EAST COAST POWER LLC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 333-81601

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EAST COAST POWER L.L.C.
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 52-2143667
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

EL PASO BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (713) 420-2600

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

98.01 percent of the membership interests of East Coast Power L.L.C. is
owned directly by Mesquite Investors, L.L.C., 0.99 percent of the membership
interests is owned by Bonneville Pacific Corporation, and 1 percent of the
membership interests is owned directly by East Coast Power Holding Company,
L.L.C. Such membership interests are not publicly traded and therefore have no
separate, quantifiable market value.

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EAST COAST POWER L.L.C.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

1

EAST COAST POWER L.L.C.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

2

EAST COAST POWER L.L.C.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

3

EAST COAST POWER L.L.C.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

We are a Delaware limited liability company formed in December 1998. We are
owned by three members: Mesquite Investors, L.L.C. directly owns 98.01 percent
of the membership interests in us; Bonneville Pacific Corporation, a wholly
owned subsidiary of Mesquite Investors, owns 0.99 percent of the membership
interests in us; and East Coast Power Holding Company, L.L.C., which is
indirectly owned by Enron Corporation, owns a 1 percent non-voting preferred
membership interest in us.

Our sole business is the ownership and operation of four power generation
facilities located in Camden, Linden, and Bayonne, New Jersey. The facilities
are commonly referred to as Linden Venture, Camden Venture, Bayonne Venture and
Linden 6.

We prepared this Quarterly Report on Form 10-Q under the rules and
regulations of the United States Securities and Exchange Commission. Because
this is an interim period filing presented using a condensed format, it does not
include all of the disclosures required by generally accepted accounting
principles. You should read it along with our 2001 Annual Report on Form 10-K
which includes a summary of our significant accounting policies and other
disclosures. The financial statements as of September 30, 2002, and for the
quarters and nine months ended September 30, 2002 and 2001, are unaudited. We
derived the balance sheet as of December 31, 2001 from the audited balance sheet
filed in our 2001 Form 10-K. We believe we have made all adjustments, all of
which are of a normal, recurring nature, to fairly present our interim period
results. Information for interim periods may not necessarily indicate the
results of operations for the entire year due to the seasonal nature of our
business. The prior period information also includes reclassifications which
were made to conform to the current period presentation. These reclassifications
have no effect on our reported net income or members' capital.

Our accounting policies are consistent with those discussed in our 2001
Form 10-K, except for new accounting rules and interpretations which became
effective on or after January 1, 2002, the most significant of which are
discussed below.

Asset Impairments

Effective January 1, 2002, we began evaluating the impairment of our
long-lived assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
This statement requires that long-lived assets that are to be disposed of by
sale be measured at the lower of book value or fair value less cost to sell. The
standard also expanded the scope of discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity and will be eliminated from the ongoing operations of the entity
in a disposal transaction. The adoption of this standard had no initial impact
on our financial statements.

Derivatives Implementation Group Issue C-16

In September 2001, the Derivatives Implementation Group of the Financial
Accounting Standards Board (FASB) cleared guidance on Issue C-16, Scope
Exceptions: Applying the Normal Purchases and Normal Sales Exception to
Contracts that Combine a Forward Contract and a Purchased Option Contract. This
guidance impacts the accounting for fuel supply contracts that require delivery
of a contractual minimum quantity of fuel at a fixed price and have an option
that permits the holder to take specified additional amounts of fuel at the same
fixed price at various times. This guidance requires companies to account for
these contracts as derivative instruments under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, and requires them to
be recorded at their fair value. We use fuel supply contracts in our power
producing operations and currently do not reflect them in our balance sheet
since they are considered normal purchases under SFAS No. 133, as amended, under
its current interpretation. This

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guidance became effective April 1, 2002. The implementation of this guidance had
no impact on our financial statements.

2. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The following table presents summary statement of operations information
for our unconsolidated affiliates for the quarters and nine months ended
September 30, 2002 and 2001:

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(1) In March 2001, we acquired the remaining partnership interest in Bayonne
Venture. In December 2001, we acquired the remaining partnership interest in
Camden Venture. As a result, we are the sole owner of Bayonne Venture and
Camden Venture whose financial statements were consolidated during 2001;
therefore, only Linden Venture is represented in 2002.

3. INVENTORY

Our inventory is as follows:

4. INTANGIBLE ASSET

Our intangible asset represents the value that was assigned to Bayonne
Venture's power purchase agreement with Jersey Central Power and Light as a
result of our acquisition of all partnership interests in Bayonne Venture.
During the quarter ended September 30, 2002, we adjusted our intangible asset by
approximately $12.2 million to reflect a change in our estimate of deferred tax
liabilities associated with basis differences resulting from our acquisition of
a portion of Bayonne Venture in March 2001.

5. DEBT AND FINANCING TRANSACTIONS

Our debt consisted of the following:

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6. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

There have been no material changes to our agreements from those reported
in our Form 10-K as of December 31, 2001, except as follows.

Linden 6 Material Agreements

Electricity Sale Agreements. Linden 6 entered into an energy services
agreement with Tosco Refining L.P., a subsidiary of Tosco Corporation, effective
February 14, 2000 and terminating on April 30, 2017. This agreement was amended
in January 2002 to clarify how charges incurred by Tosco pursuant to a contract
between Tosco and Public Service Electric and Gas Company would be treated under
this agreement. This agreement provides for the sale of a nominated quantity of
electricity of no less than 90 megawatts. The sales price for electric energy
delivered is primarily based on a fixed base component plus variable factors
including an operations and maintenance component and a fuel component. Total
electricity revenues under this agreement were $23.0 million for the nine months
ended September 30, 2002.

Linden 6 also entered into an electricity supply agreement with Infineum
effective December 21, 2001 and terminating on January 25, 2007. This agreement
provides for Infineum's requirements of electricity up to, but not exceeding, a
maximum quantity of 10 megawatts. Total electricity revenues under this
agreement were $1.7 million for the nine months ended September 30, 2002.

In March 2002, Public Service Electric agreed to buy electricity generated
by Linden 6, but not purchased by Tosco and Infineum. Total electricity revenues
from Public Service Electric were $6.2 million for the nine months ended
September 30, 2002.

We do not apply the mark-to-market method of accounting to these
electricity sale agreements as they qualify for the "normal sales" exclusion
under SFAS No. 133, as amended. We evaluate the agreements on a regular basis to
verify that the exclusion continues to apply.

Gas Purchase Agreements. Under the terms of our energy services agreement
with Tosco, Linden 6 may purchase fuel for the operation of our facility with
approval from Tosco for any contract with a term greater than six months. Tosco
also has the option, with 30 days notice, to arrange for delivery of fuel to us
from Public Service Electric. Linden 6 provides Tosco with a credit for all
Public Service Electric charges they may incur. Included in fuel expense was
$15.7 million recognized under this agreement for the nine months ended
September 30, 2002.

In February 2002, Linden 6 contracted with Conectiv Energy Supply, Inc. to
purchase natural gas up to 50,000 million British thermal units per day through
November 2005 at an index price plus $0.04 per million British thermal unit.
Included in fuel expense was $9.6 million recognized under this agreement for
the nine months ended September 30, 2002.

During 2002, Linden 6 purchased natural gas from El Paso Merchant Energy,
L.P., our affiliate, at an index price plus $0.04 per million British thermal
units. Included in fuel expense was $2.0 million relating to these purchases for
the nine months ended September 30, 2002.

We do not apply the mark-to-market method of accounting to these gas
purchase agreements as they qualify for the "normal purchases" exclusion under
SFAS No. 133, as amended. We evaluate the agreements on a regular basis to
verify that the exclusion continues to apply.

Gas Transportation Agreement. Linden 6 operates under a gas services
agreement between Tosco and Public Service Electric. This agreement requires
Public Service Electric to provide non-firm transportation within their system
for up to 70 million cubic feet of natural gas per day to the Linden 6 facility
at the published tariff rate and shall continue until April 30, 2017. Included
in fuel expense was $1.1 million recognized under this agreement for the nine
months ended September 30, 2002.

Standby Service Agreement. In January 2002, Linden 6 contracted with
Public Service Electric to purchase 100 megawatts of standby electric service
should the facility fail to operate. In June 2002, Linden 6

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increased the standby electric service to 120 megawatts. This agreement expires
in June 2003. Fees paid under this agreement were approximately $1.6 million
during the nine months ended September 30, 2002.

Standby Letters of Credit

Under our loan agreements and other commercial commitments, we maintained
letters of credit in the amount of $57.7 million as of September 30, 2002, of
which $35.5 million was obtained on our behalf by El Paso Corporation, our
affiliate.

CONTINGENCIES

Linden 6 Project

During February 2000, we entered into an energy services agreement with
Tosco under which we are required to construct, own and operate the Linden 6
facility, a 172-megawatt cogeneration facility on part of the existing Linden
site under a sublease entered into with Linden Venture. Our engineering,
procurement and construction agreement with National Energy Production
Corporation, an affiliate of Enron, provided for liquidated damages in the event
the completion of the expansion did not occur by late October 2001. Completion
of the facility was delayed. Linden 6 began commercial operations on January 25,
2002. Due to the Enron bankruptcy, the engineering, procurement and construction
contract was amended to allow us to pay National Energy Production
subcontractors directly, and we were precluded from collecting liquidated
damages from National Energy Production until the earlier of their bankruptcy or
April 30, 2002. We have a $2.2 million receivable for liquidated damages from
National Energy Production which is fully reserved. National Energy Production
filed for bankruptcy on May 20, 2002. We have filed a claim against National
Energy Production for liquidated damages of $2.2 million due to us in connection
with the bankruptcy proceeding. National Energy Production's subcontractors
filed liens totaling approximately $20.6 million against the Linden 6 facility
to secure claims for amounts due to them and unpaid by National Energy
Production. We have participated in proceedings in the New Jersey state court to
have the liens released from the Linden 6 facility. In August 2002, we paid
$10.4 million in order to have all of the liens released on the facility. These
liabilities were previously accrued. All of the liens were released, or will be
released in the near future, pursuant to an order of the court dated October 21,
2002. All adverse issues pertaining to the construction liens have been
resolved.

Total expenditures for Linden 6 were approximately $116.5 million and have
been reclassified from construction in progress to property, plant and equipment
on our balance sheet as of September 30, 2002. As part of the construction
costs, we capitalized interest costs of $9.8 million over the construction
period.

In connection with obtaining the consent of the Linden Venture partners and
lenders for the transactions contemplated by the energy services agreement, we
have indemnified Linden Venture from any and all losses that may be incurred as
a result of Linden 6. El Paso Corporation guaranteed our obligations under this
indemnity in an aggregate amount of up to $15.0 million.

Legal Proceedings

On June 30, 2000, Infineum filed an action against Linden Venture in the
United States District Court for the District of New Jersey seeking actual and
punitive damages. The suit claims that Linden Venture tortuously interfered with
Infineum's ability to sell steam purchased from the Linden facility to Bayway
Refining Company, and that such interference is in violation of federal and New
Jersey antitrust laws, and in breach of Linden Venture's agreement with
Infineum. Linden Venture filed an answer and a counterclaim on September 26,
2000. On December 21, 2001, the court denied Linden Venture's motion to dismiss
for lack of antitrust standing. Discovery is now proceeding. The court has
ordered the parties to mediate the dispute. Mediation was held in early October
2002 and settlement negotiations are continuing. As of September 30, 2002,
Linden Venture had accruals for legal expenses totaling $1.1 million in
connection with the Infineum action.

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For each of our outstanding legal matters, we evaluate the merits of the
case, our exposure to the matter, possible legal or settlement strategies and
the likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we establish the necessary accruals.

While the outcome of our outstanding legal matters cannot be predicted with
certainty, based on the information known to date and our existing accruals, we
do not expect the ultimate resolution of these matters to have a material
adverse effect on our financial position, results of operations or cash flows.
As new information becomes available or relevant developments occur, we will
review our accruals and make any appropriate adjustments. The impact of these
changes may have a material effect on our financial position, results of
operations or cash flows.

7. RESTRUCTURING OF POWER PURCHASE AGREEMENT

Many domestic power plants have long-term power purchase agreements with
regulated utilities that were entered into under the Public Utility Regulatory
Policies Act of 1978 (PURPA). The power sold to the utility under the PURPA
contracts is required to be delivered from a specified power generation plant at
power prices that are usually significantly higher than the cost of power in the
wholesale power market. The cost of generating power at these PURPA power plants
is typically higher than the cost that would be incurred by obtaining the power
in the wholesale power generation market, principally because PURPA power plants
are less efficient than newer power generation facilities.

In a power contract restructuring, the PURPA power purchase agreement is
amended so that the power sold to the utility does not have to be provided from
the specific power plant. Because we are able to buy lower cost power in the
wholesale power market, we have the ability to reduce the cost paid by the
utility, thereby inducing the utility to enter into the power contract
transaction. Following the contract restructuring, the power plant operates on a
merchant basis, which means that it is no longer dedicated to one buyer and will
operate only when power prices are high enough to make operations economical.
Prior to a power contract restructuring, the power plant and its related PURPA
power purchase agreements are generally accounted for at their historical cost,
which is either the cost of construction or, if acquired, the acquisition cost.
Revenues and expenses prior to restructuring are, in most cases, accounted for
on an accrual basis, as power is generated and sold to the utility. As part of
the restructuring, any related fuel supply and steam contracts are generally
amended or terminated, the value of the remaining merchant plant is evaluated
for possible impairment, and the restructured power purchase agreement is
adjusted to its estimated fair value. The restructured power purchase agreement
can then be sold, or the entity that the power purchase agreement is contributed
to can enter into an offsetting, or mirror, power purchase agreement. In cases
when our affiliate enters into a mirror power purchase agreement, our affiliate
uses the restructured power purchase agreement, and the mirror power purchase
agreement, along with the fixed price spread between these contracts, as
collateral to obtain financing. The offsetting power purchase agreement requires
the power supplier, which can be an affiliate or third-party, to provide
long-term fixed price power in amounts sufficient to meet the obligations under
the restructured power purchase agreement.

Jersey Central Power and Light

On February 27, 2002, we reached an agreement, subject to lender, partner,
and other unaffiliated party approval, with Jersey Central Power to restructure
the long-term power purchase agreement relating to our Bayonne Venture facility.
Completion of the restructuring is subject to customary conditions to closing
for similar transactions, including prior approval by the New Jersey Board of
Public Utilities, which was received in May 2002. However, since many of the
conditions to closing are outside of our control, we cannot assure that we will
be able to complete the restructuring. We also agreed with Public Service
Electric to modifications of the gas services and interconnection agreements
relating to the Bayonne Venture facility effective upon the consummation of the
restructuring.

The restructuring could be deemed a power purchase agreement buyout under
the indenture executed in connection with our notes, in which case we would be
required to seek confirmation from the rating agencies that the restructuring
will not cause a rating downgrade.

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8. NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

Accounting for Asset Retirement Obligations

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement requires companies to record a liability
relating to the retirement and removal of assets used in their business. The
liability is recorded at its present value, and the same amount is added to the
recorded value of the asset and is amortized over the asset's remaining useful
life. An ongoing expense will also be recognized for changes in the value of the
liability as a result of the passage of time. The provisions of this statement
are effective for fiscal years beginning after June 15, 2002. We are currently
in the process of assessing and quantifying the asset retirement obligations
associated with our long-lived assets. We expect to complete our assessment of
these asset retirement obligations and their effect on our financial statements
in the fourth quarter of 2002.

Reporting Gains and Losses from the Early Extinguishment of Debt

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement addresses how to report gains or losses resulting
from the early extinguishment of debt. Previously, any gains or losses were
reported as an extraordinary item. When we adopt SFAS No. 145, we will be
required to evaluate whether the debt extinguishment is truly extraordinary in
nature, in accordance with Accounting Principles Board Opinion No. 30. If we
routinely extinguish debt early, the gain or loss will be included in income
from continuing operations. This statement will be effective for our 2003
year-end reporting.

Accounting for Costs Associated with Exit or Disposal Activities

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement will require us to recognize
costs associated with exit or disposal activities when they are incurred rather
than when we commit to an exit or disposal plan. Examples of costs covered by
this guidance include lease termination costs, employee severance costs that are
associated with a restructuring, discontinued operations, plant closings, or
other exit or disposal activities. The provisions of this statement are
effective for fiscal years beginning after December 31, 2002. The provisions of
this statement will impact any exit or disposal activities initiated after
January 1, 2003.

9. RELATED PARTY TRANSACTIONS

During the quarter and nine months ended September 30, 2002, we purchased
fuel from El Paso Merchant totaling $14.4 million and $38.6 million and we
recognized revenues of $7.9 million and $19.4 million related to electricity
sales to El Paso Merchant. These revenues are net of $1.6 million and $4.8
million for the quarter and nine months ended September 30, 2002, paid by
Mesquite Investors to El Paso Merchant under an agreement that has the effect of
subsidizing the payments that El Paso Merchant makes to Camden Venture under its
power purchase agreement with El Paso Merchant. The offsetting credit is
accounted for as a non-cash capital contribution to us from Mesquite Investors.

As of September 30, 2002, we had affiliate notes payable of $187.9 million.
For the quarter and nine months ended September 30, 2002, we incurred interest
expense of $4.2 million and $12.7 million associated with these notes.
Additionally, for the nine months ended September 30, 2002, we recorded $0.1
million for a guarantee fee due to our affiliate in accrued liabilities.

We entered into a management agreement with El Paso Merchant to provide
project management, finance and accounting services to us for a fee of
approximately $3.6 million per year which is adjusted annually for increases in
the Consumer Price Index and is renewed annually. We recorded operating expenses
associated with this agreement of $0.9 million and $2.7 million for the quarter
and nine months ended September 30, 2002.

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El Paso Corporation Announces Exit of Energy Trading Activities

On November 8, 2002, El Paso Corporation announced its plan to exit the
energy trading business. El Paso's plan includes forming a new subsidiary to
hold, manage and liquidate its trading assets and liabilities previously held by
its wholly owned subsidiary and our affiliate, El Paso Merchant Energy, L.P. The
consent of our bondholders may be required for an assignment by El Paso Merchant
of its obligations under our agreements. We are in the process of evaluating
what impact, if any, that this announcement will have on these agreements.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information contained in Item 2 should be read in conjunction with
information disclosed in our 2001 Annual Report on Form 10-K dated April 15,
2002, in addition to the financial statements and notes presented in Item 1,
Financial Statements, of this Quarterly Report on Form 10-Q.

RECENT DEVELOPMENTS

El Paso Corporation Announces Exit of Energy Trading Activities

On November 8, 2002, El Paso Corporation announced its plan to exit the
energy trading business. El Paso's plan includes forming a new subsidiary to
hold, manage and liquidate its trading assets and liabilities previously held by
its wholly owned subsidiary and our affiliate, El Paso Merchant Energy, L.P. As
discussed in Notes 6 and 9 presented in Item 1, we have entered into several
agreements with El Paso Merchant. The consent of our bondholders may be required
for an assignment by El Paso Merchant of its obligations under our agreements.
We are in the process of evaluating what impact, if any, that this announcement
will have on these agreements.

Potential Change in Mesquite Investors' Ownership

On November 8, 2002, El Paso Corporation announced its intent to acquire an
additional interest in Chaparral Investors, L.L.C. Chaparral owns Mesquite
Investors. Chaparral is owned approximately 20 percent by El Paso Corporation
and the remaining interest is owned by Limestone Investors, L.L.C. El Paso
Corporation's announced intent related to Limestone's interests, and the
completion of the transaction, would result in us becoming a wholly-owned,
indirect subsidiary of El Paso Corporation.

LINDEN 6 PROJECT

The Linden 6 facility, a 172-megawatt cogeneration facility operates on
part of the existing Linden site under a sublease entered into with Linden
Venture. Linden 6 is owned and operated by one of our wholly owned subsidiaries.
Linden 6 began commercial operations on January 25, 2002. Linden 6 was
constructed at a total cost of $116.5 million, which includes capitalized
interest costs of $9.8 million. Upon its completion in January 2002, we
classified these costs as part of property, plant, and equipment.

RESTRUCTURING OF CAMDEN AND BAYONNE POWER PURCHASE AGREEMENTS

Many domestic power plants have long-term power purchase agreements with
regulated utilities that were entered into under the Public Utility Regulatory
Policies Act of 1978 (PURPA). The power sold to the utility under the PURPA
contracts is required to be delivered from a specified power generation plant at
power prices that are usually significantly higher than the cost of power in the
wholesale power market. The cost of generating power at these PURPA power plants
is typically higher than the cost that would be incurred by obtaining the power
in the wholesale power generation market, principally because PURPA power plants
are less efficient than newer power generation facilities.

In a power contract restructuring, the PURPA power purchase agreement is
amended so that the power sold to the utility does not have to be provided from
the specific power plant. Because we are able to buy lower cost power in the
wholesale power market, we have the ability to reduce the cost paid by the
utility, thereby inducing the utility to enter into the power contract
transaction. Following the contract restructuring, the power plant operates on a
merchant basis, which means that it is no longer dedicated to one buyer and will
operate only when power prices are high enough to make operations economical.
Prior to a power contract restructuring, the power plant and its related PURPA
power purchase agreements are generally accounted for at their historical cost,
which is either the cost of construction or, if acquired, the acquisition cost.
Revenues and expenses prior to restructuring are, in most cases, accounted for
on an accrual basis, as power is generated and sold to the utility. As part of
the restructuring, any related fuel supply and steam contracts are generally
amended or terminated, the value of the remaining merchant plant is evaluated
for possible impairment, and the restructured power purchase agreement is
adjusted to its estimated fair value. The restructured power

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purchase agreement can then be sold, or the entity that the power purchase
agreement is contributed to can enter into an offsetting, or mirror, power
purchase agreement. In cases when our affiliate enters into a mirror power
purchase agreement, our affiliate uses the restructured power purchase
agreement, and the mirror power purchase agreement, along with the fixed price
spread between these contracts, as collateral to obtain financing. The
offsetting power purchase agreement requires the power supplier, which can be an
affiliate or third-party, to provide long-term fixed price power in amounts
sufficient to meet the obligations under the restructured power purchase
agreement.

On May 23, 2001, we reached an agreement to restructure the long-term power
purchase agreements with Public Service Electric at our Camden Venture and
Bayonne Venture facilities. On July 19, 2001, the New Jersey Board of Public
Utilities approved the restructurings, and we received written approval on July
27, 2001. This order became final and non-appealable on September 11, 2001, and
the restructuring was completed on December 12, 2001.

In the restructurings, we distributed the Bayonne Venture and Camden
Venture power purchase agreements with Public Service Electric, which had a book
value of approximately $233.7 million, to our common members, Bonneville Pacific
Corporation and Mesquite Investors, L.L.C. Our common members, in turn,
contributed the power purchase agreements to our affiliate, Cedar Brakes II,
L.L.C., causing the restructured power purchase agreement to become effective.
In addition, our Camden Venture and Bayonne Venture facilities were released
from their obligations under their power purchase agreements with Public Service
Electric. Camden Venture began operations under an agreement with El Paso
Merchant on December 13, 2001 and its revenues under this agreement are
partially subsidized as a result of an agreement between El Paso Merchant and
Mesquite Investors, L.L.C. Additionally, Bayonne Venture began operations under
an agreement with El Paso Merchant on December 13, 2001, for approximately 24
percent of the electric energy produced by the Bayonne facility that had
previously been purchased by Public Service Electric. As a result of the
distribution of Bayonne Venture and Camden Venture's power purchase agreements,
and the changes in the operations of these facilities following those
distributions, we reevaluated the carrying amount of our plant assets and
recorded an impairment charge of $62.8 million on our Camden facility and an
impairment charge of $4.5 million on our Bayonne facility to report these assets
at their estimated fair values. These charges were reflected in our consolidated
statement of operations for the year ended December 31, 2001. The estimated fair
value of our plants was based on sales data on similar plants, adjusted for
liquidity in the marketplace and locational differences.

In conjunction with the restructurings, we retired $44.7 million of Camden
Venture project level debt and $55.1 million of Bayonne Venture project level
debt in 2001. As a result of the early retirement of debt, we also incurred
extraordinary costs of $13.8 million at Bayonne Venture and $10.1 million at
Camden Venture. These costs were reported as extraordinary items in our
consolidated statement of operations for the year ended December 31, 2001.

The restructurings constituted a power purchase agreement buyout under our
indenture executed in connection with our senior secured notes. We received
confirmation from the ratings agencies that the restructurings did not cause a
rating downgrade provided that we redeem a portion of our notes. Consequently,
we redeemed $176.4 million of our notes on December 12, 2001.

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RESULTS OF OPERATIONS

The following are our results of operations for the third quarter of 2002
compared to the third quarter of 2001 and for the nine months ended September
30, 2002 compared to the nine months ended September 30, 2001. The operating
results discussed below are not necessarily indicative of the results that may
be achieved for any subsequent interim period or for a full year.

Third Quarter 2002 Compared to Third Quarter 2001

Operating revenues for the quarter ended September 30, 2002, were $19.6
million higher than the same period in 2001. The increase was due primarily to
the consolidation of Camden Venture beginning in December 2001, as a result of
our purchase of its outstanding partnership interests, resulting in additional
revenue of $5.3 million. The increase was also due to the commencement of
commercial operations at Linden 6 in January 2002, resulting in additional
revenue of $15.9 million. These increases were offset by a decrease in operating
revenues at Bayonne Venture of $1.6 million, due to lower energy payments
received for 24.2 percent of the total plant generation under the power purchase
agreement with El Paso Merchant effective December 13, 2001.

Operating expenses for the quarter ended September 30, 2002, were $19.9
million higher than the same period in 2001. The increase was primarily due to
the consolidation of Camden Venture beginning in December 2001, resulting in
$7.9 million of additional operating expenses, and from the commencement of
commercial operations at Linden 6 in January 2002 resulting in additional
operating expenses of $12.6 million. These increases were offset by a decrease
in professional expenses of $0.6 million.

Earnings from unconsolidated affiliates for the quarter ended September 30,
2002, were $8.5 million lower than the same period in 2001. The decrease was due
primarily to the consolidation of Camden Venture from December 1, 2001. As a
result, Camden Venture's earnings are consolidated into the operating results
for the quarter ended September 30, 2002, whereas they were presented as
earnings from unconsolidated affiliates for the same period in 2001.

Interest and debt expense, net decreased by $3.3 million for the quarter
ended September 30, 2002, compared to the same period in 2001 due primarily to a
lower outstanding debt balance, as a result of the power contract
restructurings.

Nine Months Ended 2002 Compared to Nine Months Ended 2001

Operating revenues for the nine months ended September 30, 2002, were $72.1
million higher than the same period in 2001. The increase was due primarily to
the consolidation of Camden Venture in December 2001 resulting in $10.9 million
of additional revenue and a net increase of $19.1 million due to the
consolidation of Bayonne Venture in March 2001, partially offset by a decrease
in Bayonne Venture's operating revenues due to lower energy payments received
for 24.2 percent of the total plant generation under the power purchase
agreement with El Paso Merchant effective December 13, 2001. The increase was
also due to the commencement of commercial operations at Linden 6 in January
2002, resulting in additional

13

operating revenues of approximately $30.9 million relating to electricity sales
and approximately $11.2 million relating to steam sales to our affiliate.

Operating expenses for the nine months ended September 30, 2002, were $66.7
million higher than the same period in 2001. The increase was due to the
consolidation of Bayonne Venture beginning in March 2001 and Camden Venture in
December 2001 and from the commencement of operations at Linden 6 in January
2002. Operating expenses increased by $11.8 million due to the consolidation of
Bayonne Venture and $21.1 million due to the consolidation of Camden Venture. An
increase of $33.8 million in operating expenses is attributed to the
commencement of operations at Linden 6.

Earnings from unconsolidated affiliates for the nine months ended September
30, 2002, were $20.7 million lower than the same period in 2001. The decrease
was due primarily to the consolidation of Bayonne Venture from March 13, 2001
and Camden Venture from December 1, 2001. As a result, Bayonne Venture's and
Camden Venture's earnings are consolidated into the operating results for the
nine months ended September 30, 2002, whereas they were presented as earnings
from unconsolidated affiliates for the same period in 2001.

Interest and debt expense, net decreased by $12.7 million for the nine
months ended September 30, 2002, compared to the same period in 2001 due
primarily to a lower outstanding debt balance as a result of the power contract
restructurings.

LIQUIDITY AND CAPITAL RESOURCES

Cash from Operating Activities

Net cash provided by our operating activities was $70.6 million for the
nine months ended September 30, 2002, compared to $57.7 million for 2001. The
increase was primarily due to Linden 6 operations that began in January 2002,
lower fuel costs at Bayonne Venture and reimbursement of fuel costs at Linden
Venture under its power purchase agreement.

Cash from Investing Activities

Net cash used in our investing activities was $7.0 million for the nine
months ended September 30, 2002. Our 2002 investing activities primarily
consisted of additions to property, plant and equipment in connection with the
Linden 6 expansion.

Our capital expenditures for the remainder of 2002 are expected to be
approximately $1.6 million. Future capital expenditures by us will be financed
by cash flows from operations or cash contributions by our members.

Cash from Financing Activities

Net cash used in our financing activities was $91.7 million for the nine
months ended September 30, 2002. The 2002 activity includes payments to retire
long-term debt and distributions paid to our members.

Future Liquidity

Our primary source of liquidity is cash generated in the form of operating
revenues or distributions from unconsolidated affiliates arising from power
sales under existing and restructured power purchase agreements less the cost of
those sales and cash contributed by our members. We currently intend to
restructure our power purchase agreements at our Linden Venture and the Jersey
Central Power portion of our Bayonne Venture facilities. Although the ultimate
outcome relating to the consummation of the restructuring is not known at this
time, the following could affect our financial statements and future liquidity,
if the restructurings become effective: (i) we may sell or contribute the power
purchase agreements to an affiliate; (ii) the facility will operate on a
merchant basis; (iii) our assets, including the merchant facility, will be
evaluated for possible impairment; (iv) all costs associated with the
restructuring may be paid or accrued; (v) plant improvements may be necessary to
make the plant ready for merchant operations; (vi) we may be required to redeem
bonds

14

pursuant to the terms of the indenture; and (vii) debt may be issued by us.
While we expect our future revenues to decline as a result of these power
purchase agreement restructurings, we intend to reduce our debt service
obligations contemporaneously such that our cash from operations will continue
to be our primary source of liquidity.

Our loan agreements require us to maintain compliance with financial
covenants. We believe that we are in compliance with the terms and conditions of
the loan agreements as of September 30, 2002.

Distributions

Distributions to our members are limited by our senior secured bond
indenture. As permitted by the senior secured bond indenture, distributions of
$56.5 million were paid to our members during the nine months ended September
30, 2002.

COMMITMENTS AND CONTINGENCIES

See Item 1, Financial Statements, Note 6, which is incorporated herein by
reference.

NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

See Item 1, Financial Statements, Note 8, which is incorporated herein by
reference.

15

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and to be made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions will
generally identify forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative
market risks from those reported in our Annual Report on Form 10-K for the year
ended December 31, 2001.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of
1934 (the "Exchange Act"). Based on that evaluation, our principal executive
officer and principal financial officer have concluded that these controls and
procedures are effective. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified under the
Exchange Act. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.

The principal executive officer and principal financial officer
certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 have been included herein, or as Exhibits to this Quarterly Report on Form
10-Q, as appropriate.

16

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Part I, Item 1, Financial Statements, Note 6, which is incorporated
herein by reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

Each exhibit identified below is filed as part of this report. Exhibits not
incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.

Undertaking

We hereby undertake, pursuant to Regulation S-K, Item 601(b),
paragraph (4)(iii), to furnish to the United States Securities and Exchange
Commission, upon request, all constituent instruments defining the rights
of holders of our long-term debt not filed herewith for the reason that the
total amount of securities authorized under any of such instruments does
not exceed 10 percent of our total consolidated assets.

b. Reports on Form 8-K

None.

17

SIGNATURES

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

EAST COAST POWER L.L.C.

Date: November 14, 2002 /s/ JOHN L. HARRISON
--------------------------------------
John L. Harrison
Senior Vice President, Chief Financial
Officer,
Treasurer and Class A Manager
(Principal Financial Officer)

Date: November 14, 2002 /s/ BRYAN E. SEAS
--------------------------------------
Bryan E. Seas
Vice President and Controller
(Principal Accounting Officer)

18

CERTIFICATION

I, Clark C. Smith, certify that:

1. I have reviewed this quarterly report on Form 10-Q of East Coast Power
L.L.C.;

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

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

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

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

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

Date: November 14, 2002

/s/ CLARK C. SMITH
--------------------------------------
Clark C. Smith
President
(Principal Executive Officer)
East Coast Power L.L.C.

CERTIFICATION

I, John L. Harrison, certify that:

1. I have reviewed this quarterly report on Form 10-Q of East Coast Power
L.L.C.;

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

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

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

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

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

Date: November 14, 2002

/s/ JOHN L. HARRISON
--------------------------------------
John L. Harrison
Senior Vice President, Chief Financial
Officer, Treasurer and Class A Manager
(Principal Financial Officer)
East Coast Power L.L.C.

INDEX TO EXHIBITS

Each exhibit identified below is filed as part of this report. Exhibits not
incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.