##### 



SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2003 Commission File Number 33-82034 INDIANTOWN COGENERATION, L.P.  Delaware
    
    52-1722490(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 INDIANTOWN COGENERATION FUNDING CORPORATION (Exact name of co-registrant as specified in its charter) Delaware
    
    52-1889595(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 7600 Wisconsin Avenue  Bethesda, Maryland 20814-6161
  (301) 280-6800   SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OR 12 (g) OF THE ACT:
None 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 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.   x Yes o No Indicate by check mark if disclosure of delinquent filer pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.x Indicate by check mark whether the registrants are accelerated filers (as
defined in Exchange Act Rule 12b-2)   oYes x No As of March 30, 2004, there were 100 shares of common stock of Indiantown
Cogeneration Funding Corporation, $1 par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE:
None




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Indiantown Cogeneration, L.P.
Indiantown Cogeneration Funding Corporation
Table of Contents Page NumberPART IItem 1
    
    Business
    
    
    1Item 2
    
    Properties
    
    
    6Item 3
    
    Legal Proceedings
    
    
    6Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    6PART IIItem 5
    
    Market for the Registrants
Common Equity and Related Security Holder Matters
    
    
    7Item 6
    
    Selected Financial Data
    
    
    7Item 7
    
    Managements Discussion and
Analysis of Financial Condition and Results of Operations
    
    
    8Item 7A
    
    Quantitative and Qualitative
Disclosures About Market Risk
    
    
    20Item 8
    
    Financial Statements and Supplementary Data
    
    
    21Item 9
    
    Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
    
    
    43Item 9A
    
    Controls and Procedures
    
    
    43PART IIIItem 10
    
    Directors and Executive Officers
    
    
    44Item 11
    
    Remuneration of Directors and Officers
    
    
    46Item 12
    
    Security Ownership of Certain Beneficial Owners
and Management
    
    
    46Item 13
    
    Certain Relationships and Related Transactions
    
    
    46Item 14
    
    Principal Accountant Fees and Services
    
    
    46PART IVItem 15
    
    Exhibits, Financial Statement
Schedules and Reports on Form 8-K
    
    
    48Signatures
    
    
    53




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Item 1Business The Partnership Indiantown Cogeneration, L.P. (the Partnership) is a special purpose Delaware
limited partnership formed on October 4, 1991. The Partnership was formed to
develop, construct, own and operate an approximately 330 megawatt (net)
pulverized coal-fired cogeneration facility (the Facility) located on an
approximately 240 acre site in southwestern Martin County, Florida. The
Facility produces electricity for sale to Florida Power & Light Company (FPL)
under a Power Purchase Agreement (PPA). The Facility also supplies steam to
Louis Dreyfus Citrus, Inc. (LDC), formerly known as Caulkins Indiantown
Citrus Company, under an Energy Services Agreement (ESA). During 1994, the
Partnership formed its sole, wholly owned subsidiary, Indiantown Cogeneration
Funding Corporation (ICL Funding), to act as agent for, and co-issuer with,
the Partnership in accordance with the 1994 bond offering discussed in Note 4
in the attached Notes to the Financial Statements. ICL Funding has no separate
operations and has only $100 in assets. The original general partners were Toyan Enterprises (Toyan), a California
corporation and a wholly owned special purpose indirect subsidiary of National
Energy & Gas Transmission, Inc. (NEGT, formerly known as PG&E National Energy
Group, Inc.) and Palm Power Corporation (Palm), a Delaware corporation and a
special purpose indirect subsidiary of Bechtel Enterprises, Inc. (Bechtel
Enterprises). The sole limited partner was TIFD III-Y, Inc. (TIFD), a
special purpose indirect subsidiary of General Electric Capital Corporation
(GECC). In 1998, Toyan consummated transactions with DCC Project Finance Twelve, Inc.
(PFT), whereby PFT, through a new partnership (Indiantown Project Investment,
L.P. (IPILP), with Toyan, became a new general partner in the Partnership.
Toyan is the sole general partner of IPILP. Prior to the PFT transaction,
Toyan converted some of its general partnership interest into a limited
partnership interest such that Toyan now directly holds only a limited
partnership interest in the Partnership. In addition, Bechtel Generating
Company, Inc. (Bechtel Generating), sold all of the stock of Palm to a wholly
owned indirect subsidiary of Cogentrix Energy, Inc. (together with its
subsidiaries, Cogentrix). Palm holds a 10% general partner interest in the
Partnership. On June 4, 1999, Thaleia, LLC (Thaleia), a wholly-owned subsidiary of Palm
and indirect wholly-owned subsidiary of Cogentrix, acquired from TIFD a 19.9%
limited partner interest in the Partnership. On September 20, 1999, Thaleia
acquired another 20.0% limited partnership interest from TIFD and TIFDs
membership on the Board of Control. On November 24, 1999, Thaleia purchased
TIFDs remaining limited partner interest in the Partnership from TIFD. Cogentrix was acquired by GS Power Holdings LLC (GSPHLLC), a subsidiary of
The Goldman Sachs Group, Inc. GSPHLLC purchased 100% of the stock of Cogentrix
in December 2003. 1




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##### 



The net profits and losses of the Partnership are allocated to Toyan, Palm,
IPILP and Thaleia (collectively, the Partners) based on the following
ownership percentages: Toyan
    
    
    30.05
    %Palm
    
    
    10.00
    %IPILP
    
    
    19.95
    %Thaleia
    
    
    40.00
    %
 All distributions other than liquidating distributions will be made based on
the Partners percentage interest as shown above, in accordance with the
project documents and at such times and in such amounts as the Board of Control
of the Partnership determines. The Partnership began construction of the Facility in October 1992 and was in
the development phase through the commencement of commercial operation. The
Facility synchronized with the FPL system on June 30, 1995 and the Partnership
sold to FPL electricity produced by the Facility during startup and testing.
The Facility commenced commercial operation under its PPA with FPL on December
22, 1995. The Partnerships continued existence is dependent on the ability of
the Partnership to maintain successful commercial operation under the PPA.
Management of the Partnership is of the opinion that the assets of the
Partnership are realizable at their current carrying value. The Partnership
has no assets other than the Facility, the Facility site, contractual
arrangements relating to the Facility (the Project Contracts) and the stock
of ICL Funding. Relationship with National Energy & Gas Transmission, Inc. The Partnership is managed by Power Services Company (PSC, formerly known as
PG&E National Energy Group Company), pursuant to a Management Services
Agreement (the MSA). The Facility is operated by U.S. Operating Services
Company (OSC, formerly known as PG&E Operating Services Company), pursuant to
an Operation and Maintenance Agreement (the O&M Agreement). PSC and OSC are
general partnerships indirectly wholly owned by National Energy & Gas
Transmission, Inc. (NEGT, formerly known as PG&E National Energy Group,
Inc.), an indirect subsidiary of PG&E Corporation. Refer to Note 7 in the
attached Notes to the Financial Statements for discussion of contractual terms. On July 8, 2003, NEGT and certain subsidiaries voluntarily filed petitions for
relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code
(collectively, the NEGT Bankruptcy) in the Greenbelt Division of the United
States Bankruptcy Court for the District of Maryland (the Bankruptcy Court). Neither the Partnership nor any of its NEGT affiliated partners, including
Toyan and IPILP, or PSC and OSC, are parties to the filings by NEGT or other
affiliates for protection under the NEGT Bankruptcy. The Partnership believes
that it will not be substantively consolidated with NEGT in any bankruptcy
proceeding involving NEGT and the NEGT Bankruptcy does not result in an event
of default under the principal project contracts or the principal financing
documents of the facility. 2




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On February 26, 2004, NEGT filed with the Bankruptcy Court its Third Amended
Plan of Reorganization and the related Disclosure Statement (POR). The POR
contemplates that NEGT will retain and continue to operate its power generation
and pipeline businesses unless they are sold (as described in the POR),
separate from PG&E Corporation, and issue new debt securities and common stock.
NEGTs indirect ownership interest in the Partnership is
included within its power generation business. Any sale by NEGT of its
interest in the Partnership (a NEGT Interest Sale) may affect managements
MSA contract with the Partnership. There can be no certainty that a NEGT
Interest Sale will be completed. On December 30, 2003, Moodys confirmed the senior secured debt of the
Partnership at Ba1 and changed the rating outlook to stable from negative.
Moodys stated that this rating action reflects the projects improved
financial performance during 2003 and the expectations that the debt service
coverage ratios for the next several years will remain in the 1.30x to 1.40x
range. The rating action also incorporates the Partnerships improved
liquidity profile due to the completion of new letter of credit and working
capital facilities during October 2003 and the progress being made to negotiate
a new coal price index with the coal supplier. On July 8, 2003, Standard and Poors (S&P) issued a press release announcing
that it had lowered its corporate credit ratings on two of NEGTs subsidiaries.
S&P stated these ratings actions followed the NEGT Bankruptcy. S&P further
stated that the rating on ICL Funding was not affected by the ratings action on
NEGT because this project financing is structured as a bankruptcy-remote entity
and is not 100% owned by NEGT. Therefore, S&P concluded that the incentive to
consolidate it in a bankruptcy of NEGT was low. On March 19, 2004 S&P placed its BBB- rating on the debt of ICL Funding on
Credit Watch with negative implications. The credit watch reflects the risk of
a downgrade if the PPA negotiations with FPL regarding a new energy payment
index are not resolved to mitigate the current mismatch between energy revenues
and fuel expenses (see Executive Summary, included in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations
below). Certain Project Contracts Power Purchase Agreement The Facility supplies (i) electric generating capacity and energy to FPL
pursuant to the PPA and (ii) steam to LDC pursuant to a long-term ESA. Payments from FPL pursuant to the PPA provided approximately 99.9%, 99.8% and
99.8% of Partnership revenues for 2003, 2002 and 2001, respectively. Under and
subject to the terms of the PPA, FPL is obligated to purchase electric
generating capacity made available to it and associated energy from the
Facility through December 22, 2025. 3




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##### 



Payments by FPL consist of capacity payments and energy payments. FPL is
required to make capacity payments to the Partnership on a monthly basis for
electric generating capacity made available to FPL during the preceding month
regardless of the amount of electric energy actually purchased. This basis is
known as the Capacity Billing Factor, which measures the overall availability
of the Facility, but gives a heavier weighting to on-peak availability. The
capacity payments have two components, an un-escalated fixed capacity payment
and an escalated fixed operation and maintenance payment, which together are
expected by the
Partnership to cover all of the Partnerships fixed costs, including debt
service. Energy payments are made only for the amount of electric energy
actually delivered to FPL. The energy payments made by FPL in 2003 were not
sufficient to cover the Partnerships variable costs of electric energy
production due to a mismatch of how the index that the coal cost component of
the energy payment is determined and the price increase of base coal in the
amended coal purchase agreement (see Coal Purchase and Transportation
Agreement below). The energy payments will continue to be insufficient to
cover the variable costs of steam production for steam supplied to LDC. The Partnership does not expect these shortfalls to have a material adverse
effect on its ability to service its debt and fund operations due to the level
of capacity payments. Energy Services Agreement The Partnership supplies thermal energy to LDC in order for the Facility to
meet the operating and efficiency standards under the Public Utility Regulatory
Policy Act of 1978, as amended, and the Federal Energy Regulatory Commissions
regulations promulgated thereunder (collectively, PURPA). The Facility has
been certified as a Qualifying Facility under PURPA. Under PURPA, Qualifying
Facilities are exempt from certain provisions of the Public Utility Holding
Company Act of 1935, as amended (PUHCA), most provisions of the Federal Power
Act (the FPA), and, except under certain limited circumstances, rate and
financial regulation under state law. The ESA with LDC requires LDC to
purchase the lesser of (i) 525 million pounds of steam per year or (ii) the
minimum quantity of steam per year necessary for the Facility to maintain its
Qualifying Facility status under PURPA. Coal Purchase and Transportation Agreement A Coal Purchase and Sales Agreement (the Coal Purchase Agreement) was
executed on February 5, 2003 between the Partnership and Massey Coal Sales,
Inc. (Massey) and became effective on April 1, 2003. Under the Coal Purchase
Agreement, which remains in effect until December 31, 2025, the base coal price
was $33.75 per ton with a market price reopener provision, which began in
October 2003. The Partnership has no obligation to purchase a minimum quantity
of coal. The First Amendment (the Amendment) to the Coal Purchase Agreement between
Massey and the Partnership was entered into on August 21, 2003, with an
effective date of August 1, 2003. The principal change effected in the Coal
Purchase Agreement was a decrease from $33.75 to $33.00 per ton in the base
coal price with a market price reopener provision beginning the earlier of
ninety days after the Partnership successfully negotiates a new fuel index
under the PPA or October 1, 2005. Currently, the fuel index used to determine
the coal cost component of the monthly energy payment from FPL under the PPA is
no longer in effect. Within ninety days after the Partnership successfully
negotiates a new fuel index under the 4




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##### 



PPA, the Partnership and Massey will
utilize commercially reasonable best efforts to develop a coal price tied to a
fuel index agreeable to both parties. The Partnership satisfied the applicable
conditions precedent set forth in the financing documents relating to the
Amendment. The Partnership and CSX entered into a Coal Transportation Agreement dated
August 6, 2003, under which CSX will deliver coal to the Facility through
December 31, 2025 at the system car rate of $23.09 per ton, which is
approximately 30% less than the current tariff rates for delivered coal. This
system car rate is adjusted quarterly using the same index that adjusts the
remaining costs component of the energy payment from FPL. CSX will also
transport a minimum of 500 carloads of ash to an acceptable disposal firm on
the CSX rail system. An agreement became effective March 15, 2004 between the
Partnership, CSX and Allied Services, LLC to transport and dispose of ash
through May 31, 2006 at a rate of $25.65 per ton, which will increase by 2%
from the rate charged for the prior year. In addition, CSX rebated the
Partnership $3.8 million in October 2003, which was the difference between the
tariff rates and system car rates for all coal shipments for the period from
April 1, 2003 through the effective date of the Coal Transportation Agreement,
less $1.1 million in pre-petition and gap debt owed to CSX from LEI. CSX
assigned to the Partnership their claim to the $1.1 million due from LEI under
the Transportation Agreement. The Partnership satisfied the applicable
conditions precedent set forth in the financing documents relating to the Coal
Transportation Agreement. Lime Purchase Agreement The Partnership entered into a lime purchase agreement (the Lime Purchase
Agreement) with Chemical Lime Company (Chemlime), an Alabama corporation, to
supply the lime requirements of the Facilitys dry scrubber and sulfur dioxide
removal system. The initial term of the Lime Purchase Agreement is 15 years
from the commercial operation date. Chemlime is obligated to provide all of
the Facilitys lime requirements, but the Partnership has no obligation to
purchase a minimum quantity of lime. The price of lime was renegotiated in
1999 for a three-year period beginning January 1, 2000. Chemlime notified the
Partnership of its intention to cancel the agreement effective in the first
quarter of 2002. The price was again renegotiated for a three-year period
beginning February 1, 2002. Competition Since the Partnership has a long-term contract to sell electric generating
capacity and energy from the Facility to FPL, it does not expect competitive
forces to have a significant effect on its business. The Partnership expects
that the capacity payments under the PPA, which are not affected by the level
of FPLs dispatch of the Facility, will cover all of the Partnerships fixed
costs, including debt service. Regulations and Environmental Matters The Partnership has obtained all material environmental permits and approvals
required, as of December 31, 2003, in order to continue commercial operation of
the Facility. Certain of these permits and approvals are subject to periodic
renewal. Certain additional permits and approvals will be required in the
future for the continued operation of the Facility. The Partnership is not
aware of any technical circumstances that would prevent the issuance of 5




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such
permits and approvals or the renewal of currently issued permits. The
Partnership timely filed its application for a Title V air permit on February
23, 2004. Employees The Partnership has no employees and does not anticipate having any employees
in the future because, under a management services agreement, PSC acts as the
Partnerships representative in all aspects of managing the operation of the
Facility as directed by the Partnerships Board of Control. As noted above,
OSC is providing operations and maintenance services for the Partnership. Item 2Properties The Facility is located in a predominantly industrial area in southwestern
Martin County, Florida, on approximately 240 acres of land owned by the
Partnership (the Site). An additional five acres of property is owned in
eastern Okeechobee County, Florida for a water pumping facility associated with
the make-up water supply pipeline. Other than the Facility, the Site, and the
make-up water pipeline and associated equipment, the Partnership does not own
or lease any material properties. Item 3Legal Proceedings The Partnership is currently not involved in any legal proceedings. Item 4Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the security holders of the Partnership
during 2003. 6




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PART II Item 5Market for the Registrants Common Equity and Related Security Holder Matters The Partnership is a Delaware limited partnership wholly owned by Palm, Toyan,
Thaleia and IPILP. Beneficial interests in the Partnership are not available
to other persons except with the consent of the Partners. There is no established public market for ICL Fundings common stock. The 100
shares of $1 par common stock are owned by the Partnership. ICL Funding has
not paid, and does not intend to pay, dividends on the common stock. Item 6Selected Financial Data The following selected financial data of the Partnership presented below (in
thousands) are derived from the consolidated financial statement information of
the Partnership as of and for the years ended December 31, 2003, 2002, 2001,
2000, and 1999. The data should be read in conjunction with Item 7 of this
report, Managements Discussion and Analysis of Financial Condition and
Results of Operations, and with the Partnerships consolidated financial
statements appearing elsewhere in this report. The financial statements and
supplementary data required by this item are presented under Item 8. 2003
    
    2002
    
    2001
    
    2000
    
    1999Total Assets
    
    $
    645,235
    
    
    $
    679,494
    
    
    $
    675,194
    
    
    $
    680,670
    
    
    $
    694,852Long-Term Debt
    
    
    528,559
    
    
    
    555,918
    
    
    
    560,703
    
    
    
    572,522
    
    
    
    583,994Total Liabilities
    
    
    559,282
    
    
    
    587,232
    
    
    
    586,320
    
    
    
    595,690
    
    
    
    605,687Capital Distributions
    
    
    20,000
    
    
    
    
    
    
    
    12,400
    
    
    
    25,400
    
    
    
    25,970Total Partners Capital
    
    
    85,953
    
    
    
    92,262
    
    
    
    88,874
    
    
    
    84,980
    
    
    
    88,245Property, Plant &
Equipment, Net
    
    
    584,828
    
    
    
    599,925
    
    
    
    615,144
    
    
    
    628,355
    
    
    
    641,449Operating Revenues
    
    
    182,443
    
    
    
    162,687
    
    
    
    175,432
    
    
    
    177,790
    
    
    
    163,270Income Before
Cumulative Effect of a
Change in Accounting
Principle (1)
    
    
    13,740
    
    
    
    3,388
    
    
    
    16,295
    
    
    
    21,215
    
    
    
    22,414Cumulative Effect of a
Change in Accounting
Principle
    
    
    (49
    )(1)
    
    
    
    
    
    
    
    
    
    
    920
    
    
    
    Net Income
    
    
    13,691
    
    
    
    3,388
    
    
    
    16,295
    
    
    
    22,135
    
    
    
    22,414
  (1)
    
    If this statement had been adopted on January 1, 2002 the pro forma effects on
earnings of the accounting change for prior years would not have been material 7




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Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements This Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Partnerships consolidated
financial statements and notes to the consolidated financial statements
included herein. The information in this Annual Report on Form 10-K includes forward-looking
statements that are necessarily subject to various risks and uncertainties.
Use of words like anticipate, estimate, intend, project, plan,
expect, will, believe, could, and similar expressions help identify
forward-looking statements and constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These statements are based
on current expectations and assumptions which the Partnership believes are
reasonable and on information currently available to the Partnership. Actual
results could differ materially from those contemplated by the forward-looking
statements. Although the Partnership believes that the expectations reflected
in the forward-looking statements are reasonable, future results, events,
levels of activity, performance or achievements cannot be guaranteed. Although
the Partnership is not able to predict all the factors that may affect future
results, some of the factors that could cause future results to differ
materially from those expressed or implied by the forward-looking statements
include: Operational Risks The Partnerships future results of operation and financial condition will be
affected by the performance of equipment, levels of dispatch, the receipt of
certain capacity and other fixed payments, electricity prices, fuel deliveries
and fuel prices and any mismatch between the actual energy costs and the energy
revenue reimbursement of those costs; unanticipated changes in operating
expenses or capital expenditures or other maintenance activities; variations in
weather and natural disasters; and the potential impacts of threatened or
actual terrorism and war. Actions of Florida Power & Light and Other Counterparties The Partnerships future results of operations and financial condition may be
affected by the extent to which counterparties require additional assurances in
the form of letters of credit or cash collateral and the potential future
failure of the Partnership to maintain the qualifying facility status, which
failure could cause a default under the PPA. Accounting and Risk Management The Partnerships future results of operation and financial condition may be
affected by the effect of new accounting pronouncements, changes in critical
accounting policies or estimates, the effectiveness of the Partnerships risk
management policies and procedures, the ability of the Partnerships
counterparties to satisfy their financial commitments to the Partnership and
the impact of counterparties nonperformance on the Partnerships liquidity
position and heightened rating agency criteria and the impact of changes in the
Partnerships credit ratings. 8




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Legislative and Regulatory Matters The Partnerships business may be affected by legislative or regulatory changes
affecting the electric and natural gas industries in the United States,
including the pace and extent of efforts to restructure the electric and
natural gas industries; heightened regulatory and enforcement agency focus on
the energy business with the potential for changes in industry regulations and
in the treatment of the Partnership by state and federal agencies; and changes
in or application of federal, state, and local laws and regulations to which
the Partnership is subject including changes in corporate governance and
securities laws requirements. Litigation and Environmental Matters The Partnerships future results of operation and financial condition may be
affected by compliance with existing and future environmental and safety laws,
regulations and policies, the cost of which could be significant, and the
outcome of any potential future litigation and environmental matters. Business Description The Partnership is primarily engaged in the ownership and operation of a
non-utility electric generating facility. From its inception and until
December 21, 1995, the Partnership was in the development stage and had no
operating revenues or expenses. On December 22, 1995 the Facility commenced
commercial operation. Revenues are derived primarily from capacity and bonus
payments, measured by the Capacity Billing Factor (CBF), and sales of
electricity. The facility is dispatched for electric energy by FPL on an
economic basis. Each agreement year the facility is entitled to four weeks of
outages to perform scheduled maintenance, and each fifth agreement year, a
total of ten weeks of outage time to perform major maintenance. Differences in
the timing and scope of scheduled and major maintenance can have a significant
impact on the revenues and operational costs. Executive Summary During 2003, the Facilitys operating performance was solid in a challenging
business environment which included the Partnership successfully replacing its
fuel supply agreement due to the bankruptcy of its previous coal supplier,
Lodestar Energy, Inc. (LEI). This issue also caused the Partnership to
pursue alternate means to dispose of ash, since LEI was disposing approximately
50% of the ash generated from the facility. The Partnership received the
maximum amount for its capacity bonus payments from FPL. The electric energy
payments in 2003 were not sufficient to cover the Partnerships variable costs
of electric energy production. The energy price paid by FPL for the coal cost
component of the energy payment is not matched to the price of base coal in the
amended coal purchase agreement. In addition, the fuel index used to
determine the coal cost component of the monthly energy payment under the PPA
is no longer in effect. The Partnership generated net income of $13.7 million
and cash flows from operations of $32.1 million during 2003. The increase in
earnings and
cash flows from operations was primarily due to higher capacity bonus revenues
and lower operating and maintenance expenses. The successful replacement of
certain letters of credit and the working capital facility enabled the
Partnership to distribute $20.0 million, the first distribution since June
2001. 9




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In accordance with the terms of the PPA, the Partnership has scheduled the
Facility for four weeks of maintenance outages during 2004, which was for the
same duration experienced during 2003. Since the scope and duration of the
scheduled maintenance outages for 2004 is comparable to those experienced
during 2003, the Partnership expects maintenance expenses to be the same in
2004 as compared to 2003. The Partnership and FPL have been in discussions to resolve both the energy
price and the replacement index issues. The Partnership is including its coal
supplier, Massey, in the process to achieve a similar index on both sides of
its supply and purchase agreements. Relationship with NEGT On July 8, 2003, NEGT and certain subsidiaries voluntarily filed petitions for
relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code
(collectively, the NEGT Bankruptcy) in the Greenbelt Division of the United
States Bankruptcy Court for the District of Maryland (the Bankruptcy Court). Neither the Partnership nor any of its NEGT affiliated partners, including
Toyan and IPILP, or PSC and OSC, are parties to the NEGT Bankruptcy. The
Partnership believes that it will not be substantively consolidated with NEGT
in any bankruptcy proceeding involving NEGT and the NEGT Bankruptcy does not
result in an event of default under the principal project contracts or the
principal financing documents of the facility. On February 26, 2004, NEGT filed with the Bankruptcy Court its Third Amended
Plan of Reorganization and the related Disclosure Statement (POR). The POR
contemplates that NEGT will retain and continue to operate its power generation
and pipeline businesses unless they are sold (as described in the POR),
separate from PG&E Corporation, and issue new debt securities and common stock.
NEGTs indirect ownership interest in the Partnership is included within its
power generation business. Any sale by NEGT of its interest in the Partnership
(a NEGT Interest Sale) may affect managements MSA contract with the
Partnership. There can be no certainty that a NEGT Interest Sale will be
completed. 10




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Results of Operations The following table sets forth operating revenue and related data for the years
ended December 31, 2003 and 2002 (dollars and volumes in millions). For the year ended December 31,2003
    
    2002Factor
    
    FactorAverage Capacity Billing Factor (1)
    
    
    97.88
    %
    
    
    89.95
    %Average Dispatch Rate (2)
    
    
    90.94
    %
    
    
    88.96
    %
 Operating Revenues:
    
    Volume
    
    Dollars
    
    Volume
    
    DollarsCapacity and bonus
    
    
    
    
    
    $
    125.2
    
    
    
    
    
    
    $
    113.5Electric (Kwh)
    
    
    2,420.0
    
    
    
    57.0
    
    
    
    2,079.8
    
    
    
    48.9Steam (lbs)
    
    
    588.8
    
    
    
    0.2
    
    
    
    581.8
    
    
    
    0.3Total operating revenues
    
    
    
    
    
    $
    182.4
    
    
    
    
    
    
    $
    162.7
 (1) The Average Capacity Billing Factor (CBF) measures the overall
availability of the Facility, giving a heavier weighting to on-peak
availability. (2) The Average Dispatch Rate is the amount of electric energy produced in a
given period expressed as a percentage of the total contract capability amount
of potential electric energy production in that time period. Year ended December 31, 2003 Compared to the Year Ended December 31, 2002 Overall Results Net income was $13.7 million and $3.4 million for the twelve months ended
December 31, 2003 and 2002, respectively. Cash flows during 2003 and 2002 were
sufficient to fund all operating expenses and debt repayment obligations. Operating Revenues For the years ended December 31, 2003 and 2002, the Partnership had total
operating revenues of $182.4 million and $162.7 million, respectively. This
increase in 2003 was attributable primarily to increased energy revenues of
$8.1 million and increased capacity bonus and capacity revenues of $11.6
million. For the years ended December 31, 2003 and 2002, the Facility achieved
an average CBF of 97.88% and 89.95%, respectively. This resulted in earning
monthly capacity payments aggregating $113.9 million for 2003 and $113.4
million for 2002. Bonuses aggregated $11.3 million for the year in 2003 and
$0.2 million for 2002. The increased revenues from capacity payments are due
primarily to the quarterly escalations on the fixed operating and maintenance
component of the capacity charge. The increase in bonus revenues 11




---



##### 



is due to the
increase in the average CBF, which was negatively impacted in 2002 by the
decreased availability due to boiler tube leaks and the generator repairs in
2001. The calculation to compute the CBF (which is the rolling average of the
prior 365 days) throughout all of 2002 included the 11 days of unscheduled
outage time in 2001 for the generator repairs with 0% availability for those
days. The increase in energy revenues are due primarily to the absence in 2003
of an additional six weeks of scheduled outage time allowed in 2002 under the
PPA to perform major maintenance. During 2003 and 2002, the Facility was
dispatched by FPL and generated 2,419,994 megawatt-hours and 2,079,781
megawatt-hours, respectively. The monthly average dispatch rate requested by
FPL was 90.94% and 88.96% for the twelve months ended December 31, 2003 and
2002, respectively. Cost of Revenues Total operating costs were $115.5 million and $106.1 million for the years
ended December 31, 2003 and 2002, respectively. Fuel and ash costs increased
by $11.6 million due primarily to the absence in 2003 of an additional six
weeks of scheduled outage time allowed in 2002 under the PPA to perform major
maintenance. General and administrative costs increased by $0.7 million due to
the legal and consulting costs associated with the termination of the Coal
Purchase Agreement with Lodestar Energy, Inc. Offsetting the increase in
operating costs is a decrease of $2.7 million in operating and maintenance
costs relating to the generator rewind performed in the 2002 scheduled major
outage and a decrease in insurance and taxes of $0.2 million. The total net
non-operating expense was approximately $53.2 million for both the years ended
December 31, 2003 and 2002. As of December 31, 2003 and 2002, the Partnership had approximately $584.8
million and $599.9 million, respectively, of property, plant and equipment, net
of accumulated depreciation. The property, plant and equipment consists
primarily of purchased equipment, construction related labor and materials,
interest during construction, financing costs, and other costs directly
associated with the construction of the Facility. This decrease is due
primarily to depreciation of $15.2 million. Year ended December 31, 2002 Compared to the Year Ended December 31, 2001 For the years ended December 31, 2002 and 2001, the Partnership had total
operating revenues of $162.7 million and $175.4 million, respectively. This
decrease in 2002 was attributable primarily to decreased energy revenues of
$4.0 million and decreased capacity bonus and capacity revenues of $8.6
million. For the years ended December 31, 2002 and 2001, the Facility achieved
an average Capacity Billing Factor of 89.95% and 97.02%, respectively. This
resulted in earning monthly capacity payments aggregating $113.4 million in
2002 and $113.2 million in 2001. Bonuses aggregated $0.2 million in 2002 and
$9.0 million in 2001. The increased revenues from capacity payments are due
primarily to the quarterly escalations on the fixed operating and maintenance
component of the capacity charge. The decrease in bonus revenues is due to the
decrease in the average Capacity Billing Factor relating to decreased
availability due to boiler tube leaks and the generator repairs in 2001. The
calculation to compute the Capacity Billing Factor (which is the rolling
average of the prior 365 days) throughout all of 2002 included the 11 days of
unscheduled outage time in 2001 for the generator repairs with 0% availability
for those days. The lower energy revenues are due primarily to additional six
weeks of scheduled outage time in 2002 allowable under the PPA to perform major
maintenance. During 2002 and 2001, the Facility was dispatched by FPL and
generated 2,079,781 megawatt-hours and 2,276,568 megawatt-hours, respectively.
The 12




---



##### 



monthly average dispatch rate requested by FPL was 89.0% and 85.3% for the
twelve months ended December 31, 2002 and 2001, respectively. Total operating costs were $106.1 million and $105.4 million for the years
ended December 31, 2002 and 2001, respectively. This increase was due
primarily to an increase of $3.1 million in operating and maintenance costs
relating to the generator repairs and auxiliary boiler repairs. Offsetting the
increase in operating costs was a decrease in general and administrative
expenses of $1.3 million primarily for lower third-party legal costs, a
decrease of $0.6 million for loss on disposal of assets, a decrease in fuel and
ash costs of $0.3 million and a decrease of $0.2 million in insurance and
taxes. For the years ended December 31, 2002 and 2001, the total net
non-operating expense was approximately $53.2 million and $53.8 million,
respectively. The decrease was primarily due to a $1.0 million reduction in
bond interest expense due to principal payments of the Series A-9 First
Mortgage Bonds on June 15, 2002 and on December 15, 2002, and a decrease in
letter of credit fees of $0.4 million, offset by a decrease in interest income
of $0.5 million and an increase in the amortization of deferred financing costs
of $0.2 million. Net income was $3.4 million and $16.3 million for the twelve months ended
December 31, 2002 and 2001, respectively. This $12.9 million decrease was
primarily attributable to a decrease in revenues of $12.7 million and a $2.2
million increase in cost of sales, offset by a decrease in other operating
expenses of $1.5 million and a decrease in net interest expense of $0.6
million, as discussed in detail above. As of December 31, 2002 and 2001, the Partnership had approximately $599.9
million and $615.1 million, respectively, of property, plant and equipment, net
of accumulated depreciation. The property, plant and equipment consists
primarily of purchased equipment, construction related labor and materials,
interest during construction, financing costs, and other costs directly
associated with the construction of the Facility. This decrease is due
primarily to depreciation of $15.2 million. Liquidity and Capital Resources Net cash provided by operating activities in 2003 was $32.1 million as compared
to $17.8 million in 2002. Net cash provided by operating activities primarily
represents net income, adjusted by non-cash expenses and income, plus the net
effect of changes within the Partnerships operating assets and liability
accounts. The increase in net cash from operations in 2003 is primarily
related to the increase in net income of $10.3 million in 2003, a decrease in
inventories and fuel reserves of $1.5 million, a decrease in accounts
receivable of $4.5 million and an increase in depreciation, amortization and
accretion of $0.8 million. These increases were offset by a decrease in
accounts payable and accrued liabilities of $2.6 million. Net cash provided by investing activities in 2003 was $16.2 million as compared
to net cash used in investing activities of $15.9 million in 2002. Net cash
flows provided by investing activities represent decreases in investments held
by trustee. Net cash flows used in investing activities represent net
additions to plant and equipment and increases in investments held by trustee. Net cash used in financing activities in 2003 was $47.1 million as compared to
$1.9 million in 2002. Net cash flows used in financing activities in 2003 and
2002 primarily represent payments on First Mortgage Bonds, cash distributions
to Partners, the borrowings and 13




---



##### 



repayments of the loans drawn under the
previous letter of credit agreement and the
borrowings and repayments under the existing revolving credit agreement. The
increase in cash used in financing activities is attributable to the
Partnerships replacement of several letters of credit, as discussed below. Credit Ratings On December 30, 2003, Moodys confirmed the senior secured debt of the
Partnership at Ba1 and changed the rating outlook to stable from negative.
Moodys stated that this rating action reflects the projects improved
financial performance during 2003 and the expectations that the debt service
coverage ratios for the next several years will remain in the 1.30x to 1.40x
range. The rating action also incorporates the Partnerships improved
liquidity profile due to the completion of new letter of credit and working
capital facilities during October 2003 and the progress being made to negotiate
a new coal price index with the coal supplier. On July 8, 2003, Standard and Poors (S&P) issued a press release announcing
that it had lowered its corporate credit ratings on two of NEGTs subsidiaries.
S&P stated these ratings actions followed the NEGT Bankruptcy. S&P further
stated that the rating on ICL Funding was not affected by the ratings action on
NEGT because this project financing is structured as a bankruptcy-remote entity
and is not 100% owned by NEGT. Therefore, S&P concluded that the incentive to
consolidate it in a bankruptcy of NEGT is low. S&Ps rating of the
Partnerships debt remains at BBB- with a negative outlook. On March 19, 2004 S&P placed its BBB- rating on the debt of ICL Funding on
Credit Watch with negative implications. The credit watch reflects the risk of
a downgrade if the PPA negotiations with FPL regarding a new energy payment
index are not resolved to mitigate the current mismatch between energy revenues
and fuel expenses. Bonds On November 22, 1994, the Partnership and ICL Funding issued first mortgage
bonds in an aggregate principal amount of $505 million (the First Mortgage
Bonds). Of this amount, $236.6 million of the First Mortgage Bonds bear an
average interest rate of 9.02% and $268.4 million of the First Mortgage Bonds
bear an interest rate of 9.77%. Concurrent with the Partnerships issuance of
its First Mortgage Bonds, the Martin County Industrial Development Authority
issued $113 million of Industrial Development Refunding Revenue Bonds (Series
1994A) which bear an interest rate of 7.875% (the 1994A Tax Exempt Bonds). A
second series of tax exempt bonds (Series 1994B) in the approximate amount of
$12 million, which bear an interest rate of 8.05%, were issued by the Martin
County Industrial Development Authority on December 20, 1994 (the 1994B Tax
Exempt Bonds and, together with the 1994A Tax Exempt Bonds, the 1994 Tax
Exempt Bonds). The First Mortgage Bonds and the 1994 Tax Exempt Bonds are
hereinafter collectively referred to as the Bonds. Certain proceeds from the issuance of the First Mortgage Bonds were used to
repay $421 million of the Partnerships indebtedness, and financing fees and
expenses incurred in connection with the development and construction of the
Facility. The balance of the proceeds were deposited in various restricted
funds that are being administered by an independent disbursement agent pursuant
to trust indentures and a disbursement agreement. Funds administered by such
disbursement agent are invested in specified investments. These funds
together with other funds available to the Partnership were used: (i) to
finance completion of 14




---



##### 



construction, testing, and initial operation of the
Facility; (ii) to finance construction interest and construction-related
contingencies; and (iii) to provide for initial working capital. The proceeds of the 1994 Tax Exempt Bonds were used to refund $113 million
principal amount of Industrial Development Revenue Bonds (Series 1992A and
Series 1992B) previously issued by the Martin County Industrial Development
Authority for the benefit of the Partnership, and to fund, in part, a debt
service reserve account for the benefit of the holders of its tax-exempt bonds
and to complete construction of certain portions of the Facility. The Partnerships total borrowings from inception through December 2003 were
$769 million. The equity loan of $139 million was repaid on December 26, 1995.
As of December 31, 2003, the outstanding borrowings included $125 million from
the 1994 Tax Exempt Bonds and all of the available First Mortgage Bond
proceeds. The First Mortgage Bonds have matured as follows (in millions): Series
    
    Aggregate Principal Amount
    
    Date Matured and PaidA-1
    
    $
    4.4
    
    
    June 15, 1996A-2
    
    
    4.4
    
    
    December 15, 1996A-3
    
    
    4.9
    
    
    June 15, 1997A-4
    
    
    4.9
    
    
    December 15, 1997A-5
    
    
    5.1
    
    
    June 15, 1998A-6
    
    
    5.1
    
    
    December 15, 1998A-7
    
    
    5.0
    
    
    June 15, 1999A-8
    
    
    5.0
    
    
    December 15, 1999**
 **As of December 31, 2003, the Partnership has made semi-annual installments
totaling $48.7 million for the A-9 Series, which does not fully mature until
December 15, 2010. The weighted average interest rate paid by the Partnership on its debt for the
years ended December 31, 2003 and 2002, was 9.200% and 9.201%, respectively. Credit Agreements The Partnership, pursuant to certain of the financing agreements, the PPA and
the ESA, was required to post letters of credit, which, in the aggregate, had a
face amount of no more than $65 million. Certain of these letters of credit
had been issued pursuant to a Letter of Credit and Reimbursement Agreement with
Credit Suisse/First Boston. Prior to their expiration, the letters of credit
were drawn by LDC on November 14, 2002 and by FPL on December 16, 2002 for
$10.0 million and $1.7 million, respectively. The principal amount of the
resulting seven year term loans was payable in fourteen semi-annual
installments with a prepayment provision of any outstanding loan amount before
cash would be available for distribution to the Partners. On July 25, 2003,
FPL returned to the Partnership the $1.7 million cash drawn on the letter of
credit, since the obligation to maintain this security under the PPA had
expired. The $1.7 million was deposited in accordance with the terms of the
Disbursement Agreement. The Partnership entered into a debt service reserve letter of credit and
reimbursement agreement, dated as of November 1, 1994, with BNP Paribas.
Pursuant to the terms of the Disbursement Agreement, since the debt service
reserve letter of credit was to expire on November 22, 2005, available cash
flows were required to be deposited on a monthly basis 15




---



##### 



beginning on May 22,
2002 into the Debt Service Reserve Account or the Tax Exempt Debt Service
Reserve Account, as the case may be, until the required Debt Service Reserve
Account Maximum Balance was achieved, which is $29.9 million. On October 10, 2003, the Partnership closed a transaction with Credit Lyonnais
New York Branch (CL), as agent and arranger, to replace the above referenced
letters of credit. The facilities include a Debt Service Reserve Letter of
Credit up to $29.9 million, which has a term of seven years; Performance
Letters of Credit up to $15.0 million, which have a term of five years; and a
Working Capital Revolving Facility up to $10.0 million, which has a term of
three years and is presently capped at $3.0 million. The interest rate on
loans made on the Working Capital Revolving Credit is the London Interbank
Offered Rates (LIBOR) plus an applicable margin. The Partnership satisfied
the applicable conditions precedent set forth in the financing documents
relating to this transaction. Under the Performance Letters of Credit, the ESA Letter of Credit for $10.0
million was issued in favor of LDC. Letters of credit previously drawn by LDC on November 14, 2002 and by FPL on
December 16, 2002 for $10.0 million and $1.7 million, respectively, and which
converted to term loans, were paid in full at closing. Subordinated fees and
interest under the MSA and the O&M Agreement totaling $1.2 million and $2.3
million, respectively, were also paid at closing. The Debt Service Letter of Credit, which was issued for the full $29.9 million,
replaces one that was due to expire on November 22, 2005. Deposits previously
made by the Partnership into the Debt Service Reserve Account totaling $12.0
million as of September 30, 2003 were returned to the Revenue Account as a
result of the replacement Debt Service Reserve Letter of Credit and were used
for the payment of the subordinated fees and interest and the repayment of the
letter of credit term loans. Upon execution of the relevant amendments and/or additional contracts with the
fuel supplier and with FPL reflecting new indices and fuel supply arrangements,
a Coverage Test will be conducted to determine the projected average annual
Senior Debt Service Coverage Ratio through 2015. If the Coverage Test results
in the average of less than 1.30x, distributable cash will be deposited into an
escrow account for the benefit of the letter of credit lenders to collateralize
the letters of credit. The cash will be held in escrow until (i) the
achievement of a Senior Debt Service Coverage Ratio of 1.35x in one semi-annual
interest payment period and (ii) an annual average Senior Debt Service Coverage
ratio through 2015 of at least 1.35x is projected. Expectations for Year Ending December 31, 2004 For 2004, the Partnership has identified possible capital improvements of
approximately $2.4 million that will enhance the reliability of the facility
and, if approved by the Board of Control (see Item 10), will be funded through
cash expected to be generated from operations that
would otherwise be distributed to the partners. These improvements include
additional upper aquifer wells, water system upgrades and distributed controls
system modifications. 16




---



##### 



In the absence of any major equipment failures, unit overall availability is
expected to be comparable to 2003 levels, which averaged approximately 97% for
the year. Capacity bonuses are expected to be at a comparable level in 2004
since the Capacity Billing Factor is expected to be at or above 97%, which is
the maximum capacity bonus potential each month the Partnership can achieve. The Partnership believes that it will have adequate cash flows from operations
to fund future working capital requirements and cover debt repayment
obligations in 2004. Contractual Payment Obligations The Partnership has entered into various agreements that result in contractual
payment obligations in future years. These contracts include financing
arrangements for the Bonds, leases, and contracts for management services and
operating and maintenance services. The following table summarizes cash
payments that the Partnership is committed to make under existing terms of
contracts to which the Partnership is a party as of December 31, 2003. This
table does not include contingencies. For the capital lease and services
agreements, actual cash payments will be based upon contract terms with
provisions for escalation and will likely differ, perhaps materially from
amounts presented below. Less
    
    
    
    
    
    
    
    
    
    MoreContractual Payment Obligations
    
    than 1
    
    1-3
    
    3-5
    
    Than 5(in millions)
    
    year
    
    Years
    
    Years
    
    Years
    
    TotalLong Term Debt:First Mortgage Bond Principal
    
    $
    16.8
    
    
    $
    34.4
    
    
    $
    43.0
    
    
    $
    323.3
    
    
    $
    417.5First Mortgage Bond Interest
    
    
    39.6
    
    
    
    74.7
    
    
    
    67.6
    
    
    
    178.4
    
    
    
    360.3Tax Exempt Bond Principal
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    125.0
    
    
    
    125.0Tax Exempt Bond Interest
    
    
    9.9
    
    
    
    19.7
    
    
    
    19.7
    
    
    
    146.1
    
    
    
    195.4Capital Lease (1)
    
    
    0.6
    
    
    
    1.2
    
    
    
    1.3
    
    
    
    0.9
    
    
    
    4.0Letters of Credit (2)
    
    
    1.2
    
    
    
    2.3
    
    
    
    2.2
    
    
    
    1.4
    
    
    
    7.1Services
Agreements: (3)Management Services
    
    
    0.8
    
    
    
    1.6
    
    
    
    1.6
    
    
    
    15.4
    
    
    
    19.4Operating and Maintenance Services
    
    
    1.8
    
    
    
    3.7
    
    
    
    3.7
    
    
    
    25.3
    
    
    
    34.5Total Contractual Payment Obligations
    
    $
    70.7
    
    
    $
    137.6
    
    
    $
    139.1
    
    
    $
    815.8
    
    
    $
    1,163.2
  (1)
    
    Reflect payment obligations under a railcar lease agreement with
General Electric Railcar Services Corporation.  (2)
    
    Reflect payment obligations for administration, fronting and
commitment fees for the Debt Service Reserve Letter of Credit, the
Performance Letters of Credit and the Revolving Credit.  (3)
    
    Reflect payment obligations for the base fee pursuant to the MSA
and the O&M Agreement. 17




---



##### 



Commitments All off-balance sheet arrangements of the Partnership are discussed in the
Certain Project Contracts section in Item 1, Business, and in the Critical
Accounting Policy section in Item 7, Management Discussion and Analysis. The Partnership has commitments related to purchase and sales agreements as described in Item 1, Business. The Partnership also has financial letters of credit as discussed above. Market Risk Market risk is the risk that changes in market conditions will adversely affect
earnings or cash flow. The Partnership categorizes its market risks as
interest rate risk and energy commodity price risk. Immediately below are
detailed descriptions of the market risks and explanations as to how each of
these risks are managed. Interest Rate Risk Interest rate risk is the risk that changes in interest rates could adversely
affect earnings or cash flows. The Partnerships cash and restricted cash are
sensitive to changes in interest rates. Interest rate changes would result in
a change in interest income due to the difference between the current interest
rates on cash and restricted cash and the variable rate that these financial
instruments may adjust to in the future. Interest rate risk sensitivity
analysis is used to measure interest rate risk by computing estimated changes
in cash flows as a result of assumed changes in market interest rates. A 10%
decrease in both 2003 and 2002 interest rates would be immaterial to the
Partnerships consolidated financial statements. The Partnerships Bonds have fixed interest rates. Changes in the current
market rates for the Bonds would not result in a change in interest expense due
to the fixed coupon rate of the Bonds. Energy Commodity Price Risk The Partnership seeks to reduce its exposure to market risk associated with
energy commodities such as electric power and coal fuel through the use of
long-term purchase and sale contracts. Currently, the energy price paid by FPL
for the coal cost component of the energy payment is not matched to the price
of base coal in the amended coal purchase agreement. A provision in the PPA
allows FPL and the Partnership to meet and adjust annually the energy payment
with the objective of minimizing the difference in the actual energy costs and
the energy payments, if the difference is more than 4%. FPL completed its
audit of the 2002 documentation provided by the Partnership of actual energy
costs and determined that the difference is more than 4%. In addition, the
fuel index used to determine the coal cost component of the monthly energy
payment under the PPA is no longer in effect due to an interruption of Central
Appalachian coal deliveries to the St. Johns River Power Park (SJRPP).
Beginning July 1, 2003 the coal cost component of the monthly energy payment
that FPL has reimbursed to the Partnership has escalated according to the index
in the SJRPP long term domestic Appalachian coal contract which had been in
effect until the interruption in deliveries. The Partnership and FPL, within
one year, shall agree upon a comparable replacement index. The Partnership and
FPL have been in discussions to resolve both the energy price and the
replacement index issues. 18




---



##### 



Critical Accounting Policies The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States involves the use
of estimates and assumptions that affect the recorded amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Certain of these
estimates and assumptions are considered to be Critical Accounting Policies,
due to their complexity, subjectivity, and uncertainty, along with their
relevance to the financial performance of the Partnership. Actual results may
differ substantially from these estimates. These policies and their key
characteristics are outlined below. Revenues from the sale of electricity are recorded based on output delivered
and capacity provided at rates as specified under contract terms in the periods
to which they pertain, calculated based upon certain capacity factors and
energy and fuel cost estimates. All derivatives are assessed to evaluate whether they are to be recognized on
the balance sheet at fair value. Derivatives, or any portion thereof, that are
not effective hedges must be adjusted to fair value through income. If
derivatives are effective hedges, depending on the nature of the hedges,
changes in the fair value of derivatives either will offset the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings,
or will be recognized in other comprehensive income, a component of partners
capital, until the hedged items are recognized in earnings. Currently, the
Partnerships only derivative contracts are commodity contracts for the
physical delivery of purchase and sale quantities transacted in the normal
course of business. Since these activities qualify as normal purchase and
normal sale activities, the Partnership has not recorded the value of the
related contracts on its balance sheet. Recently Issued Accounting Pronouncements On January 1, 2003, the Partnership adopted SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 provides accounting requirements for
costs associated with legal obligations to retire tangible, long-lived assets.
The statement requires that an asset retirement obligation be recorded at fair
value in the period in which it is incurred, if a reasonable estimate of fair
value can be made. In the same period, the associated asset retirement costs
are capitalized as part of the carrying amount of the related long-lived asset.
In each subsequent period, the liability is accreted to its present value and
the capitalized cost is depreciated over the useful life of the long-lived
asset. The key inputs in the asset retirement obligation calculation performed by the
Partnership are the determination of the various retirement scenarios and the
probability of when or if those scenarios will occur. The estimation made by the
Partnership upon adoption of SFAS No. 143 represents the Partnerships best
estimate of scenarios and related probabilities at that date. Upon
implementation of this statement, the Partnership recorded approximately
$44,000 in property, plant and equipment to reflect the fair value of the asset
retirement costs as of the date the obligation was incurred, approximately
$9,000 of accumulated depreciation through December 31, 2002 and an asset
retirement obligation of approximately $84,000. The cumulative effect of the
change in accounting principle as a result of adopting this statement was a
loss of approximately $49,000. 19




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##### 



Legal Matters The Partnership is currently not involved in any legal proceedings. Item 7AQuantitative and Qualitative Disclosures About Market Risk The Partnership is exposed to market risk from energy commodity prices and
interest rates, which could affect its future results of operations and
financial condition. The Partnership manages its exposure to these risks
through its regular operating and financing activities. (See Market Risk,
included in Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operations above.). The table below presents principal, interest and related weighted average
interest rates by year of maturity (in thousands). DEBT (all fixed rate)
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair ValueTax Exempt Bonds:Principal
    
    $
    0.0
    
    
    $
    0.0
    
    
    $
    0.0
    
    
    $
    0.0
    
    
    $
    0.0
    
    
    $
    125,010
    
    
    $
    125,010
    
    
    $
    128,067Interest
    
    $
    9,865
    
    
    $
    9,865
    
    
    $
    9,865
    
    
    $
    9,865
    
    
    $
    9,865
    
    
    $
    146,088
    
    
    $
    195,413Average Interest
Rate
    
    
    7.89
    %
    
    
    7.89
    %
    
    
    7.89
    %
    
    
    7.89
    %
    
    
    7.89
    %
    
    
    7.89
    %First Mortgage
Bonds:Principal
    
    $
    16,785
    
    
    $
    16,257
    
    
    $
    18,224
    
    
    $
    20,944
    
    
    $
    22,053
    
    
    $
    323,278
    
    
    $
    417,541
    
    
    $
    496,607Interest
    
    $
    39,645
    
    
    $
    38,102
    
    
    $
    36,552
    
    
    $
    34,801
    
    
    $
    32,836
    
    
    $
    178,394
    
    
    $
    360,330Average Interest
Rate
    
    
    9.59
    %
    
    
    9.61
    %
    
    
    9.62
    %
    
    
    9.64
    %
    
    
    9.65
    %
    
    
    9.75
    %
 20




---



##### 



Item 8Financial Statements and Supplementary Data Index to Financial Statements
    
    PageReports of Independent Auditors and Independent Public
Accountants
    
    
    22Consolidated Balance Sheets
    
    
    24Consolidated Statements of Operations
    
    
    26Consolidated Statements of Changes in Partners Capital
    
    
    27Consolidated Statements of Cash Flows
    
    
    28Notes to Consolidated Financial Statements
    
    
    29
 21




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##### 



Report of Independent Auditors To the Board of Control of
Indiantown Cogeneration, L.P.: We have audited the accompanying consolidated balance sheets of Indiantown
Cogeneration, L.P. and subsidiary as of December 31, 2003 and 2002 and the
related consolidated statements of operations, changes in partners capital and
cash flows for the years then ended. 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. The
accompanying consolidated statements of operations, changes in partners
capital and cash flows for the year ended December 31, 2001, were audited by
other auditors who have ceased operations and whose report dated January 23,
2002, expressed an unqualified opinion on those statements. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the 2003 and 2002 financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Indiantown Cogeneration, L.P. and subsidiary at December 31, 2003 and 2002,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with accounting principles generally accepted
in the United States. As discussed in Note 2 in the consolidated financial statements, the
Partnership changed the manner in which it accounts for asset retirement
obligations, upon adoption of Statement of Financial Accounting Standard No.
143, Accounting for Asset Retirement Obligations. /s/ Ernst & Young LLP McLean, Virginia
February 26, 2004
Except for Note 10, as to which the date is
March 19, 2004 22




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##### 



This is a copy of the report previously issued by Arthur Andersen LLP and has
not been reissued by Arthur Andersen LLP. Report of Independent Public Accountants To Indiantown Cogeneration, L.P.: We have audited the accompanying consolidated balance sheets of Indiantown
Cogeneration, L.P. (a Delaware limited partnership) and subsidiary (the
Partnership) as of December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in partners capital and cash flows for the
years then ended. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Indiantown Cogeneration, L.P.
and subsidiary as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States. As discussed in Note 2 to the financial statements, the Partnership changed its
method of accounting for scheduled major overhauls in 2000. /S/ ARTHUR ANDERSEN LLP  Vienna, Virginia
January 23, 2002 23




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##### 



Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Balance Sheets
As of December 31, 2003 and 2002
(in thousands) ASSETS
    
    2003
    
    2002CURRENT ASSETS:Cash and cash equivalents
    
    $
    1,517
    
    
    $
    290Restricted cash
    
    
    
    
    
    
    1,700Accounts receivable-trade
    
    
    16,104
    
    
    
    17,513Inventories
    
    
    793
    
    
    
    741Prepaid expenses
    
    
    1,088
    
    
    
    928Investments held by trustee, including
restricted funds
of $5,557
and $5,569, respectively
    
    
    8,107
    
    
    
    14,913Total current assets
    
    
    27,609
    
    
    
    36,085INVESTMENTS HELD BY TRUSTEE,
restricted funds
    
    
    16,501
    
    
    
    26,001DEPOSITS
    
    
    243
    
    
    
    229PROPERTY, PLANT & EQUIPMENT:Land
    
    
    8,582
    
    
    
    8,582Electric and steam generating facilities
    
    
    702,191
    
    
    
    702,090Less - accumulated depreciation
    
    
    (125,945
    )
    
    
    (110,747
    )Net property, plant & equipment
    
    
    584,828
    
    
    
    599,925FUEL RESERVE
    
    
    1,991
    
    
    
    3,565DEFERRED FINANCING COSTS, net of accumulated
amortization of $48,353 and $46,497,
respectively
    
    
    14,063
    
    
    
    13,689Total assets
    
    $
    645,235
    
    
    $
    679,494
 The accompanying notes are an integral part of these consolidated financial statements. 24




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##### 



Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Balance Sheets
As of December 31, 2003 and 2002
(in thousands) LIABILITIES AND PARTNERS CAPITAL
    
    2003
    
    2002CURRENT LIABILITIES:Accounts payable and accrued liabilities
    
    $
    10,172
    
    
    $
    9,770Accounts payable and accrued liabilities to related
parties (Note 7)
    
    
    1,044
    
    
    
    2,842Accrued interest
    
    
    2,218
    
    
    
    2,322Current
portion - First Mortgage Bonds
    
    
    16,785
    
    
    
    14,566Current portion of lease payable  railcars
    
    
    412
    
    
    
    383Current portion of term loans
    
    
    
    
    
    
    1,431Total current liabilities
    
    
    30,631
    
    
    
    31,314LONG TERM DEBT:First Mortgage Bonds
    
    
    400,757
    
    
    
    417,541Tax Exempt Facility Revenue Bonds
    
    
    125,010
    
    
    
    125,010Lease payable  railcars
    
    
    2,792
    
    
    
    3,204Term loans
    
    
    
    
    
    
    10,163Total long term debt
    
    
    528,559
    
    
    
    555,918ASSET RETIREMENT OBLIGATION
    
    
    92
    
    
    
    Total liabilities
    
    
    559,282
    
    
    
    587,232PARTNERS CAPITAL:General Partners:Palm Power Corporation
    
    
    8,595
    
    
    
    9,226Indiantown Project Investment, L.P.
    
    
    17,147
    
    
    
    18,406Limited Partners:Toyan Enterprises
    
    
    25,829
    
    
    
    27,725Thaleia, LLC
    
    
    34,382
    
    
    
    36,905Total partners capital
    
    
    85,953
    
    
    
    92,262Total liabilities and partners capital
    
    $
    645,235
    
    
    $
    679,494
 The accompanying notes are an integral part of these consolidated financial statements. 25




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##### 



Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands) 2003
    
    2002
    
    2001Operating Revenues:Electric capacity and capacity bonus
    
    $
    125,179
    
    
    $
    113,561
    
    
    $
    122,202Electric energy revenue
    
    
    57,016
    
    
    
    48,856
    
    
    
    52,902Steam
    
    
    248
    
    
    
    270
    
    
    
    328Total operating revenues
    
    
    182,443
    
    
    
    162,687
    
    
    
    175,432Cost of Sales:Fuel and ash
    
    
    67,665
    
    
    
    56,024
    
    
    
    56,321Operating and maintenance
    
    
    22,036
    
    
    
    24,716
    
    
    
    21,654Depreciation
    
    
    15,189
    
    
    
    15,223
    
    
    
    15,187Loss on disposal of assets
    
    
    
    
    
    
    30
    
    
    
    609Total cost of sales
    
    
    104,890
    
    
    
    95,993
    
    
    
    93,771Gross Profit
    
    
    77,553
    
    
    
    66,694
    
    
    
    81,661Other Operating Expenses:General and administrative
    
    
    3,837
    
    
    
    3,171
    
    
    
    4,450Insurance and taxes
    
    
    6,739
    
    
    
    6,960
    
    
    
    7,155Total other operating expenses
    
    
    10,576
    
    
    
    10,131
    
    
    
    11,605Operating Income
    
    
    66,977
    
    
    
    56,563
    
    
    
    70,056Non-Operating Income (Expense):Interest expense
    
    
    (54,340
    )
    
    
    (54,422
    )
    
    
    (55,528
    )Interest income
    
    
    1,103
    
    
    
    1,247
    
    
    
    1,767Net non-operating expense
    
    
    (53,237
    )
    
    
    (53,175
    )
    
    
    (53,761
    )Income Before Cumulative Effect of a
Change in Accounting Principle
    
    
    13,740
    
    
    
    3,388
    
    
    
    16,295Cumulative Effect of a Change in
Accounting Principle
    
    
    (49
    )
    
    
    
    
    
    
    Net Income
    
    $
    13,691
    
    
    $
    3,388
    
    
    $
    16,295
 The accompanying notes are an integral part of these consolidated financial statements. 26




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##### 



Indiantown Cogeneration, L. P. and Subsidiary
Consolidated Statements of Changes in Partners Capital
For the Years Ended December 31, 2003, 2002 and 2001
(in thousands) Toyan
    
    Palm Power
    
    
    
    
    
    Thaleia,Enterprises,
    
    Corporation,
    
    IPILP,
    
    LLC,
    
    TotalLimited
    
    General
    
    General
    
    Limited
    
    PartnersPartner
    
    Partner
    
    Partner
    
    Partner
    
    CapitalPartners capital, December 31, 2000
    
    $
    25,536
    
    
    $
    8,498
    
    
    $
    16,953
    
    
    $
    33,992
    
    
    $
    84,979Net income
    
    
    4,897
    
    
    
    1,629
    
    
    
    3,251
    
    
    
    6,518
    
    
    
    16,295Capital distributions
    
    
    (3,726
    )
    
    
    (1,240
    )
    
    
    (2,474
    )
    
    
    (4,960
    )
    
    
    (12,400
    )Partners capital, December 31, 2001
    
    
    26,707
    
    
    
    8,887
    
    
    
    17,730
    
    
    
    35,550
    
    
    
    88,874Net income
    
    
    1,018
    
    
    
    339
    
    
    
    676
    
    
    
    1,355
    
    
    
    3,388Partners capital, December 31, 2002
    
    
    27,725
    
    
    
    9,226
    
    
    
    18,406
    
    
    
    36,905
    
    
    
    92,262Net income
    
    
    4,114
    
    
    
    1,369
    
    
    
    2,731
    
    
    
    5,477
    
    
    
    13,691Capital distributions
    
    
    (6,010
    )
    
    
    (2,000
    )
    
    
    (3,990
    )
    
    
    (8,000
    )
    
    
    (20,000
    )Partners capital, December 31, 2003
    
    $
    25,829
    
    
    $
    8,595
    
    
    $
    17,147
    
    
    $
    34,382
    
    
    $
    85,953
 The accompanying notes are an integral part of these consolidated financial statements. 27




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##### 



Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Statements of Cash FlowsFor the Years Ended December 31, 2003, 2002, and 2001(in thousands) 2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    13,691
    
    
    $
    3,388
    
    
    $
    16,295Adjustments to reconcile net income to net cash
provided by operating activities:Cumulative effect of a change in accounting principle
    
    
    49
    
    
    
    
    
    
    
    Depreciation, amortization and accretion
    
    
    17,052
    
    
    
    16,217
    
    
    
    16,012Loss on disposal of assets
    
    
    
    
    
    
    30
    
    
    
    609Effect of changes in assets and liabilities:Decrease (increase) in accounts receivable-trade
    
    
    1,409
    
    
    
    (3,070
    )
    
    
    (590
    )Decrease (increase) in inventories and fuel reserve
    
    
    1,522
    
    
    
    13
    
    
    
    (1,280
    )(Increase) decrease in deposits and prepaid expenses
    
    
    (158
    )
    
    
    41
    
    
    
    (194
    )(Decrease) increase in accounts payable and accrued
liabilities, including to related
parties, and accrued interest
    
    
    (1,500
    )
    
    
    1,135
    
    
    
    2,103Net cash provided by operating activities
    
    
    32,065
    
    
    
    17,754
    
    
    
    32,955CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property, plant & equipment
    
    
    (72
    )
    
    
    (34
    )
    
    
    (2,586
    )Decrease (increase) in investments held by trustee
    
    
    16,306
    
    
    
    (15,839
    )
    
    
    (6,986
    )Net cash provided by (used in) investing activities
    
    
    16,234
    
    
    
    (15,873
    )
    
    
    (9,572
    )CASH FLOWS FROM FINANCING ACTIVITIES:Decrease (increase) in restricted cash
    
    
    1,700
    
    
    
    (1,700
    )
    
    
    Payment of financing costs
    
    
    (2,229
    )
    
    
    
    
    
    
    Payment on capital lease obligation  railcars
    
    
    (383
    )
    
    
    (357
    )
    
    
    (332
    )Borrowings under revolving credit agreement
    
    
    2,946
    
    
    
    
    
    
    
    3,697Repayments under revolving credit agreement
    
    
    (2,946
    )
    
    
    
    
    
    
    (3,697
    )Borrowings under letter of credit agreement
    
    
    
    
    
    
    11,700
    
    
    
    Repayments under letter of credit agreement
    
    
    (11,594
    )
    
    
    (106
    )
    
    
    Payments on First Mortgage Bonds
    
    
    (14,566
    )
    
    
    (11,460
    )
    
    
    (11,141
    )Capital distributions
    
    
    (20,000
    )
    
    
    
    
    
    
    (12,400
    )Net cash used in financing activities
    
    
    (47,072
    )
    
    
    (1,923
    )
    
    
    (23,873
    )CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    1,227
    
    
    
    (42
    )
    
    
    (490
    )Cash and cash equivalents, beginning of year
    
    
    290
    
    
    
    332
    
    
    
    822Cash and cash equivalents, end of year
    
    $
    1,517
    
    
    $
    290
    
    
    $
    332SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:Cash paid for interest
    
    $
    51,763
    
    
    $
    52,078
    
    
    $
    53,083
 The accompanying notes are an integral part of these consolidated financial statements. 28




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##### 



Indiantown Cogeneration, L.P. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2003, 2002, and 2001 1.ORGANIZATION AND BUSINESS: Indiantown Cogeneration, L.P. (the Partnership) is a special purpose Delaware
limited partnership formed on October 4, 1991. The Partnership was formed to
develop, construct, and operate an approximately 330 megawatt (net) pulverized
coal-fired cogeneration facility (the Facility) located on an approximately
240 acre site in southwestern Martin County, Florida. The Facility produces
electricity for sale to Florida Power & Light Company (FPL) under a Power
Purchase Agreement (PPA). The Facility also supplies steam to Louis Dreyfus
Citrus, Inc. (LDC), successor to Caulkins Indiantown Citrus Co., under an
Energy Services Agreement. The Partnership commenced commercial operations on
December 22, 1995 (the Commercial Operation Date). During 1994, the
Partnership formed its sole, wholly owned subsidiary, Indiantown Cogeneration
Funding Corporation (ICL Funding), to act as agent for, and co-issuer with,
the Partnership in accordance with the 1994 bond offering discussed in Note 4.
ICL Funding has no separate operations and has only $100 in assets. The original general partners were Toyan Enterprises (Toyan), a California
corporation and a wholly owned special purpose indirect subsidiary of National
Energy & Gas Transmission, Inc. (NEGT, formerly known as PG&E National Energy
Group, Inc.) and Palm Power Corporation (Palm), a Delaware corporation and a
special purpose indirect subsidiary of Bechtel Enterprises, Inc. (Bechtel
Enterprises). The sole limited partner was TIFD III-Y, Inc. (TIFD), a
special purpose indirect subsidiary of General Electric Capital Corporation
(GECC). In 1998, Toyan consummated transactions with DCC Project Finance Twelve, Inc.
(PFT), whereby PFT, through a new partnership (Indiantown Project Investment,
L.P. (IPILP)) with Toyan, became a new general partner in the Partnership.
Toyan is the sole general partner of IPILP. Prior to the PFT transaction,
Toyan converted some of its general partnership interest into a limited
partnership interest such that Toyan now directly holds only a limited
partnership interest in the Partnership. In addition, Bechtel Generating
Company, Inc. (Bechtel Generating), sold all of the stock of Palm to a wholly
owned indirect subsidiary of Cogentrix Energy, Inc. (together with its
subsidiaries, Cogentrix). Palm holds a 10% general partner interest in the
Partnership. On June 4, 1999, Thaleia, LLC (Thaleia), a wholly owned subsidiary of Palm
and indirect wholly owned subsidiary of Cogentrix, acquired from TIFD a 19.90%
limited partner interest in the Partnership. On September 20, 1999, Thaleia
acquired another 20.00% limited partnership interest from TIFD and TIFDs
membership on the Board of Control of the Partnership. On November 24, 1999,
Thaleia purchased TIFDs remaining limited partnership interest in the
Partnership from TIFD. Cogentrix was acquired by GS Power Holdings LLC (GSPHLLC), a subsidiary of
The Goldman Sachs Group, Inc. GSPHLLC purchased 100% of the stock of Cogentrix
in December 2003. 29




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##### 



The net income of the Partnership is allocated to Toyan, Palm, IPILP and
Thaleia (collectively, the Partners) based on the following ownership
percentages: Toyan
    
    
    30.05
    %Palm
    
    
    10.00
    %IPILP
    
    
    19.95
    %Thaleia
    
    
    40.00
    %
 All distributions other than liquidating distributions will be made based on
the Partners percentage interest as shown above, in accordance with the
project documents and at such times and in such amounts as the Board of Control
of the Partnership determines. The Partnership is managed by Power Services Company (PSC, formerly known as
PG&E National Energy Group Company), pursuant to a Management Services
Agreement (the MSA). The Facility is operated by U.S. Operating Services
Company (OSC, formerly known as PG&E Operating Services Company), pursuant to
an Operation and Maintenance Agreement (the O&M Agreement). PSC and OSC are
general partnerships indirectly wholly owned by National Energy and Gas
Transmission, Inc. (NEGT, formerly known as PG&E National Energy Group,
Inc.). NEGT is an indirect subsidiary of PG&E Corporation (see Note 7). On July 8, 2003, NEGT and certain subsidiaries voluntarily filed petitions for
relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code
(collectively, the NEGT Bankruptcy) in the Greenbelt Division of the United
States Bankruptcy Court for the District of Maryland (the Bankruptcy Court). Neither the Partnership nor any of its NEGT affiliated partners, including
Toyan and IPILP, or PSC and OSC, are parties to the NEGT Bankruptcy. The
Partnership believes that it will not be substantively consolidated with NEGT
in any bankruptcy proceeding involving NEGT and the NEGT Bankruptcy does not
result in an event of default under the principal project contracts or the
principal financing documents of the facility. On February 26, 2004, NEGT filed with the Bankruptcy Court its Third Amended
Plan of Reorganization and the related Disclosure Statement (POR). The POR
contemplates that NEGT will retain and continue to operate its power generation
and pipeline businesses unless they are sold (as described in the POR),
separate from PG&E Corporation, and issue new debt securities and common stock.
NEGTs indirect ownership interest in the Partnership is included within its
power generation business. Any sale by NEGT of its interest in the Partnership
(a NEGT Interest Sale) may affect managements MSA contract with the
Partnership. There can be no certainty that a NEGT Interest Sale will be
completed. 30




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##### 



On December 30, 2003, Moodys confirmed the senior secured debt of the
Partnership at Ba1 and changed the rating outlook to stable from negative.
Moodys stated that this rating action reflects the projects improved
financial performance during 2003 and the expectations that the debt service
coverage ratios for the next several years will remain in the 1.30x to 1.40x
range. The rating action also incorporates the Partnerships improved
liquidity profile due to the completion of new letter of credit and working
capital facilities during October 2003 and the progress being made to negotiate
a new coal price index with the coal supplier. On July 8, 2003, Standard and Poors (S&P) issued a press release announcing
that it had lowered its corporate credit ratings on two of NEGTs subsidiaries.
S&P stated these ratings actions follow the NEGT Bankruptcy. S&P further
stated that the rating on ICL Funding was not affected by the ratings action on
NEGT because this project financing is structured as a bankruptcy-remote entity
and is not 100% owned by NEGT. Therefore, S&P concluded that the incentive to
consolidate it in a bankruptcy of NEGT is low. S&Ps rating of the
Partnerships debt remains at BBB- with a negative outlook. On March 19, 2004 S&P placed its BBB- rating on the debt of ICL Funding on
Credit Watch with negative implications. The credit watch reflects the risk of
a downgrade if the PPA negotiations with FPL regarding a new energy payment
index are not resolved to mitigate the current mismatch between energy revenues
and fuel expenses. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the
Partnership and ICL Funding. All significant intercompany balances have been
eliminated in consolidation. Cash Equivalents The Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market using the average cost
method. The Partnership determines average cost by summing the weighted
average cost of inventory at the beginning of the 31




---



##### 



month plus the weighted average cost of additions during the month to determine
the average cost of inventory consumed and the ending inventory balance. Deposits Deposits are stated at cost and include amounts required under certain of the
Partnerships agreements as described in Note 3. Investments Held by Trustee Investments held by trustee represent bond and equity funds held by a bond
Trustee/disbursement agent and are carried at cost, which approximates market
value. All funds are invested in either Nations Treasury Fund-Class A or other
permitted investments for longer periods. The Partnership also maintains
restricted investments covering a portion of the partnerships debt as required
by the financing documents. The funds include $12.5 million of restricted
tax-exempt debt service reserve required by the financing documents and are
classified as a noncurrent asset on the accompanying consolidated balance
sheets. A qualifying facility (QF) reserve of $4.0 million is also held as a
non-current asset (see Note 4). The Partnership maintains restricted investments covering a portion of debt
principal and interest payable, as required by the financing documents. These
investments are classified as current investments held by trustee in the
accompanying consolidated balance sheets. Concentration of Credit Risk Credit risk is the risk of loss the Partnership would incur if counterparties
fail to perform their contractual obligations (accounts receivable). The
Partnerships credit risk is primarily concentrated with FPL, which provides
more than 99% of the Partnership revenues and 100% of accounts receivable as of
December 31, 2003 and is considered to be of investment grade. Property, Plant and Equipment Property, plant and equipment, which consist primarily of the Facility, are
recorded at actual cost. The Facility is depreciated on a straight-line basis
over 35 years with a residual value on the Facility approximating 25 percent of
the gross Facility costs. Other property, plant and equipment are depreciated on a straight-line basis
over the estimated economic or service lives of the respective assets (ranging
from three to ten years). Routine maintenance and repairs are charged to
expense as incurred. The Partnership reviews its long-lived assets for impairment whenever events
occur or changes in circumstances indicate that the carrying amount of the
long-lived assets may not be recoverable. If the long-lived assets are
determined to be impaired, the Partnership will recognize an impairment loss
based on the difference between the assets estimated fair value and its
carrying value. 32




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##### 



Fuel Reserve The fuel reserve, carried at cost, represents an approximate fourteen day
supply of coal held for emergency purposes. As the use of this reserve in an
emergency is not expected in the short-term, the related cost is reflected as
non-current on the accompanying consolidated balance sheets. Deferred Financing Costs Financing costs, consisting primarily of the costs incurred to obtain project
financing, are deferred and amortized using the effective interest rate method
over the term of the related financing. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities for 2003 include property taxes of
$5.6 million, a balance due to CSX Transportation of $1.1 million, a balance
due to Massey Coal Sales, Inc. (Massey) of $0.8 million and employee
incentive bonuses of $0.8 million. Accounts payable and accrued liabilities
for 2002 include property taxes of $5.3 million and a balance due to Lodestar
Energy, Inc. of $1.9 million. Scheduled Major Overhauls The Partnerships depreciation is based on the plant being considered as a
single property unit. Certain components within the plant will require
replacement or overhaul several times within the estimated life of the plant.
Costs associated with scheduled major overhauls are recorded as an expense in
the period incurred. Revenue Recognition Revenues from the sale of electricity are recorded based on output delivered
and capacity provided at rates as specified under contract terms in the periods
to which they pertain. No collateral is required on accounts receivable. Income Taxes Under current law, no Federal or state income taxes are paid directly by the
Partnership. All items of income and expense of the Partnership are allocable
to and reportable by the Partners in their respective income tax returns.
Accordingly, no provision is made in the accompanying consolidated financial
statements for Federal or state income taxes. Derivative Financial Instruments Derivatives are recorded on the balance sheet at fair value. Derivatives, or
any portion thereof, that are not effective hedges must be adjusted to fair
value through income. If derivatives are effective hedges, depending on the
nature of the hedges, changes in the fair value of derivatives either will
offset the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings, or will be recognized in other comprehensive
income, a component of partners capital, 33




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until the hedged items are recognized in earnings. The Partnership has certain
derivative commodity contracts for the physical delivery of purchase and sale
quantities transacted in the normal course of business. Since these
activities qualify as normal purchase and normal sale activities, the
Partnership has not recorded the value of the related contracts on its balance
sheet, as permitted under relevant accounting standards. Asset Retirement Obligations On January 1, 2003, the Partnership adopted SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 provides accounting requirements for
costs associated with legal obligations to retire tangible, long-lived assets.
The statement requires that an asset retirement obligation be recorded at fair
value in the period in which it is incurred, if a reasonable estimate of fair
value can be made. In the same period, the associated asset retirement costs
are capitalized as part of the carrying amount of the related long-lived asset.
In each subsequent period, the liability is accreted to its present value and
the capitalized cost is depreciated over the useful life of the long-lived
asset. Upon implementation of this statement, the Partnership recorded approximately
$44,000 in property, plant and equipment to reflect the fair value of the asset
retirement costs as of the date the obligation was incurred, approximately
$9,000 of accumulated depreciation through December 31, 2002 and an asset
retirement obligation of approximately $84,000. The cumulative effect of the
change in accounting principle as a result of adopting this statement was a
loss of approximately $49,000. If this statement had been adopted on January 1, 2002, the pro forma effects on
earnings of the accounting change for the year ended December 31, 2002 would
not have been material. Variable Interest Entities In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN 46). FIN 46, as subsequently revised in
December 2003 (FIN 46R), is an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements(ARB 51), and supersedes Emerging
Issues Task Force (EITF) Issues No. 90-15 and 96-21, which prescribe accounting
for lease arrangements with nonsubstantive lessors. This Interpretation
clarifies the application of ARB 51 to certain entities, defined as variable
interest entities (VIEs), in which equity investors do not have a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance it activities without additional subordinated financial
support. FIN 46R requires that a VIE is to be consolidated by a company if
that company is subject to a majority of the risk of loss from the VIEs
activities or is entitled to receive a majority of the VIEs residual returns,
or both. The consolidation requirements of FIN No. 46 apply immediately to VIEs created
after January 31, 2003. There were no new VIEs created by the Partnership
between February 1, 2003 and December 31, 2003. The consolidation requirements
related to entities or arrangements existing before February 1, 2003 were
originally effective July 1, 2003. However, due to implementation issues, 34




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the FASB deferred implementation until fourth quarter 2003. On December 24,
2003, the FASB issued FIN 46R, which deferred the effective date for most VIEs
or potential VIEs until March 31, 2004, but required that the standard be
adopted for certain entities commonly referred to as special purpose entities
(SPEs) on December 31, 2003. No arrangements with SPEs currently exist, and the Partnership has not
identified any arrangements with other potential VIEs. The Partnership will
continue to evaluate other arrangements for potential FIN 46R application
effective March 31, 2004. The Partnership does not expect that implementation
of this interpretation will have a significant impact on its consolidated
financial statements. 3.DEPOSITS: In 1991, in accordance with the Planned Unit Development Zoning Agreement
between the Partnership and Martin County, the Partnership deposited $1.0
million in trust with the Board of County Commissioners of Martin County (the
PUD Trustee). Income from this trust will be used solely for projects
benefiting the community of Indiantown. On July 23, 2025, the PUD Trustee is
required to return the deposit to the Partnership. As of December 31, 2003 and
2002, estimated present values of this deposit of $0.2 million are included in
deposits in the accompanying consolidated balance sheets. The remaining
balance is included in property, plant and equipment as part of total
capitalized construction expenses. 4.BONDS AND NOTES PAYABLE: The Senior Debt of the Partnership ranks on parity with each other and is
senior in right of payment to all Subordinated Debt. Total deferred financing
costs of $2.3 million were incurred as a result of replacing a working capital
facility and certain letters of credit described below. First Mortgage Bonds On November 22, 1994, the Partnership and ICL Funding jointly issued $505.0
million of First Mortgage Bonds (the First Mortgage Bonds) in a public
issuance registered with the Securities and Exchange Commission. Proceeds from
the issuance were used to repay outstanding balances of $273.5 million on a
prior construction loan and to complete the project. The First Mortgage Bonds
are secured by a lien on and security interest in substantially all of the
assets of the Partnership. The First Mortgage Bonds were issued in 10 separate
series with fixed interest rates ranging from 7.38% to 9.77% and with
maturities ranging from 1996 to 2020. The weighted average interest rate was
approximately 9.59% and 9.57% during 2003 and 2002, respectively. Interest is
payable semi-annually on June 15 and December 15 of each year. Interest
expense related to the First Mortgage Bonds was $41.0 million, $42.1 million,
and $43.2 million, in 2003, 2002, and 2001 respectively. Tax Exempt Facility Revenue Bonds The proceeds from the issuance of $113.0 million of Series 1992A and 1992B
Industrial Development Revenue Bonds (the 1992 Bonds) through the Martin
County Industrial 35




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Development Authority (the MCIDA) were invested in an investment portfolio
with Fidelity Investments Institutional Services Company. On November 22, 1994,
the Partnership refunded the 1992 Bonds with proceeds from the issuance of
$113.0 million Series 1994A and of $12.0 million Series 1994B Tax Exempt
Facility Refunding Revenue Bonds which were issued on December 20, 1994 (the
Series 1994A Bonds and the Series 1994B Bonds, collectively, the 1994 Tax
Exempt Bonds). The 1994 Tax Exempt Bonds were issued by the MCIDA pursuant to an Amended and
Restated Indenture of Trust between the MCIDA and NationsBank of Florida, N.A.
(succeeded by The Bank of New York Trust Company of Florida, N.A.) as trustee
(the Trustee). Proceeds from the 1994 Tax Exempt Bonds were loaned to the
Partnership pursuant to the MCIDA Amended and Restated Authority Loan Agreement
dated as of November 1, 1994 (the Authority Loan). The Authority Loan is
secured by a lien on and a security interest in substantially all of the assets
of the Partnership. The 1994 Tax Exempt Bonds, which mature December 15, 2025,
carry fixed interest rates of 7.875 % and 8.05% for Series 1994A and 1994B,
respectively. Total interest paid related to the 1994 Tax Exempt Bonds was
$9.9 million for each of the years ended December 31, 2003, 2002, and 2001. The
Tax Exempt Bonds and the First Mortgage Bonds are equal in seniority. Future minimum payments related to outstanding First Mortgage Bonds and 1994
Tax Exempt Bonds as of December 31, 2003 are as follows (dollars in millions): 2004
    
    $
    16.82005
    
    
    16.32006
    
    
    18.22007
    
    
    20.92008
    
    
    22.1Thereafter
    
    
    448.3Total
    
    $
    542.6
 Revolving Credit Agreement On October 10, 2003, the Partnership closed a transaction with Credit Lyonnais
New York Branch (CL), as agent and arranger, to enter into a Revolving Credit
Agreement up to $10.0 million, which has a term of three years and was capped
at $3.0 million as of December 31, 2003. The credit facility includes
commitment fees, to be paid quarterly, of 0.50% on the unborrowed portion. The
interest rate on loans made on the Revolving Credit Agreement is the London
Interbank Offered Rates (LIBOR) plus an applicable margin. FPL Termination Fee Letter of Credit On or before the Commercial Operation Date, the Partnership was required to
provide FPL with a letter of credit equal to the total termination fee as
defined in the Power Purchase Agreement (PPA) in each year not to exceed
$50.0 million. Pursuant to the terms of the Letter of Credit and Reimbursement
Agreement, the Partnership obtained a commitment for the issuance of this
letter of credit. At the Commercial Operation Date, this letter of credit
replaced the completion letter of 36




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credit. The initial amount of $13.0 million was issued for the first year of
operations and increased to $40.0 million in January 1999 and then to $50.0
million in January 2000. On June 1, 2002 the letter of credit was reduced to
$3.1 million and on November 1, 2002 it was further reduced to $1.7 million
pursuant to the PPA. Commitment fees of $0.5 million and $0.7 million were
paid on this letter of credit in 2002 and 2001, respectively. In September 2001, Credit Suisse/First Boston notified the Partnership of its
intention not to extend the term of this letter of credit, which expired on
December 22, 2002. On December 16, 2002, FPL drew on the direct pay letter of
credit for the full amount of $1.7 million, which converted the letter of
credit to a term loan. The funds were owned by the Partnership but held by FPL
and were included in restricted cash on the consolidated balance sheet as of
December 31, 2002. During 2003 the obligation to maintain the letter of credit
under the PPA expired. Also during 2003, the restriction on the cash was
released and the term loan was paid in full. FPL QF Letter of Credit Within 60 days after the Commercial Operation Date, the Partnership was
required to provide a letter of credit for use in the event of a loss of
Qualifying Facility (QF) status under the Public Utility Regulatory Policies
Act of 1978 (PURPA). The initial amount was $0.5 million increasing by $0.5
million per agreement year to a maximum of $5.0 million. Pursuant to the terms
of the Letter of Credit and Reimbursement Agreement, the Partnership obtained a
commitment for the issuance of this letter of credit. The amount will be used
by the Partnership as necessary to maintain or reinstate the Facilitys
qualifying facility status. The Partnership may, in lieu of a letter of
credit, make regular cash deposits to a dedicated account in amounts of $0.5
million per agreement year to a maximum of $5.0 million. In February 1996, the
Partnership established a QF account with the Trustee. The balance in this
account as of December 31, 2003 and 2002, was $4.0 million and $3.5 million,
respectively, and is included in noncurrent assets as investments held by
trustee, restricted funds, on the accompanying consolidated balance sheets. Steam Host Letter of Credit The Partnership is required to maintain a $10.0 million letter of credit to
protect LDC in the event of a default under the Energy Services Agreement (see
Note 6). Commitment fees of $0.1 million were paid relating to this letter of
credit in both 2002 and 2001. In September 2001, Credit Suisse First Boston notified the Partnership of its
intention not to extend the term of this letter of credit, which expired on
November 22, 2002. This letter of credit was drawn by LDC on November 14,
2002. Funds were held in an escrow account for the benefit of LDC and were
included in noncurrent assets as investments held by trustee, restricted funds,
on the accompanying consolidated balance sheet as of December 31, 2002. The
letter of credit obligation was converted into a term loan. On October 10, 2003, the Partnership closed a transaction with CL, as agent and
arranger, to replace the above referenced letter of credit in the amount of
$10.0 million. As a result, the restriction on the funds held in escrow was
released and the term loan was repaid in full on October 14, 2003. 37




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Deferred financing costs and commitment fees of $2.2 million and $0.1 million,
respectively, were paid in 2003 relating to this replacement letter of credit. Debt Service Reserve Letter of Credit During 1994, the Partnership entered into a debt service reserve letter of
credit and reimbursement agreement with BNP Paribas pursuant to which a debt
service reserve letter of credit in the amount of approximately $60.0 million
was issued. Such agreement has a rolling term of five years subject to
extension at the discretion of the participating banks named in the agreement.
Drawings on the debt service reserve letter of credit are available to pay
principal and interest on the First Mortgage Bonds, the 1994 Tax-Exempt Bonds
and interest on any loans created by drawings on such debt service reserve
letter of credit. Cash and other investments held in the debt service reserve
account will be drawn on prior to any drawings on the debt service reserve
letter of credit. On January 11, 1999, pursuant to the Disbursement Agreement,
which outlines the order of priority that project funds held by the trustee are
to be disbursed, the Debt Service Reserve Letter of Credit was reduced to $29.9
million. Commitment fees of $0.3 million, $0.4 million, and $0.4 million were
paid on this letter of credit in 2003, 2002, and 2001, respectively. BNP Paribas notified the Partnership on May 18, 2001 of its intention not to
extend the term of the agreement, which would have expired on November 22,
2005. The Partnership was unable to find an issuer to replace BNP Paribas
which met the credit requirements under the Indenture. Pursuant to the terms
of the Disbursement Agreement, available cash flows were required to be
deposited on a monthly basis beginning on May 22, 2002 into a debt service
reserve account or a tax exempt debt service reserve account, as the case may
be, until the required balance in the debt service reserve account was
achieved, which is $29.9 million per the Disbursement Agreement. No
distributions were allowed to the partners until such balance was funded. On October 10, 2003, the Partnership closed a transaction with CL, as agent and
arranger, to replace the above referenced letter of credit in the amount of
$29.9 million. Deposits previously made during 2003 by the Partnership into
the Debt Service Reserve Account totaling $12.0 million were returned to the
Revenue Account as a result of the replacement Debt Service Reserve Letter of
Credit . Commitment fees of $0.1 million were paid on this replacement letter
of credit in 2003. Financial Covenants In connection with the various agreements discussed above, certain financial
covenants must be met and reported on a quarterly and/or annual basis as
required by debtors. At December 31, 2003 the Partnership is in compliance
with all related financial covenants. 5.PURCHASE AGREEMENTS: Coal Purchase and Transportation Agreement A Coal Purchase and Sales Agreement (the Coal Purchase Agreement) was
executed on February 5, 2003 between the Partnership and Massey and became
effective on April 1, 2003. Under the 38




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Coal Purchase Agreement, which remains in effect until December 31, 2025, the
base coal price was $33.75 per ton with a market price reopener provision which
began in October 2003. The First Amendment (the Amendment) to the Coal Purchase Agreement between
Massey and the Partnership was entered into on August 21, 2003, with an
effective date August 1, 2003. The principal change effected in the Coal
Purchase Agreement was a decrease from $33.75 to $33.00 per ton in the base
coal price with a market price reopener provision beginning the earlier of
ninety days after the Partnership successfully negotiates a new fuel index
under the PPA or October 1, 2005. Currently, the fuel index used to determine
the coal cost component of the monthly energy payment from FPL under the PPA is
no longer in effect. Within ninety days after the Partnership successfully
negotiates a new fuel index under the PPA, the Partnership and Massey will
utilize commercially reasonable best efforts to develop a coal price tied to a
fuel index agreeable to both parties. The Partnership satisfied the applicable
conditions precedent set forth in the financing documents relating to the
Amendment. The Partnership and CSX Transportation, Inc. (CSX) entered into a Coal
Transportation Agreement dated August 6, 2003, under which CSX will deliver
coal to the Facility through December 31, 2025 at the system car rate of $23.09
per ton, which is approximately 30% less than the current tariff rates for
delivered coal. This system car rate is adjusted quarterly using the same index
that adjusts the remaining costs component of the energy payment from FPL. CSX
will also transport a minimum of 500 carloads of ash to an acceptable disposal
firm on the CSX rail system. In addition, CSX rebated the Partnership $3.8
million in October 2003, which was the difference between the tariff rates and
system car rates for all coal shipments for the period from April 1, 2003
through the effective date of the Coal Transportation Agreement, less $1.1
million in pre-petition and gap debt owed to CSX from Lodestar Energy, Inc.
(LEI). CSX assigned to the Partnership their claim to the $1.1 million due
from LEI under the Transportation Agreement. The Partnership satisfied the
applicable conditions precedent set forth in the financing documents relating
to the Coal Transportation Agreement. Lime Purchase Agreement On May 1, 1992, the Partnership entered into a lime purchase agreement with
Chemical Lime Company of Alabama, Inc. (Chemlime) for supply of the
Facilitys lime requirements for the Facilitys dry scrubber sulfur dioxide
removal system. The Partnership has no obligation to purchase a minimum
quantity of lime under the agreement. The initial term of the agreement is 15
years from the Commercial Operation Date and may be extended for a successive
5-year period. Either party may cancel the agreement after January 1, 2000,
upon proper notice. The price of lime was renegotiated in 1999 for a three-year
period beginning January 1, 2000. By mutual agreement, the contract was
renegotiated on October 30, 2001, for the period February 1, 2002 through
February 1, 2005. The base price of $56.25 per ton is to be adjusted annually
per an agreed-upon formula. Railcar Lease Agreement The Partnership entered into a 15 year Car Leasing Agreement with GE Capital
Railcar Services Corporation to furnish and lease 72 pressure differential
hopper railcars to the Partnership for the 39




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transportation of fly ash and lime. The cars were delivered starting in April
1995, at which time the lease was recorded as a capital lease. The leased
assets of $5.8 million and accumulated depreciation of $3.3 million and $2.9
million, respectively, are included in property, plant and equipment as of
December 31, 2003 and 2002. Amortization expense related to the leased assets
is included in depreciation expense. Payments of $0.6 million, including
principal and interest, were made in 2003, 2002, and 2001. Future minimum payments related to the Car Leasing Agreement as of December 31,
2003 are as follows (dollars in millions): 2004
    
    $
    0.62005
    
    
    0.62006
    
    
    0.62007
    
    
    0.62008
    
    
    0.7Thereafter
    
    
    0.9Total minimum lease payments
    
    
    4.0Interest portion
of lease payable
    
    
    (0.8
    )Present value of
future minimum
lease payments
    
    
    3.2Current portion
    
    
    (0.4
    )Long-term portion
    
    $
    2.8
 6.SALES AND SERVICES AGREEMENTS: Power Purchase Agreement On May 21, 1990, the Partnership entered into a PPA with FPL for sale of the
Facilitys electric output. As amended, the agreement is effective for a
30-year period, commencing with the Commercial Operation Date. The pricing
structure provides for both capacity and energy payments. Capacity payments remain relatively stable because the amounts do not vary with
dispatch. Price increases are contractually provided. Capacity payments
include a bonus or penalty payment if actual capacity is in excess of or below
specified levels of available capacity. The coal cost component of the energy
payment is derived from a contractual formula defined in the PPA based on the
actual cost of domestic coal at another FPL plant, St. Johns River Power Park
(SJRPP). This fuel index is no longer in effect due to an interruption of
Central Appalachian coal deliveries to the SJRPP. The Partnership and FPL,
within one year of the interruption, are to agree upon a comparable replacement
index. Until a replacement index becomes effective, the coal cost component is
escalated according to the index in the SJRPP long- term domestic Appalachian
coal contract which had been in effect until the interruption in deliveries.
The Partnership and FPL have been in discussions to resolve the replacement
index issue. 40




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Energy Services Agreement On September 30, 1992, the Partnership entered into an Energy Services
Agreement with Caulkins. In September 2001, Caulkins sold its processing plant
to LDC. Commencing on the Commercial Operation Date and continuing throughout
the 15-year term of the agreement, LDC is required to purchase the lesser of
525 million pounds of steam per year or the minimum quantity of steam per year
necessary for the Facility to maintain its status as a Qualifying Facility
(QF) under PURPA. The Facility declared Commercial Operation with LDC on
March 1, 1996. LDC purchased the minimum quantity of steam in 2003 for the
Partnership to maintain its QF status under PURPA. 7.RELATED PARTY TRANSACTIONS: Management Services Agreement The Partnership has an MSA with PSC, which provides for the day-to-day
management and administration of the Partnerships business relating to the
Facility. The MSA will continue through October 31, 2028. Compensation to PSC
under the agreement includes an annual base fee of $0.7 million (adjusted
annually and is subordinate to debt service and certain other costs), wages and
benefits for employees performing work on behalf of the Partnership and other
costs directly related to the Partnership. Base fees in 2003 and 2002 of $0.5
million and $0.6 million, respectively, were subordinated pursuant to the
Disbursement Agreement and were paid in full on October 14, 2003. Payments of
$4.4 million, $3.1 million, and $4.2 million, in 2003, 2002, and 2001 were made
to PSC, respectively. As of December 31, 2003 and 2002, the Partnership owed
PSC $0.2 million and $0.8 million, respectively, which are included in accounts
payable and accrued liabilities in the accompanying consolidated balance
sheets. Operations and Maintenance Agreement The Partnerships O&M Agreement with OSC provides for the operations and
maintenance of the Facility for a period of 30 years (starting September 30,
1992). Thereafter, the agreement will be automatically renewed for periods of
5 years until terminated by either party with 12 months notice. If targeted
plant performance is not reached on a monthly basis, OSC will pay liquidated
damages to the Partnership. Compensation to OSC under the agreement includes
an annual base fee of which a portion is subordinate to debt service and
certain other costs, certain earned fees and bonuses based on the Facilitys
performance and reimbursement for certain costs including payroll, supplies,
spare parts, equipment, certain taxes, licensing fees, insurance and indirect
costs expressed as a percentage of payroll and personnel costs. The fees are
adjusted quarterly by a measure of inflation as defined in the agreement. Base
fees in 2003 and 2002 of $0.5 million and $1.0 million, respectively, and
earned fees in 2003 and 2002 of $0.4 million and $0.3 million, respectively,
were subordinated pursuant to the Disbursement Agreement and were paid in full
on October 14, 2003. Payments of $9.8 million, $7.1 million, and $9.3 million
were made to OSC in 2003, 2002, and 2001, respectively. As of December 31,
2003 and 2002, the Partnership owed OSC $0.8 million and $2.1 million,
respectively, which is included in accounts payable and accrued liabilities in
the accompanying consolidated balance sheets. 41




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Distribution to Partners A distribution of $20.0 million was made to the Partners in 2003. There were
no distributions made to the Partners in 2002 and a distribution totaling $12.4
million was made in 2001. 8.FAIR VALUE OF FINANCIAL INSTRUMENTS: The following table presents the carrying amounts and estimated fair values of
certain of the Partnerships financial instruments as of December 31, 2003 and
2002 (in millions).  December 31, 2003Financial Liabilities
    
    Carrying Amount
    
    Fair ValueTax Exempt Bonds
    
    $
    125.0
    
    
    $
    128.1First Mortgage Bonds
    
    $
    417.5
    
    
    $
    496.6
 December 31, 2002Financial Liabilities
    
    Carrying Amount
    
    Fair ValueTax Exempt Bonds
    
    $
    125.0
    
    
    $
    161.5First Mortgage Bonds
    
    $
    432.1
    
    
    $
    564.9
 Current market interest rates were used to estimate fair market values for the
Tax Exempt Bonds and the First Mortgage Bonds. The carrying amounts of the Partnerships cash and cash equivalents, accounts
receivable trade, deposits, prepaid expenses, investments held by trustee,
accounts payable and accrued liabilities and accrued interest approximate fair
value, due to their short-term nature. 9.FOURTH QUARTER ADJUSTMENTS (UNAUDITED): In the three-months ended December 31, 2003, the Partnership recorded
additional electric energy revenue of $0.4 million for additional 2003 payments
estimated to be due from FPL in conjunction with the annual fuel audit to be
conducted in early 2004 and performed under the PPA. 10.SUBSEQUENT EVENT: On March 19, 2004 S&P placed its BBB- rating on the debt of ICL Funding on
Credit Watch with negative implications. The credit watch reflects the risk of
a downgrade if the PPA negotiations with FPL regarding a new energy payment
index are not resolved to mitigate the current mismatch between energy revenues
and fuel expenses. 42




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Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9AControls and Procedures An evaluation of the disclosure controls and procedures of the Partnership and
ICL Funding as of December 31, 2003 has been conducted under the supervision
and with the participation of the principal executive officer and principal
financial officer of both the Partnership and ICL Funding. Based on that
evaluation, such officers have concluded that, as of such date, the disclosure
controls and procedures of the Partnership and ICL Funding are effective, in
that they provide reasonable assurance that such officers are alerted on a
timely basis to material information that is required to be included in the
Partnerships and ICL Fundings periodic filings under the Securities Exchange
Act of 1934, as amended. 43




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PART III Item 10Directors and Executive Officers Partnership Governance The Board of Control is delegated authority under the Partnership Agreement for
the management and control of the business and affairs of the Partnership,
subject to restrictions set forth in the Partnership Agreement. Day-to-day
management and administration of the Facility is carried out by PSC pursuant to
a management services agreement under the supervision of the Board of Control. Indiantown Cogeneration, L.P. Board of Control and Executive Officers The following table sets forth the names, ages and positions of the
members of the Board of Control and the executive officers of the Partnership.
Members of the Board of Control are elected from time to time by, and serve at
the pleasure of, the Partners of the Partnership. Officers are elected from
time to time by vote of the Board of Control. Name
    
    Age
    
    PositionBrian G. Martin
    
    40
    
    Palm Representative andThaleia RepresentativeThomas J. Bonner
    
    49
    
    Palm Representative andThaleia RepresentativeP. Chrisman Iribe
    
    53
    
    IPILP Representative, ChiefExecutive Officer, Presidentand AuthorizedRepresentativeSanford L. Hartman
    
    50
    
    IPILP RepresentativeThomas E. Legro
    
    52
    
    Vice President, Controllerand Principal AccountingOfficer
 Brian G. Martin is Asset Manager in the Asset Management Department for
Cogentrix Energy, Inc. (Cogentrix) and has been with Cogentrix since 2000.
Prior to joining Cogentrix , Mr. Martin held several management positions with
a manufacturer of steam generators. Mr. Martin holds a B.S. degree in Fuel
Science from the Pennsylvania State University. Thomas J. Bonner is Vice President  Asset Management for Cogentrix and
has been with Cogentrix since 1987. Prior to joining Cogentrix, Mr. Bonner
spent 5 years as a utility manager in an integrated fiber and chemical
production facility. Mr. Bonner holds a B.S. from the U.S. Naval Academy, and
an M.B.A. from Old Dominion University. P. Chrisman Iribe is President and Chief Operating Officer of Power
Services Company (formerly PG&E National Energy Group Company), an affiliate of
the Partnership, and has been with Power Services Company since it was formed
in 1989. Prior to joining Power Services Company, Mr. Iribe was senior vice
president for planning, state relations and public affairs with ANR Pipeline
Company, a natural gas pipeline company and a subsidiary of the Coastal
Corporation. Mr. Iribe holds a B.A. degree in Economics from George Washington
University. 44




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Sanford L. Hartman is Vice President, Chief Counsel and Secretary of Power
Services Company, an affiliate of the Partnership, and has been with Power
Services Company since 1990. Prior to joining Power Services Company, Mr.
Hartman was counsel to Long Lake Energy Corporation, an independent power
producer with headquarters in New York City, and was an attorney with the
Washington, D.C. law firm of Bishop, Cook, Purcell & Reynolds. Mr. Hartman has
a B.A. in Political Science from Drew University and a J.D. from Temple
University. ICL Funding Corporation Board of Directors The following table sets forth the names, ages and positions of the
directors and executive officers of ICL Funding. Directors are elected
annually and each elected director holds office until a successor is elected.
Officers are elected from time to time by vote of the Board of Directors. Name
    
    Age
    
    PositionP. Chrisman Iribe
    
    
    53
    
    
    Director, PresidentSanford L. Hartman
    
    
    50
    
    
    DirectorThomas E. Legro
    
    
    52
    
    
    Vice President, Controller andChief Accounting Officer
 Audit Committee The Board of Directors of the ICL Funding performs the functions and
responsibilities of an audit committee of the Partnership and ICL Funding. The
Board of Directors has determined that one of its members, Thomas E. Legro, is
an audit committee financial expert as defined in Item 401(h) of the Securities
and Exchange Commissions (the Commission) Regulation S-K, and has also
determined that Mr. Legro is not independent within the meaning of such
provision because he is an executive officer of both the Partnership and ICL
Funding, as well as an employee of an affiliated person, NEGT Services Company,
LLC, a subsidiary of NEGT. The Partnership and ICL Funding, however, are not
required under the Commissions rules implementing Section 10A(m) of the
Securities Exchange Act of 1934, as amended, to have an audit committee
consisting of independent members because they are not listed issuers within
the meaning of such rules. Code of Ethics As employees of NEGT Services Company, LLC, a subsidiary of NEGT, the principal executive officer and principal
financial officer of both the Partnership and ICL Funding Corporation are
subject to a code of business conduct and ethics contained within the NEGT
employee handbook most recently modified in December 2003 (the Code of
Ethics). The Code of Ethics is intended to promote honest and ethical conduct
and compliance with the laws and governmental rules and regulations to which
the companies are subject. A printed copy of the Code of Ethics will be
provided free of charge to any bondholder upon written request to Indiantown
Cogeneration, L.P., Investor Relations, c/o NEGT at the Partnerships principal
executive offices listed on the cover page of this Report. 45




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##### 



Item 11Remuneration of Directors and Officers No cash compensation or non-cash compensation was paid in any prior year
or is currently proposed to be paid in the current calendar year by ICL Funding
or the Partnership to any of the officers and directors listed above.
Accordingly, the Summary Compensation Table and other tables required under
Item 402 of the Securities and Exchange Commissions Regulation S-K have been
omitted, as presentation of such tables would not be meaningful. Management services for the Partnership are being performed by PSC on a
cost-plus basis in addition to the payment of a base fee. Operation and
maintenance services for the Partnership will be performed by OSC on a
cost-plus basis. In addition to a base fee, OSC may earn certain additional
fees and bonuses based on specified performance criteria. Item 12Security Ownership of Certain Beneficial Owners and Management Partnership interests in the Partnership, as of December 31, 2003, are
held as follows: Toyan
    
    30.05% L.P.IPILP
    
    19.95% G.P.Palm
    
    10.00% G.P.Thaleia
    
    40.00% L.P.
 All of the outstanding shares of common stock of ICL Funding are owned by
the Partnership. Item 13Certain Relationships and Related Transactions The Partnership has several material contracts with affiliated entities. These
contracts, which include the Management Services Agreement and the Operations
and Maintenance Agreement, are described elsewhere in this report, most notably
in Note 7 to the consolidated financial statements. Item 14Principal Accountant Fees and Services The following table presents fees for professional services rendered by Ernst &
Young LLP and billed to the Partnership for the audits of the annual
consolidated financial statements of the Partnership and its subsidiary for the
years ended December 31, 2003 and 2002, and fees for other services billed by
Ernst & Young LLP during those periods: 46




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##### 



For the years endedDecember 31,
    
    December 31,2003
    
    2002FeesAudit Fees
    
    $
    74,538
    
    
    $
    49,450Audit-Related Fees
    
    
    18,000
    
    
    
    12,600Tax Fees
    
    
    6,900
    
    
    
    4,200All Other Fees
    
    
    
    
    
    
    Total Fees
    
    $
    99,438
    
    
    $
    66,250
 Audit Fees Audit fees relate to services rendered in connection with the
audit of the annual financial statements included in the Partnerships Annual
Reports on Form 10-K and the quarterly reviews of financial statements included
in the Partnerships Quarterly Reports on Forms 10-Q. Audit-Related Fees Audit-related fees relate to services for consultations
concerning financial accounting and reporting matters and to a report from
Ernst & Young LLP on applying agreed-upon procedures performed in accordance
with the provisions in the PPA for a quarterly letter the Partnership submits
to FPL meeting the conditions of security requirements. Tax Fees Tax fees relate to services for tax compliance. Pre-Approval Policies The Board of Directors of ICL Funding acts as the audit committee for the
Partnership (Audit Committee). The Audit Committee pre-approves all audit and non-audit services provided by
the Partnerships independent auditor prior to the engagement of the
independent auditor with respect to such services. The Chief Accounting
Officer, who is also a member of the Audit Committee, has the authority to
approve any additional audit services and permissible non-audit services
provided the the Audit Committee is informed of such approval at its next
regularly scheduled meeting. All of the services provided by Ernst & Young LLP for fiscal year 2003 and
related fees were approved in advance by the Audit Committee in accordance with
established pre-approval policies. 47




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PART IV Item 15Exhibits, Financial Statement Schedules and Reports on Form 8-K  a)
    
    Documents filed as of this Report Page(1
    )
    
    Consolidated financial statements:Report of Independent Auditors
    
    
    22Consolidated Balance Sheets as of
December 31, 2003 and 2002
    
    
    24Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001
    
    
    26Consolidated Statements of Changes
in Partners Capital for the years ended
December 31, 2003, 2002 and 2001
    
    
    27Consolidated Statements of Cash Flows for the
years ended December 31, 2003, 2002 and 2001
    
    
    28Notes to Consolidated Financial
Statements
    
    
    29(2
    )
    
    Consolidated Financial Statement
Schedules
    
    None
  b)
    
    Reports on Form 8-K:  The Partnership filed a current report on Form 8-K dated
October 27, 2003 announcing the replacement of credit agreements.
This report was amended by a report on Form 8-K/A filed on
November 13, 2003. c) Exhibits: ExhibitNo.
    
    Description3.1
    
    Certificate of Incorporation of Indiantown Cogeneration Funding Corporation.*3.2
    
    By-laws of Indiantown Cogeneration Funding Corporation.*3.3
    
    Certificate of Limited Partnership of Indiantown Cogeneration, L.P.*3.4
    
    Amended and Restated Limited Partnership Agreement of
Indiantown Cogeneration, L.P., among Palm Power Corporation, Toyan
Enterprises and TIFD III-Y Inc.*
 48




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##### 



ExhibitNo.
    
    Description3.5
    
    Form of First Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.*3.6
    
    Dana Amendment to Amended and Restated Limited Partnership
Agreement of Indiantown Cogeneration, L.P.*****3.7
    
    Cogentrix Amendment to Amended and Restated Limited Partnership
Agreement of Indiantown Cogeneration, L.P.*****3.8
    
    Third Amendment to Amended and Restated Limited Partnership
Agreement of Indiantown Cogeneration, L.P.*****4.1
    
    Trust Indenture, dated as of November 1, 1994, among Indiantown
Cogeneration Funding Corporation, Indiantown Cogeneration, L.P., and
NationsBank of Florida, N.A., as Trustee, and First Supplemental
Indenture thereto.**4.2
    
    Amended and Restated Mortgage, Assignment of Leases, Rents,
Issues and Profits and Security Agreement and Fixture Filing among
Indiantown Cogeneration, L.P., as Mortgagor, and Bankers Trust
Company as Mortgagee, and NationsBank of Florida, N.A., as
Disbursement Agent and, as when and to the extent set forth therein,
as Mortgagee with respect to the Accounts, dated as of November 1,
1994.**4.3
    
    Assignment and Security Agreement between Indiantown
Cogeneration, L.P., as Debtor, and Bankers Trust Company as Secured
Party, and NationsBank of Florida, N.A., as Disbursement Agent and,
as when, and to the extent set forth therein, a Secured Party with
respect to the Accounts, dated as of November 1, 1994.**4.4
    
    First Amendment, dated as of October 10, 2003, to the
Assignment and Security Agreement, dated as of November 1,
1994.*********10.1.1
    
    Amended and Restated Indenture of Trust between Martin County
Industrial Development Authority, as Issuer, and NationsBank of
Florida, N.A., as Trustee, dated as of November 1, 1994.**10.1.2
    
    Amended and Restated Authority Loan Agreement by and between Martin
County Industrial Development Authority and Indiantown Cogeneration,
L.P., dated as of November 1, 1994.**10.1.3
    
    Letter of Credit and Reimbursement Agreement among Indiantown
Cogeneration, L.P., as Borrower, BNP Paribas, as Initial Bank, the
Several Banks and Other Financial Institutions and Entities Parties
Hereto from Time to Time, and Credit Lyonnais New York Branch, as
Agent, dated as of October 10, 2003.*********
 49




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##### 



ExhibitNo.
    
    Description10.1.4
    
    Amended and Restated Disbursement Agreement, dated as of October
10, 2003, among Indiantown Cogeneration, L.P., Indiantown
Cogeneration Funding Corporation, The Bank of New York, as Tax-Exempt
Trustee, The Bank of New York, as Trustee, Credit Lyonnais New York
Branch, as agent bank under the Reimbursement Agreement, the Working
Capital Facility and the Debt Service Reserve Letter of Credit
Reimbursement Agreement, Deutsche Bank Trust Company Americas, as
Collateral Agent, Martin
County Industrial Development Authority, and The Bank of New York,
as Disbursement Agent.*********10.1.5
    
    Revolving Credit Agreement among Indiantown Cogeneration, L.P., as
Borrower, the Several Banks and Other Financial Institutions and
Entities Parties Hereto from Time to Time, and Credit Lyonnais New
York Branch, as Agent, dated as of October 10, 2003.*********10.1.6
    
    Collateral Agency and Intercreditor Agreement, dated as of November
1, 1994, among NationsBank of Florida, N.A., as Trustee under the
Trust Indenture, dated as of November 1, 1994, NationsBank of
Florida, N.A., as Tax-Exempt Trustee under the Tax Exempt Indenture,
dated as of November 1, 1994, Credit Suisse, as letter of Credit
Provider, Credit Suisse, as Working Capital Provider, Banque
Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Indiantown Cogeneration, L.P., Indiantown Cogeneration
Funding Corporation, Martin County Industrial Development Authority,
NationsBank of Florida, N.A., as Disbursement Agent under the
Disbursement Agreement dated as of November 1, 1994, and Bankers
Trust Company, as Collateral Agent.**10.1.7
    
    Amended and Restated Equity Loan Agreement dated as of November 1,
1994, between Indiantown Cogeneration, L.P., as the Borrower, and
TIFD III-Y Inc., as the Equity Lender.**10.1.8
    
    Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD III-Y Inc. and NationsBank of Florida, N.A., as
Disbursement Agent.**10.1.9
    
    GE Capital Guaranty Agreement, dated as of November 1, 1994,
between General Electric Capital Corporation, as Guarantor, and
NationsBank of Florida, N.A., as Disbursement Agent.**10.1.10
    
    Debt Service Reserve Letter of Credit and Reimbursement Agreement,
among Indiantown Cogeneration, L.P., as Borrower, and the Several
Banks and Other Financial Institutions and Entities Parties Hereto
from Time to Time, BNP Paribas, as Initial Bank, and Credit Lyonnais
New York Branch, as Agent, dated as of October 10, 2003.*********10.1.11
    
    First Amendment, dated as of October 10, 2003, to the Amended and
Restated Authority Loan Agreement, dated as of November 1,
1994.*********10.1.12
    
    First Amendment, dated as of October 10, 2003, to the Collateral
Agency and Intercreditor Agreement, dated as of November 1,
1994.*********
 50




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##### 



ExhibitNo.
    
    Description10.1.13
    
    First Supplemental Indenture, dated as of October 10, 2003, to the
Amended and Restated Indenture of Trust, dated as of November 1,
1994.*********10.1.14
    
    Third Supplemental Indenture, dated as of October 10, 2003, to the
Trust Indenture, dated as of November 1, 1994.*********10.2.1
    
    Fourth Amendment to Energy Services Agreement, dated as of January
30, 1996.****10.2.2
    
    Third Amendment to the Agreement for the Purchase of Firm Capacity
and Energy, dated as of May 17, 2001.******10.2.3
    
    Dry Scrubber Ash Service Agreement, dated as of February 1,
2003.********10.2.4
    
    Back-up Coal Purchase and Sale Agreement, dated as of February 5,
2003.********10.2.5
    
    First Amendment to the Coal Purchase and Sales Agreement between
Indiantown Cogeneration, L.P. and Massey Coal Sales Company, Inc.
dated August 21, 2003.**********10.2.6
    
    Agreement for Disposal of Dry Scrubber Ash and Railroad
Transportation between Indiantown Cogeneration, L.P. and Allied
Services LLC and CSX Transportation, dated March 15, 2004.21
    
    Subsidiaries of Registrant*31.1
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.31.2
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.31.3
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002 dated March 29, 200431.4
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002 dated March 29, 2004.32.1
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.32.2
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes  Oxley Act of 2002 dated March 29, 2004.32.3
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.
 51




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##### 



ExhibitNo.
    
    Description32.4
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes  Oxley Act of 2002 dated March 29, 2004.99
    
    Copy of Registrants press release dated January 3, 1996.****
    ** Incorporated by reference from the quarterly report on Form 10-Q, file no.
33-82034 filed by the Registrants with the SEC in December 1994. *** Incorporated by reference from the quarterly report on Form 10-Q, file no.
33-82034 filed by the Registrants with the SEC in May 1995. **** Incorporated by reference from the current report on Form 8-K, file no.
33-82034 filed by the Registrants with the SEC in January 1996. ***** Incorporated by reference from the quarterly report on Form 10-Q file no.
33-82034 filed by the Registrants with the SEC in August 1999. ****** Incorporated by reference from the current report on Form 8-K file no.
33-82034 filed by the Registrants with the SEC in January 2001. ******* Incorporated by reference from the current report on Form 8-K file no.
33-82034 filed by the Registrants with the SEC in November 2001. ******** Incorporated by reference from the annual report on Form 10-K file no.
33-82034 filed by the Registrants with the SEC in March 2003. ********* Incorporated by reference from the current report on Form 8-K file
no. 33-82034 filed by the Registrants with the SEC in
October 2003. ********** Incorporated by reference from the current report on Form 10-Q file
no. 33-82034 filed by the Registrants with the SEC in
November 2003. 52




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##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
co-registrant has duly caused this Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bethesda, state of
Maryland, on March 29, 2004. Indiantown Cogeneration, L.P.March 29, 2004
    Date:/s/ THOMAS E. LEGROName:
    Thomas E. LegroTitle:
    Vice President, Controller and
Principal Accounting Officer Pursuant to the requirements of the Securities Act of 1933, this Form 10-K
has been signed by the following persons in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/ P. CHRISMAN IRIBE

P. Chrisman Iribe
    
    Member of Board of Control,
President and Chief Executive
Officer
    
    March 29, 2004/s/ THOMAS E. LEGRO

Thomas E. Legro
    
    Vice President, Controller
and Principal Accounting
Officer
    
    March 29, 2004/s/ BRIAN G. MARTIN
    
    Member of Board of Control
    
    March 29, 2004Brian G. Martin/s/ THOMAS J. BONNER
    
    Member of Board of Control
    
    March 29, 2004Thomas J. Bonner/s/ SANFORD L. HARTMAN

Sanford L. Hartman
    
    Member of Board of Control,
Vice President and
Assistant Secretary
    
    March 29, 2004
 53




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##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
co-registrant has duly caused this Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bethesda, state of
Maryland, on March 29, 2004. Indiantown Cogeneration
Funding CorporationDate: March 29, 2004
    /s/ THOMAS E. LEGROName:
    Thomas E. LegroTitle:
    Vice President, Controller and Chief
Accounting Officer Pursuant to the requirements of the Securities Act of 1933, this Form 10-K
has been signed by the following persons in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/ P. CHRISMAN IRIBE
    
    Director and President
    
    March 29, 2004P. Chrisman Iribe/s/ THOMAS E. LEGRO

Thomas E. Legro
    
    Vice President, Controller
and Chief Accounting Officer
    
    March 29, 2004
 54




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##### 



EXHIBIT INDEX ExhibitNo.
    
    Description3.1
    
    Certificate of Incorporation of Indiantown Cogeneration Funding Corporation.*3.2
    
    By-laws of Indiantown Cogeneration Funding Corporation.*3.3
    
    Certificate of Limited Partnership of Indiantown Cogeneration, L.P.*3.4
    
    Amended and Restated Limited Partnership Agreement of
Indiantown Cogeneration, L.P., among Palm Power Corporation, Toyan
Enterprises and TIFD III-Y Inc.*3.5
    
    Form of First Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.*3.9
    
    Dana Amendment to Amended and Restated Limited Partnership
Agreement of Indiantown Cogeneration, L.P.*****3.10
    
    Cogentrix Amendment to Amended and Restated Limited Partnership
Agreement of Indiantown Cogeneration, L.P.*****3.11
    
    Third Amendment to Amended and Restated Limited Partnership
Agreement of Indiantown Cogeneration, L.P.*****4.1
    
    Trust Indenture, dated as of November 1, 1994, among Indiantown
Cogeneration Funding Corporation, Indiantown Cogeneration, L.P., and
NationsBank of Florida, N.A., as Trustee, and First Supplemental
Indenture thereto.**4.2
    
    Amended and Restated Mortgage, Assignment of Leases, Rents,
Issues and Profits and Security Agreement and Fixture Filing among
Indiantown Cogeneration, L.P., as Mortgagor, and Bankers Trust
Company as Mortgagee, and NationsBank of Florida, N.A., as
Disbursement Agent and, as when and to the extent set forth therein,
as Mortgagee with respect to the Accounts, dated as of November 1,
1994.**4.5
    
    Assignment and Security Agreement between Indiantown
Cogeneration, L.P., as Debtor, and Bankers Trust Company as Secured
Party, and NationsBank of Florida, N.A., as Disbursement Agent and,
as when, and to the extent set forth therein, a Secured Party with
respect to the Accounts, dated as of November 1, 1994.**4.6
    
    First Amendment, dated as of October 10, 2003, to the
Assignment and Security Agreement, dated as of November 1,
1994.*********10.1.1
    
    Amended and Restated Indenture of Trust between Martin County
Industrial Development Authority, as Issuer, and NationsBank of
Florida, N.A., as Trustee, dated as of November 1, 1994.**




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##### 



ExhibitNo.
    
    Description10.1.2
    
    Amended and Restated Authority Loan Agreement by and between Martin
County Industrial Development Authority and Indiantown Cogeneration,
L.P., dated as of November 1, 1994.**10.1.3
    
    Letter of Credit and Reimbursement Agreement among Indiantown
Cogeneration, L.P., as Borrower, BNP Paribas, as Initial Bank, the
Several Banks and Other Financial Institutions and Entities Parties
Hereto from Time to Time, and Credit Lyonnais New York Branch, as
Agent, dated as of October 10, 2003.*********10.1.4
    
    Amended and Restated Disbursement Agreement, dated as of October
10, 2003, among Indiantown Cogeneration, L.P., Indiantown
Cogeneration Funding Corporation, The Bank of New York, as Tax-Exempt
Trustee, The Bank of New York, as Trustee, Credit Lyonnais New York
Branch, as agent bank under the Reimbursement Agreement, the Working
Capital Facility and the Debt Service Reserve Letter of Credit
Reimbursement Agreement, Deutsche Bank Trust Company Americas, as
Collateral Agent, Martin County Industrial Development Authority, and
The Bank of New York, as Disbursement Agent.*********10.1.5
    
    Revolving Credit Agreement among Indiantown Cogeneration, L.P., as
Borrower, the Several Banks and Other Financial Institutions and
Entities Parties Hereto from Time to Time, and Credit Lyonnais New
York Branch, as Agent, dated as of October 10, 2003.*********10.1.6
    
    Collateral Agency and Intercreditor Agreement, dated as of November
1, 1994, among NationsBank of Florida, N.A., as Trustee under the
Trust Indenture, dated as of November 1, 1994, NationsBank of
Florida, N.A., as Tax-Exempt Trustee under the Tax Exempt Indenture,
dated as of November 1, 1994, Credit Suisse, as letter of Credit
Provider, Credit Suisse, as Working Capital Provider, Banque
Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Indiantown Cogeneration, L.P., Indiantown Cogeneration
Funding Corporation, Martin County Industrial Development Authority,
NationsBank of Florida, N.A., as Disbursement Agent under the
Disbursement Agreement dated as of November 1, 1994, and Bankers
Trust Company, as Collateral Agent.**10.1.7
    
    Amended and Restated Equity Loan Agreement dated as of November 1,
1994, between Indiantown Cogeneration, L.P., as the Borrower, and
TIFD III-Y Inc., as the Equity Lender.**10.1.8
    
    Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD III-Y Inc. and NationsBank of Florida, N.A., as
Disbursement Agent.**10.1.9
    
    GE Capital Guaranty Agreement, dated as of November 1, 1994,
between General Electric Capital Corporation, as Guarantor, and
NationsBank of Florida, N.A., as Disbursement Agent.**10.1.10
    
    Debt Service Reserve Letter of Credit and Reimbursement Agreement,
among Indiantown Cogeneration, L.P., as Borrower, and the Several
Banks and Other Financial Institutions and Entities Parties Hereto
from Time to Time, BNP Paribas, as Initial Bank, and Credit Lyonnais
New York Branch, as Agent, dated as of October 10, 2003.*********




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##### 



ExhibitNo.
    
    Description10.1.11
    
    First Amendment, dated as of October 10, 2003, to the Amended and
Restated Authority Loan Agreement, dated as of November 1,
1994.*********10.1.12
    
    First Amendment, dated as of October 10, 2003, to the Collateral
Agency and Intercreditor Agreement, dated as of November 1,
1994.*********10.1.13
    
    First Supplemental Indenture, dated as of October 10, 2003, to the
Amended and Restated Indenture of Trust, dated as of November 1,
1994.*********10.1.14
    
    Third Supplemental Indenture, dated as of October 10, 2003, to the
Trust Indenture, dated as of November 1, 1994.*********10.2.1
    
    Fourth Amendment to Energy Services Agreement, dated as of January
30, 1996.****10.2.2
    
    Third Amendment to the Agreement for the Purchase of Firm Capacity
and Energy, dated as of May 17, 2001.******10.2.3
    
    Dry Scrubber Ash Service Agreement, dated as of February 1,
2003.********10.2.4
    
    Back-up Coal Purchase and Sale Agreement, dated as of February 5,
2003.********10.2.5
    
    First Amendment to the Coal Purchase and Sales Agreement between
Indiantown Cogeneration, L.P. and Massey Coal Sales Company, Inc.
dated August 21, 2003.**********10.2.6
    
    Agreement for Disposal of Dry Scrubber Ash and Railroad
Transportation between Indiantown Cogeneration, L.P. and Allied
Services LLC and CSX Transportation, dated March 15, 2004.22
    
    Subsidiaries of Registrant*




---



##### 



ExhibitNo.
    
    Description31.1
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.31.2
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 302 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.31.3
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002 dated March 29, 200431.4
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002 dated March 29, 2004.32.1
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.32.2
    
    Certification of Principal Executive Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes  Oxley Act of 2002 dated March 29, 2004.32.3
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration, L.P., pursuant to Section 906 of the Sarbanes  Oxley
Act of 2002 dated March 29, 2004.32.4
    
    Certification of Principal Financial Officer of Indiantown
Cogeneration Funding Corporation, pursuant to Section 906 of the
Sarbanes  Oxley Act of 2002 dated March 29, 2004.99
    
    Copy of Registrants press release dated January 3, 1996.****