     
| | *10.2  |  |  |  |  | Power Purchase Agreement, dated May 18,
    1998, and amendments thereto dated July 22, 1998 and
    August 11, 1998, among LSP Energy Limited Partnership and
    Virginia Electric and Power Company.                                                                                                                                  
| | *10.3  |  |  |  |  | Power Purchase Agreement, dated May 21,
    1998, and amendments thereto dated July 14, 1998,
    July 16, 1998 and August 27, 1998, among LSP Energy
    Limited Partnership, Aquila Energy Marketing Corporation and
    Utilicorp United Inc.                                                                                         
| | *10.4  |  |  |  |  | Interconnection Agreement, dated July 22,
    1998, between LSP Energy Limited Partnership and the Tennessee
    Valley Authority.                                                                                                                                                                                                       
| | *10.5  |  |  |  |  | Interconnection and Operating Agreement, dated
    May 18, 1998, and amendment thereto dated August 18,
    1998, between LSP Energy Limited Partnership and Entergy
    Mississippi, Inc.                                                                                                                                               
| | *10.6  |  |  |  |  | Interconnection Agreement, dated July 28,
    1998, between LSP Energy Limited Partnership and ANR Pipeline
    Company.                                                                                                                                                                                                                 
| | *10.7  |  |  |  |  | Facilities Agreement, dated June 23, 1998,
    between Tennessee Gas Pipeline Company and LSP Energy Limited
    Partnership.                                                                                                                                                                                                            
| | *10.8  |  |  |  |  | Turnkey Engineering, Procurement and Construction
    Agreement, dated July 22, 1998, and amendments thereto
    dated July 22, 1998, October 22, 1998,
    November 2, 1998, November 5, 1998, December 10,
    1998, February 1, 1999 and April 12, 1999, between LSP
    Energy Limited Partnership and BVZ Power Partners-Batesville.
| | *10.9  |  |  |  |  | Engineering Services Agreement, dated
    July 24, 1998, between LSP Limited Partnership and
    Black & Veatch, LLP.                                                                                                                                                                                                                    
| | *10.10 |  |  |  |  | Guaranty Agreement (EPC), dated as of
    July 22, 1998, by Black & Veatch, LLP in favor of
    LSP Energy Limited Partnership.                                                                                                                                                                                                          
| | *10.11 |  |  |  |  | Management Services Agreement, dated as of
    August 24, 1998, between LSP Energy Limited Partnership and
    LS Power Management, LLC.                                                                                                                                                                                                 
| | *10.12 |  |  |  |  | Operation and Maintenance Agreement, dated
    August 24, 1998, between LSP Energy Limited Partnership and
    Cogentrix Batesville Operations, LLC.                                                                                                                                                                                     
| | *10.13 |  |  |  |  | Water Supply Storage Agreement, dated as of
    June 8, 1998, and amendment thereto dated March 15,
    1999, between LSP Energy Limited Partnership and the United
    Sates of America.                                                                                                                                                
| | *10.14 |  |  |  |  | Parts Supply Letter Agreement/ Blanket Purchase
    Order, dated July 20, 1998, between LSP Energy Limited
    Partnership and Westinghouse Power Generation.                                                                                                                                                                            
| | *10.15 |  |  |  |  | Ad Valorem Tax Contract, dated as of
    August 24, 1998, among LSP Energy Limited Partnership,
    Panola County, Mississippi, the City of Batesville, Mississippi,
    the Department of Economic and Community Development and the
    Panola County Tax Assessor/ Collector.                                                         



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##### Table of Contents



| |          |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------- |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10.16   |  |  |  |  | Letter of Credit and Reimbursement Agreement,
    dated as of August 28, 1998, among LSP Energy Limited
    Partnership, Credit Suisse First Boston, as the Dominion L/ C
    Agent and the Dominion L/ C Issuer, and the Dominion L/ C Banks.                                                                                                                                                             
| | *10.17   |  |  |  |  | Infrastructure Use Agreement (Lateral Pipeline),
    dated as of August 12, 1999, among LSP Energy Limited
    Partnership, the Industrial Development Authority of the Second
    Judicial District of Panola County, Mississippi, the Mississippi
    Major Economic Impact Authority, Panola County, Mississippi and
    the City of Batesville, Mississippi.                                           
| | *10.18   |  |  |  |  | Inducement Agreement, dated as of August 12,
    1999, among LSP Energy Limited Partnership, the Industrial
    Development Authority of the Second Judicial District of Panola
    County, Mississippi, the Mississippi Department of Economic and
    Community Development, the Mississippi Major Economic Impact
    Authority, Panola County, Mississippi and the City of
    Batesville, Mississippi.
| | *10.19   |  |  |  |  | Panola Partnership Agreement, dated as of
    August 12, 1999, among LSP Energy Limited Partnership and
    Panola Partnership, Inc.                                                                                                                                                                                                                                                                       
| | *10.20   |  |  |  |  | Infrastructure Use Agreement (Water Supply System
    and Wastewater Disposal System), dated as of August 12,
    1999, among LSP Energy Limited Partnership, the Industrial
    Development Authority of the Second Judicial District of Panola
    County, Mississippi, the Mississippi Major Economic Impact
    Authority, Panola County, Mississippi                                                  
| | *10.21   |  |  |  |  | Yalobusha County Agreement, dated
    February 16, 1999, among LSP Energy Limited Partnership,
    Yalobusha County, Mississippi and the Coffeeville School
    District.                                                                                                                                                                                                                                  
| | *10.22   |  |  |  |  | Performance Bond and Payment Bond, dated
    August 13, 1998, of United States Fidelity and Guaranty
    Company, as surety.                                                                                                                                                                                                                                                                               
| | **10.23  |  |  |  |  | Power Purchase Agreement, dated February 23,
    2000, between Tennessee Valley Authority and LSP Energy Limited
    Partnership.                                                                                                                                                                                                                                                                          
| | **10.24  |  |  |  |  | Facilities Interconnect, Construction, Ownership
    and Operation Agreement, dated January 28, 2000, between
    Trunkline Gas Company and LSP Energy Limited Partnership for
    M&R Panola County, Mississippi.                                                                                                                                                                                         
| | **10.25  |  |  |  |  | First Amendment to Power Purchase Agreement,
    dated as of August 4, 2000, among LSP Energy Limited
    Partnership, Aquila Energy Marketing Corporation and Utilicorp
    United Inc.                                                                                                                                                                                                                   
| | **10.26  |  |  |  |  | Second Amendment to Power Purchase Agreement
    dated as of August 11, 1998, and Third Amendment to Power
    Purchase Agreement dated as of August 9, 2000, each between
    LSP Energy Limited Partnership and Virginia Electric and Power
    Company.                                                                                                                                                 
| | **10.27  |  |  |  |  | Escrow Agreement, dated as of August 17,
    2000, among Virginia Electric and Power Company, LSP Energy
    Limited Partnership and The Chase Manhattan Bank.                                                                                                                                                                                                                                             
| | ***10.28 |  |  |  |  | Fourth Amendment to Power Purchase Agreement,
    dated as of December 13, 2000, between LSP Energy Limited
    Partnership and Virginia Electric and Power Company.                                                                                                                                                                                                                                       
| | ***10.29 |  |  |  |  | Letter Agreements, dated as of July 28, 1998
    and December 12, 2000, among LSP Energy Limited
    Partnership, Aquila Power Corporation and Utilicorp United Inc.                                                                                                                                                                                                                                       
| | ***10.30 |  |  |  |  | Letter Agreement, dated as of August 13,
    1998, between LSP Energy Limited Partnership and Virginia
    Electric and Power Company.                                                                                                                                                                                                                                                                     
| | ***10.31 |  |  |  |  | Settlement Agreement, dated as of
    December 13, 2000, between LSP Energy Limited Partnership
    and Virginia Electric and Power Company.                                                                                                                                                                                                                                                               
| | ***10.32 |  |  |  |  | Pipeline Balancing Agreement, dated
    February 14, 2000, between Tennessee Gas Pipeline Company
    and LSP Energy Limited Partnership.                                                                                                                                                                                                                                                                  
| | ***10.33 |  |  |  |  | Industrial Power Contract, dated as of
    May 10, 2000, between Tallahatchie Valley Electric Power
    Association and LSP Energy Limited Partnership.                                                                                                                                                                                                                                                    
| | 99.1     |  |  |  |  | Officer Certification                                                                                                                                                                                                                                                                                                                                                                                      



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|   |                                                                                                                                                                                                                                                                                                                        
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Incorporated herein by reference from the
    Registration Statement on Form S-4, File No.s
    333-84609 and 333-84609-01, filed with the Securities and
    Exchange Commission by LSP Energy Limited Partnership and LSP
    Batesville Funding Corporation on March 6, 2000.                                      
|  
|** | Incorporated herein by reference from the
    Quarterly Reports on Form 10-Q, File No.s 333-84609
    and 333-84609-01, filed with the Securities and Exchange
    Commission by LSP Energy Limited Partnership and LSP Batesville
    Funding Corporation on May 15, 2000, August 14, 2000
    and November 14, 2000.



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*** | Incorporated herein by reference from the Annual
    Reports on Forms 10-K, File No.s 333-84609 and
    333-84609-01, filed with the Securities and Exchange Commission
    by LSP Energy Limited Partnership and LSP Batesville Funding
    Corporation on April 2, 2001.

     There
are no exhibits which relate to compensation arrangements.