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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended March 31, 2003

Commission File Number 33-82034

INDIANTOWN COGENERATION, L.P.
(Exact name of co-registrant as specified in its charter)

INDIANTOWN COGENERATION FUNDING CORPORATION
(Exact name of co-registrant as specified in its charter)

7600 Wisconsin Avenue
(Mailing Address: 7500 Old Georgetown Road, 13th Floor
Bethesda, Maryland 20814-6161)
(Registrants’ address of principal executive offices)

(301)-280-6800
(Registrants’ telephone number, including area code)

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 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. [ X ] Yes  [   ] No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) [   ] Yes    [ X ] No

Indiantown Cogeneration, L.P.
Indiantown Cogeneration Funding Corporation

PART I
FINANCIAL INFORMATION

Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Balance Sheets
As of March 31, 2003 and December 31, 2002

The accompanying notes are an integral part of these consolidated financial statements.

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Indiantown Cogeneration, L. P. and Subsidiary
Consolidated Balance Sheets
As of March 31, 2003 and December 31, 2002

The accompanying notes are an integral part of these consolidated financial statements.

2

Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Statements of Operations
For the Three Months Ended March 31, 2003 and March 31, 2002

The accompanying notes are an integral part of these consolidated financial statements.

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Indiantown Cogeneration, L.P. and Subsidiary
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002

The accompanying notes are an integral part of these consolidated financial statements.

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Indiantown Cogeneration, L.P. and Subsidiary
Notes to Consolidated Financial Statements
As of March 31, 2003
(Unaudited)

1.

ORGANIZATION AND BASIS OF PRESENTATION:

     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”) and supplies steam to Louis Dreyfus Citrus, Inc. (“LDC”), successor to Caulkins Indiantown Citrus Co.

     The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by accounting principles generally accepted in the United States for complete statements. Management believes that the accompanying unaudited consolidated financial statements, which have been prepared in accordance with interim reporting requirements, reflect all adjustments that are necessary to present a fair statement of the consolidated financial position and results of operations for the interim periods for Indiantown Cogeneration, L.P. and Indiantown Cogeneration Funding Corporation. All material adjustments are of a normal recurring nature unless otherwise disclosed in this report on Form 10-Q. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

     This quarterly report should be read in conjunction with the Partnership’s consolidated financial statements and notes to consolidated financial statements included in its 2002 Annual Report on Form 10-K and its other reports filed with the Securities and Exchange Commission (“SEC”) since the 2002 Annual Report on Form 10-K was filed.

2.

RELATIONSHIP WITH PG&E CORPORATION AND PG&E NATIONAL ENERGY GROUP, INC:

     The Partnership is managed by PG&E National Energy Group Company (“NEG”), pursuant to a Management Services Agreement (the “MSA”). The Facility is operated by PG&E Operating Services Company (“PG&E OSC”), pursuant to an Operation and Maintenance Agreement (the “O&M Agreement”). NEG and PG&E OSC are general partnerships indirectly wholly owned by NEG, Inc., an indirect wholly owned subsidiary of PG&E Corporation.

     In December 2000, and in January and February 2001, PG&E Corporation and NEG, Inc. completed a corporate restructuring that involved the use or creation of limited liability companies (“LLCs”) as intermediate owners between a parent company and its subsidiaries. One of these LLCs is PG&E National Energy Group, LLC, which owns 100% of the stock of NEG.

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     On April 6, 2001, Pacific Gas and Electric Company (the “Utility”), another subsidiary of PG&E Corporation, filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. Pursuant to Chapter 11 of the U.S. Bankruptcy Code, the Utility retains control of its assets and is authorized to operate its business as a debtor-in-possession while being subject to the jurisdiction of the Bankruptcy Court. The Utility and PG&E Corporation jointly filed a plan of reorganization that entails separating the Utility into four distinct businesses. The plan of reorganization does not directly affect NEG, Inc. or any of its subsidiaries. NEG Inc.’s management believes that NEG, Inc. and its direct and indirect subsidiaries as described above, including the Partnership, would not be substantively consolidated with PG&E Corporation in any insolvency or bankruptcy proceeding involving PG&E Corporation or the Utility.

     As result of the sustained downturn in the power industry, NEG, Inc. and certain of its consolidated affiliates have experienced a financial downturn which caused the major credit rating agencies to downgrade NEG, Inc. and certain of its consolidated affiliates’ credit ratings to below investment grade. The credit rating agency action has had no material impact on the financial condition or results of operations of the Partnership.

     On October 8, 2002, Moody’s stated that in conjunction with the downgrade of NEG, Inc. it had placed the Partnership’s debt under review for possible downgrade. On October 15, 2002, S&P stated that the recent downgrade of NEG, Inc. will not have an effect on the rating of the Partnership’s debt at this time. S&P’s rating of the Partnership’s debt is “BBB-”. On November 5, 2002, Moody’s issued an opinion update changing the rating outlook of the Partnership’s debt to “under review for possible downgrade” from “negative outlook”. Moody’s rating of the Partnership’s debt is “Baa3”. On December 12, 2002, Fitch Ratings removed the “Rating Watch Negative” from it’s “BBB-” rating on the Partnership’s debt for the satisfactory completion of the permanent generator repairs during the 2002 scheduled fall outage. There are no minimum credit rating requirements in the Partnership’s financing agreements.

     NEG, Inc. and certain affiliates, excluding Toyan and IPILP, are currently in default under various debt agreements and guaranteed equity commitments. NEG, Inc., its subsidiaries and their lenders have been engaged in discussions to restructure NEG, Inc.’s and its subsidiaries’ debt obligations and other commitments since October 2002. No agreement has been reached yet and there can be no assurance that an agreement will be reached. Any restructuring agreement that may be reached would be implemented through a reorganization proceeding under Chapter 11 of the U.S. Bankruptcy Code. The Partnership is not a party to such debt agreements and guaranteed equity commitments or participants in such discussions.

     Although NEG, Inc., and its subsidiaries are continuing their efforts to maximize cash and reduce liabilities, such efforts are not expected to restore the financial condition of NEG, Inc. and its subsidiaries. Absent a negotiated agreement, the lenders may exercise their default remedies or force NEG, Inc. and certain of its subsidiaries into an involuntary proceeding under the U.S. Bankruptcy Code. Notwithstanding the status of current negotiations, NEG, Inc. and certain of its subsidiaries also may elect to voluntarily seek protection under the U.S. Bankruptcy Code as early as the second quarter 2003.

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     NEG, Inc. owns an indirect interest in the Partnership, and through its wholly owned subsidiaries NEG and PG&E OSC manages and operates the Project. The Partnership cannot be certain that an insolvency or bankruptcy involving NEG, Inc. or any of its subsidiaries would not affect NEG Inc.’s ownership arrangement with respect to the Partnership or the ability of NEG and PG&E OSC to manage and operate the Project.

3.

SIGNIFICANT ACCOUNTING POLICIES:

     Except as disclosed, the Partnership is following the same accounting principles discussed in the Partnership’s December 31, 2002 Annual Report on Form 10-K.

Adoption of New Accounting Pronouncements

     On January 1, 2003, the Partnership adopted Statement of Financial Accounting Standards (“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 Partnership has a legal obligation to perform certain clean-up and security procedures. As such the Partnership has assessed the probability of when this will occur and the related cost. Upon implementation of this statement, the Partnership recorded $43,607 of property, plant and equipment to reflect the fair value of the asset retirement costs as of the date the obligation was incurred, $8,721 of accumulated depreciation through December 31, 2002 and an asset retirement obligation of $83,849. The cumulative effect of the change in accounting principle as a result of adopting this statement was a loss of $48,963.

     If this statement had been adopted on January 1, 2002, the pro forma effects on earnings of the accounting change for the three months ended March 31, 2002 would not have been material.

     In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which is effective for exit and deposal activities initiated after December 31, 2002. In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation establishes new disclosure requirements for all guarantees, but the measurement criteria are applicable to guarantees issued and modified after December 31, 2002. This statement and interpretation was adopted on January 1, 2003 and did not have an impact on the Partnership’s consolidated financial statements.

Accounting Principles Issued But Not Yet Adopted

     In January 2003, the FASB Issued Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003, application begins in the first fiscal year or interim period beginning after June 15, 2003. The Partnership does not expect that implementation of this interpretation will have a significant impact on its consolidated financial statements.

     In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The amendments set forth in SFAS No. 149 require that contracts with comparable characteristics be accounted for similarly. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative according to SFAS No. 133 and when a derivative contains a financing component that warrants special reporting in the statement of cash flows.

     The requirements of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of the statement that relate to previous FASB guidance issued in the form of SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The Partnership is currently evaluating the impacts, if any, of SFAS No. 149 on its consolidated financial statements.

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4.

RELATED PARTY TRANSACTIONS:

     The Partnership has a Management Services Agreement with NEG, Inc. for the day-to-day management and administration of the Partnership’s business relating to the Facility. The agreement commenced on September 30, 1992 and will continue through August 31, 2026. The cost of services is included in general and administrative expenses in the accompanying consolidated statements of operations. The total amount due to NEG, Inc. for these services for the three months ended March 31, 2003 is $194,474, all of which is subordinated pursuant to the Disbursement Agreement.

     The Partnership has an Operation and Maintenance Agreement with PG&E OSC, for the operations and maintenance of the Facility for a period of 30 years (starting September 30, 1992). Compensation to PG&E OSC under the agreement includes an annual base fee of which a portion is subordinate to debt service and certain other costs. The base fee is included in operating and maintenance expenses in the accompanying consolidated statements of operations. The total amount due to PG&E OSC for these services for the three months ended March 31, 2003 is $451,644, none of which is subordinated pursuant to the Disbursement Agreement.

5.

LETTERS OF CREDIT:

     The Partnership entered into a debt service reserve letter of credit and reimbursement agreement, dated as of November 1, 1994, with BNP Paribas (formerly known as Banque Nationale de Paris). Pursuant to the terms of the Disbursement Agreement, since the agreement will expire on November 22, 2005, available cash flows are required to be deposited on a monthly basis 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 is achieved, which is $29,925,906. No cash flows have been available to make such deposits and therefore no funds have been deposited as of March 31, 2003. The Partnership began to make deposits in the second quarter of 2003 and expects to have the required balance fully funded by the end of the first quarter of 2005.

     The Partnership, pursuant to certain of the contracts, is 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 the expiration of the Letter of Credit and Reimbursement Agreement, letters of credit were drawn by LDC on November 14, 2002 and by FPL on December 16, 2002 for $10,000,000 and $1,700,000, respectively. The principal amount of these seven year term loans is 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.

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6.

NEW COAL PURCHASE AND ASH DISPOSAL AGREEMENTS:

     A Back-up 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 Back-up Coal Agreement, Massey will provide coal under substantially similar terms to the Coal Supply Agreement, which the Partnership had with Lodestar Energy, Inc. prior to the termination of the agreement on March 31, 2003. The base coal price is $33.75 per ton with a market price reopener provision beginning in October 2003. The Partnership cannot predict the outcome of the future negotiations to adjust the coal price.

     A new Ash Disposal Agreement was executed on February 1, 2003 between the Partnership and VFL Technology Corporation (“VFL”) and has a term of four years with an option for two additional years. This agreement, combined with other ash disposal agreements, allows the Partnership to dispose of all the Facility’s ash without relying on Lodestar Energy, Inc.

7.

CONCENTRATIONS 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, who provides more than 99% of the Partnership revenues and is considered to be of investment grade.

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements of the Partnership and the notes to the consolidated financial statements included herein. Further, this Quarterly Report on Form 10-Q should be read in conjunction with the Partnership’s 2002 Annual Report on Form 10-K.

Cautionary Statement Regarding Forward-Looking Statements

     The information in this Quarterly Report on Form 10-Q includes forward-looking statements about the future 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. 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

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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 operations 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 prices, whether PG&E National Energy Group, Inc. (“NEG, Inc.”) or certain of it subsidiaries seek protection under the U.S. Bankruptcy Code, or are forced into a proceeding under the U.S. Bankruptcy Code, and the outcome of the outstanding release not yet exchanged with respect to the termination of the Coal Purchase Agreement (see “Replacement of Coal Supplier”, included in Part II, Item 5, Other Information below).

     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 Power Purchase Agreement.

     Accounting and Risk Management

     The Partnership’s future results of operations 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.

     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.

     Litigation and Environmental Matters

     The Partnership’s future results of operations and financial condition may be affected by compliance with existing and future environmental and safety laws, regulations, and policies,

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the cost of which could be significant, and the outcome of any potential future litigation and environmental matters.

Overview

     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. In the 2003 agreement year the Facility is entitled to four weeks of outages to perform scheduled maintenance. Differences in the timing and scope of scheduled maintenance can have a significant impact on the revenues and operational costs.

     The Partnership replaced its fuel supplier effective April 1, 2003. Please see Part II, Item 5, Other Information, for a description of the Partnership’s actions with respect to the replacement of the coal supplier.

     The Partnership has obtained all material environmental permits and approvals required as of March 31, 2003, in order to continue the 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 such permits and approvals or the renewal of currently existing permits.

Relationship with PG&E Corporation and NEG, Inc.

     In December 2000, and in January and February 2001, PG&E Corporation and NEG, Inc. completed a corporate restructuring that involved the use or creation of limited liability companies (“LLCs”) as intermediate owners between a parent company and its subsidiaries. One of these LLCs is PG&E National Energy Group, LLC, which owns 100% of the stock of NEG.

     On April 6, 2001, Pacific Gas and Electric Company (the “Utility”), another subsidiary of PG&E Corporation, filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. Pursuant to Chapter 11 of the U.S. Bankruptcy Code, the Utility retains control of its assets and is authorized to operate its business as a debtor-in-possession while being subject to the jurisdiction of the Bankruptcy Court. The Utility and PG&E Corporation jointly filed a plan of reorganization that entails separating the Utility into four distinct businesses. The plan of reorganization does not directly affect NEG, Inc. or any of its subsidiaries. NEG Inc.’s management believes that NEG, Inc. and its direct and indirect subsidiaries as described above, including the Partnership, would not be substantively

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consolidated with PG&E Corporation in any insolvency or bankruptcy proceeding involving PG&E Corporation or the Utility.

     As result of the sustained downturn in the power industry, NEG, Inc. and certain of its consolidated affiliates have experienced a financial downturn which caused the major credit rating agencies to downgrade NEG, Inc. and certain of its consolidated affiliates’ credit ratings to below investment grade. The credit rating agency action has had no material impact on the financial condition or results of operations of the Partnership.

     On October 8, 2002, Moody’s stated that in conjunction with the downgrade of NEG, Inc. it had placed the Partnership’s debt under review for possible downgrade. On October 15, 2002, S&P stated that the recent downgrade of NEG, Inc. will not have an effect on the rating of the Partnership’s debt at this time. S&P’s rating of the Partnership’s debt is “BBB-”. On November 5, 2002, Moody’s issued an opinion update changing the rating outlook of the Partnership’s debt to “under review for possible downgrade” from “negative outlook”. Moody’s rating of the Partnership’s debt is “Baa3”. On December 12, 2002, Fitch Ratings removed the “Rating Watch Negative” from it’s “BBB-” rating on the Partnership’s debt for the satisfactory completion of the permanent generator repairs during the 2002 scheduled fall outage. There are no minimum credit rating requirements in the Partnership’s financing agreements.

     NEG, Inc. and certain affiliates, excluding Toyan and IPILP, are currently in default under various debt agreements and guaranteed equity commitments. NEG, Inc., its subsidiaries and their lenders have been engaged in discussions to restructure NEG, Inc.’s and its subsidiaries’ debt obligations and other commitments since October 2002. No agreement has been reached yet and there can be no assurance that an agreement will be reached. Any restructuring agreement that may be reached would be implemented through a reorganization proceeding under Chapter 11 of the U.S. Bankruptcy Code. The Partnership is not a party to such debt agreements and guaranteed equity commitments or participants in such discussions.

     Although NEG, Inc., and its subsidiaries are continuing their efforts to maximize cash and reduce liabilities, such efforts are not expected to restore the financial condition of NEG, Inc. and its subsidiaries. Absent a negotiated agreement, the lenders may exercise their default remedies or force NEG, Inc. and certain of its subsidiaries into an involuntary proceeding under the U.S. Bankruptcy Code. Notwithstanding the status of current negotiations, NEG, Inc. and certain of its subsidiaries also may elect to voluntarily seek protection under the U.S. Bankruptcy Code as early as the second quarter 2003.

     NEG, Inc. owns an indirect interest in the Partnership, and through its wholly owned subsidiaries NEG and PG&E OSC manages and operates the Project. The Partnership cannot be certain that an insolvency or bankruptcy involving NEG, Inc. or any of its subsidiaries would not affect NEG Inc.’s ownership arrangement with respect to the Partnership or the ability of NEG and PG&E OSC to manage and operate the Project.

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Results of Operations

     For the three months ended March 31, 2003 and 2002, the Facility achieved an average Capacity Billing Factor (“CBF”) of 96.09% and 89.49%, respectively. The CBF measures the overall availability of the Facility, but gives a heavier weighting to on-peak availability. The lower CBF in 2002 (which is the rolling average of the prior 365 days) resulted from decreased availability in the fall of 2001 primarily caused by boiler tube leaks and repairs to the generator, which required the Facility to be out of service for eleven days. For the three months ended March 31, 2003 and 2002, respectively, this resulted in earning monthly capacity payments aggregating $28.4 million and $28.3 million. In addition to the monthly capacity payments, the Partnership is enti