ESI TRACTEBEL ACQUISITION CORP - 10-K Annual Report

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UNITED STATES 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, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number	Exact name of registrants as specified in their charters, State of Organization, address of principal executive offices and registrants' telephone number	IRS Employer Identification Number

33-87902	ESI TRACTEBEL FUNDING CORP. (a Delaware corporation)	04-3255377
33-87902-02	NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP (a Massachusetts limited partnership)	04-2955642
33-87902-01	NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP (a New Jersey limited partnership)	04-2955646
333-52397	ESI TRACTEBEL ACQUISITION CORP. (a Delaware corporation)	65-0827005
333-52397-01	NORTHEAST ENERGY, LP (a Delaware limited partnership)	65-0811248
c/o FPL Energy, LLC 700 Universe Boulevard Juno Beach, Florida 33408 (561) 691-7171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 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 and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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 Rule 12b-2 of the Securities Exchange Act of 1934. Yes [ ] No [X] As of February 28, 2005, there were issued and outstanding 10,000 shares of ESI Tractebel Funding Corp.'s common stock. As of February 28, 2005, there were issued and outstanding 20 shares of ESI Tractebel Acquisition Corp.'s common stock.

This combined Form 10-K represents separate filings by ESI Tractebel Funding Corp., Northeast Energy Associates, a limited partnership, North Jersey Energy Associates, a limited partnership, ESI Tractebel Acquisition Corp. and Northeast Energy, LP. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Each registrant makes representations only as to itself and makes no representations whatsoever as to any other registrant.

DEFINITIONS
Acronyms and defined terms used in the text include the following:
Term			Meaning

Acquisition Corp.			ESI Tractebel Acquisition Corp.
Act			Securities Act of 1933, as amended
avoided cost			the incremental cost to an electric utility of electric energy and/or capacity that, but for the purchase from a qualifying facility, such utility would generate itself or purchase from another source
Boston Edison			Boston Edison Company
Broad Street			Broad Street Contract Services, Inc.
Btu			British thermal units, a unit of energy
cogeneration			power production technology that provides for the sequential generation of two or more useful forms of energy from a single primary fuel source
Commonwealth			Commonwealth Electric Company
ESI Energy			ESI Energy, LLC
ESI GP			ESI Northeast Energy GP, Inc.
ESI LP			ESI Northeast Energy LP, Inc.
ESI Northeast Acquisition			ESI Northeast Energy Acquisition Funding, Inc.
ESI Northeast Funding			ESI Northeast Energy Funding, Inc.
ESI Northeast Fuel			ESI Northeast Fuel Management, Inc.
ETURC			ESI Tractebel Urban Renewal Corporation, previously IEC Urban Renewal Corporation
FAS			Statement of Financial Accounting Standards No.
FERC			Federal Energy Regulatory Commission
FPL			Florida Power & Light Company
FPL Energy			FPL Energy, LLC
FPL Group			FPL Group, Inc.
FPL Group Capital			FPL Group Capital Inc
FPLE Operating Services			FPL Energy Operating Services, Inc.
Funding Corp.			ESI Tractebel Funding Corp., previously IEC Funding Corp.
IEC			Intercontinental Energy Corporation, a Massachusetts corporation
JCP&L			Jersey Central Power & Light Company
kwh			kilowatt-hour
Management's Discussion			Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Montaup			Montaup Electric Company
MMBtu			millions of Btu
mw			megawatt(s)
NE LLC			Northeast Energy, LLC
NE LP			Northeast Energy, LP
NEA			Northeast Energy Associates, a limited partnership
NJEA			North Jersey Energy Associates, a limited partnership
NEPOOL			New England Power Pool
New England Power			New England Power Company
Note _			Note _ to Consolidated and Combined Financial Statements or Note _ to Financial Statements, as the case may be
O&M			operations and maintenance
Partners			ESI GP and ESI LP together with Tractebel GP and Tractebel LP
Partnerships			NEA together with NJEA
PMI			FPL Energy Power Marketing, Inc.
PJM			PJM Interconnection LLC (Pennsylvania-New Jersey-Maryland power pool)
ProGas			ProGas Limited of Alberta, Canada
PSE&G			Public Service Electric & Gas Company of Newark, New Jersey
PURPA			Public Utility Regulatory Policies Act of 1978, as amended
qualifying facilities or QFs			Non-utility power production facilities meeting the requirements of a qualifying facility under PURPA
Reform Act			Private Securities Litigation Reform Act of 1995
Rule 144A			Rule 144A promulgated under the Act
TEMI			Tractebel Energy Marketing, Inc.
Tractebel			Tractebel, Inc.
Tractebel GP			Tractebel Northeast Generation GP, Inc.
Tractebel LP			Tractebel Associates Northeast LP, Inc.
Tractebel Power			Tractebel Power, Inc.
Trustee			State Street Bank and Trust Company, a Massachusetts banking corporation
Westinghouse			Siemens Westinghouse Operating Services Company
Westinghouse Power			Siemens Westinghouse Power Corporation

CAUTIONARY STATEMENTS AND RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
In connection with the safe harbor provisions of the Reform Act, Funding Corp., NEA and NJEA (collectively, the Partnerships), Acquisition Corp. and NE LP (all five entities collectively, the registrants) are hereby filing cautionary statements identifying important factors that could cause the registrants' actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of the registrants in this combined Form 10-K, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "believe," "could," "estimated," "may," "plan," "potential," "projection," "target," "outlook") are not statements of historical facts and may be forward-looking. Fo rward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could cause the registrants' actual results to differ materially from those contained in forward-looking statements made by or on behalf of any of the registrants.
Any forward-looking statement speaks only as of the date on which such statement is made, and the registrants undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
The following are some important factors that could have a significant impact on the registrants' operations and financial results, and could cause the registrants' actual results or outcomes to differ materially from those discussed in the forward-looking statements:
·	The registrants are subject to changes in laws or regulations, including the PURPA, changing governmental policies and regulatory actions, including those of the FERC, with respect to, but not limited to, acquisition and disposal of assets and facilities, and present or prospective competition.
·	The registrants are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or increase costs. There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future.
·	The registrants operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the energy industry, including deregulation of the production and sale of electricity. The registrants will need to adapt to these changes and may face increasing competitive pressure.
·	A substantial portion of the output from the Partnerships' power generation facilities is sold under long-term power purchase agreements to three regulated utilities, two of which are under common control. The limited number of power purchasers creates a concentration of counterparty risk. The remaining output from the power generation facilities is sold, from time to time, in the merchant markets. In addition, it is expected that upon expiration of the power purchase agreements, the residual portion of the electrical output will be sold in the merchant market. Merchant plants sell power based on market conditions at the time of sale. The amount and timing of revenues to be received from the merchant markets in the future is uncertain. In December 2003, an amended and restated power purchase agreement between NJEA and a New Jersey utility became effective and in February 2005, amended and restated power purchase agreements between NEA and two Massachusetts utilities became effective. These agreements provide for, among other things, the ability to deliver electricity to these utilities from sources other than the NJEA and NEA facilities.
·	The operation of power generation facilities involves many risks, including start up risks, breakdown or failure of equipment, transmission lines or pipelines, use of new technology, the dependence on a specific fuel source or the impact of unusual or adverse weather conditions (including natural disasters), as well as the risk of performance below expected or contracted levels of output or efficiency. This could result in lost revenues and/or increased expenses. Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses, including the cost of replacement power. Breakdown or failure of an operating facility may prevent the facility from performing under applicable power sales agreements which, in certain situations, could result in termination of the agreement or payment of liquidated damages.
·	The registrants use derivative instruments, such as swaps and options, to manage their commodity and financial market risks. The registrants could recognize financial losses as a result of volatility in the market values of these contracts, or if a counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative instruments involves management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the value of the reported fair value of these contracts.
·	In addition to risks discussed elsewhere, risk factors specifically affecting the registrants' success include the ability to efficiently operate generating assets, the successful and timely completion of project restructuring activities, the price and supply of fuel, transmission constraints, competition from new sources of generation, excess generation capacity and demand for power. There can be significant volatility in market prices for fuel, and there are other financial, counterparty and market risks that are beyond the control of the registrants. The registrants' inability or failure to effectively hedge their assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk measures could significantly impair their future financial results.
·	The registrants' results of operations are affected by changes in the weather. Severe weather can be destructive, causing outages and/or property damage, which could require additional costs to be incurred.
·	The registrants are subject to costs and other effects of legal and administrative proceedings, settlements, investigations and claims, as well as the effect of new, or changes in, tax laws, rates or policies, rates of inflation, accounting standards, securities laws or corporate governance requirements.
·	The registrants are subject to direct and indirect effects of terrorist threats and activities. Generation and transmission facilities, in general, have been identified as potential targets. The effects of terrorist threats and activities include, among other things, terrorist actions or responses to such actions or threats, the inability to generate, purchase or transmit power, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic recovery in the U.S., and the increased cost and adequacy of security and insurance.
·	The registrants' ability to obtain insurance, and the cost of and coverage provided by such insurance, could be affected by national, state or local events as well as registrant-specific events.
·	The registrants are substantially leveraged. The ability of the registrants to make interest and principal payments and fund capital expenditures is dependent on the future performance of the Partnerships. Future performance is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the control of the registrants. The registrants are also subject to restrictive covenants under their debt agreements that will limit the ability to borrow additional funds.
·	All obligations of the Partnerships are non-recourse to the direct and indirect owners of the registrants. Following any default by the Partnerships, security is limited to the owners' economic interests in the Partnerships. The owners have no meaningful revenues other than the distributions they receive from the Partnerships. In the event of default, the ability of the owners to satisfy any obligations will be limited to amounts payable by the Partnerships as distributions.
The issues and associated risks and uncertainties described above are not the only ones the registrants may face. Additional issues may arise or become material as the energy industry evolves. The risks and uncertainties associated with these additional issues could impair the registrants' businesses in the future.

PART I

Item 1. Business

General. NE LP, a Delaware limited partnership, was formed on November 21, 1997 for the purpose of acquiring ownership interests in two partnerships, NEA, a Massachusetts limited partnership, and NJEA, a New Jersey limited partnership, each of which owns an electric power generation station in the northeastern United States. NE LP is jointly owned by ESI GP and ESI LP (indirect wholly-owned subsidiaries of FPL Energy, which is an indirect wholly-owned subsidiary of FPL Group, a company listed on the New York Stock Exchange) and Tractebel GP and Tractebel LP (indirect wholly-owned subsidiaries, through Tractebel and Tractebel Power, of Suez-Tractebel S.A., a Belgian energy, industrial services and energy services business, and a member of the Suez group). NE LP also formed a wholly-owned entity, NE LLC, to assist in such acquisitions.

The Partnerships were formed in 1986 to develop, construct, own, operate and manage the power generation stations. NEA's facility commenced commercial operation in September 1991 and is located in Bellingham, Massachusetts. NJEA's facility commenced commercial operation in August 1991 and is located in Sayreville, New Jersey.

In connection with the acquisitions of the Partnerships' interests, the Funding Corp., a Delaware corporation, was acquired by a subsidiary of ESI Energy, Tractebel Power and Broad Street from IEC. The Funding Corp. was established in 1994 solely for the purpose of issuing debt. This debt was privately issued under Rule 144A to acquire outstanding bank debt and to lend funds to the Partnerships and was subsequently exchanged for publicly-issued debt.

On November 13, 1997, the Acquisition Corp., a Delaware corporation, was formed. The Acquisition Corp.'s common stock is jointly owned by a subsidiary of ESI Energy and Tractebel Power. On February 12, 1998, the Acquisition Corp. issued $220 million of debt under Rule 144A which was also subsequently exchanged for publicly-issued debt. The proceeds were loaned to NE LP and then distributed to direct subsidiaries of FPL Energy and Tractebel Power. Repayment of the Funding Corp. and Acquisition Corp. debt is expected to be made from distributions from the Partnerships.

None of the registrants or the Partners have any employees.

Partnerships' Operations. The Partnerships operate in the independent power industry. In the United States, rate-regulated electric utilities have been the dominant producers and suppliers of electric energy since the early 1900s. In 1978, PURPA removed regulatory constraints relating to the production and sale of electric energy by certain non-utility power producers and required electric utilities to buy electricity from certain types of non-utility power producers under certain conditions, thereby encouraging companies other than electric utilities to enter the electric power production market. The Partnerships were created as a result of the PURPA legislation.

NEA owns, and prior to February 28, 2005, derived substantially all of its revenues from, a nominal 290 mw combined-cycle cogeneration facility. NJEA owns, and prior to 2004 derived substantially all of its revenue from, a combined-cycle generation facility with a summer output of 275 mw. However, in December 2003, an agreement between NJEA and a New Jersey utility became effective to amend and restate their power purchase agreement and in February 2005, an agreement between NEA and two Massachusetts utilities became effective to amend and restate their power purchase agreements. These agreements provide for, among other things, the ability to deliver electricity to the utilities from sources other than NJEA's and NEA's cogeneration facilities. The Partnerships' facilities were constructed by Westinghouse Power and use natural gas to produce electrical energy and thermal energy in the form of steam. The Partnerships were developed and operated as qualifying facilities under PURPA and the regul ations promulgated thereunder by the FERC. As a result of the amended and restated power purchase agreements, NJEA and NEA no longer operate as QFs. NJEA and NEA now have Electric Wholesale Generator (EWG) status and market based rate authority which allows NJEA and NEA to sell power at market rates. NEA received approval from the FERC to operate as an EWG on February 18, 2005. However, the Partnerships are not exempt from state regulatory commission general supervisory powers relating to environmental and safety matters.

NEA and NJEA sell substantially all of their output capability to regulated utilities under the amended and restated power purchase agreements, described above, as follows:

Power Purchaser	MW	Power Purchase Agreement Expiration

NEA:
Boston Edison	100	September 15, 2016
Boston Edison	60	September 15, 2011
Commonwealth	20	September 15, 2016
Commonwealth	20	September 15, 2016

NEA Total	200
NJEA:
JCP&L	250	August 13, 2011

The remainder of the net electrical energy produced by the Partnerships, if any, is available for sale to the marketplace either directly to third parties or via FPL Energy's power marketing subsidiary. The NEA and NJEA power purchase agreements provide for fixed annual quantities with allowances for certain operational issues.

One of the NEA power purchase agreements is required to have an energy bank to record cumulative payments made by the utility in excess of avoided cost rates scheduled or specified in such agreements. The energy bank balance bears interest at a rate specified in the agreement. The agreement requires that some or all of the remaining amount recorded in the energy bank be repaid under specific circumstances and that the energy bank balance is partially secured by a letter of credit (see Note 7 - Energy Bank and Loan Collateral to the Consolidated Combined Financial Statements).

In 2002, NJEA terminated a long-term gas supply agreement effective December 31, 2002 and entered into new long-term gas supply agreements with TEMI and PMI, respectively, each of which are related to NE LP. These two new agreements, which became effective January 1, 2003, provided the partnership with the same combined quantity of natural gas and with pricing that has been more favorable to the partnership than the agreement previously in effect.

In March 2003, NEA bifurcated a fuel supply contract with one of its suppliers who provided approximately 75% of NEA's daily fuel requirements to manage the variable and fixed price volumes separately. In July 2003, NEA entered into two agreements with this supplier to terminate the variable price agreement that provided for the purchase of 13,399 MMBtu/day (Termination Agreement) and to partially terminate the fixed price agreement that provided for the purchase of 35,418 MMBtu/day (Partial Termination Agreement). These agreements were executed to hedge the Partnerships' exposure to natural gas prices in anticipation of other contract restructurings.

On August 31, 2003, the Termination Agreement became effective and two new replacement long-term gas supply agreements were entered into by NEA with PMI and TEMI which became effective September 1, 2003. These two contracts provided NEA with the same combined quantity of natural gas and with pricing that was expected to be more favorable over the term of the agreements.

In December 2003, an agreement between NJEA and a New Jersey utility became effective to amend and restate the power purchase agreement in order to realize cost savings by sourcing power from the wholesale market rather than NJEA's facility during periods when market prices are lower than generation costs. The agreement provides for, among other things, the delivery of electricity to the New Jersey utility from sources other than NJEA's facility when NJEA decides to do so. In connection with this restructuring, NJEA amended its remaining long-term gas supply agreement and terminated the December 2002 long-term gas supply agreements with TEMI and PMI. Under the terms of the amended long-term gas supply agreement, the supplier provides all of the fuel required to run the facility when it is operating.

NJEA also entered into two off-peak power purchase contracts with PMI and TEMI which were effective in January 2004. Under the terms of these contracts PMI and TEMI each sell up to 125 mw per off-peak hour to NJEA at a fixed price to be sold by NJEA to the New Jersey utility. The pricing in the NJEA power purchase agreement with the New Jersey utility is based on a gas index, thus NJEA's purchase of off-peak power at a fixed price from PMI and TEMI and sale to the New Jersey utility at a gas indexed price exposes NJEA to decreases in the price of natural gas.

In January 2004, NEA's Partial Termination Agreement became effective resulting in a reduction of the daily delivery of fuel to 12,507 MMBtu/day. To replace the remaining fuel requirements, NEA entered into two additional replacement long-term gas supply agreements with PMI and TEMI at a market index which became effective in January 2004. This reduction in NEA's volume of fixed gas exposes NEA to increases in the price of natural gas. When combined, NJEA's and NEA's exposures to changes in natural gas prices were offsetting.

In connection with the NJEA amended and restated power purchase agreement, in March 2004, NJEA exercised its option to terminate its steam sales contract since the NJEA facility is no longer operating as a base load facility. This resulted in the recognition of an $11.9 million loss representing the net present value of future payments to the steam offtaker. Under the terms of the termination agreement NJEA no longer supplies steam to the steam offtaker and NJEA is obligated to pay the offtaker a monthly fee of approximately $0.4 million through December 2007.

To meet the FERC regulations for a qualifying facility, NEA sold thermal energy to an unrelated third party. NEA sold steam to a third party which leased a carbon dioxide facility owned by NEA and is located on NEA's property. However, in February 2005, NEA issued a notice of termination to the lessee of the carbon dioxide facility that provides NEA the option to terminate the operating lease, steam sales agreement and other ancillary agreements effective March 31, 2005. Upon termination of the lease, NEA is expected to make a payment to the lessee for an immaterial amount. NEA now has EWG status and no longer operates as a QF.

On February 28, 2005, the amended and restated power purchase agreements among NEA as seller, and Boston Edison and Commonwealth as utility purchasers became effective. The amended and restated agreements provide for, among other things, NEA obtaining the right to source power from the wholesale market in addition to sourcing power from NEA's facility.

On March 2, 2005, the gas purchase and supply agreement between NEA and ProGas was terminated by agreement (NEA Termination Agreement). Under the terms of the NEA Termination Agreement, NEA will continue to purchase 12,507 MMbtu/day through October 31, 2005 at a fixed price and the fuel supplier will pay NEA $25.0 million on November 1, 2005.

NEA and New England Power terminated the remaining power purchase agreement effective February 28, 2005. The terminated agreement had covered approximately 8% of NEA's output up to 25 megawatts. The termination of this power purchase agreement will result in the recognition of a $2.4 million loss representing the current net book value of the agreement.

Also on February 28, 2005, NEA terminated its long-term gas supply agreements with PMI and TEMI, which had been effective since September 2003 and January 2004, and replaced them with two long-term gas supply agreements with PMI and TEMI effective March 31, 2005 that will enable NEA to purchase sufficient fuel for production.

The Partnerships will continue to receive the natural gas that fuels the Partnerships' facilities through long-term gas supply agreements with PMI and TEMI and, in the case of NJEA, with PSE&G. Natural gas is transported to, or stored for later use by, the Partnerships pursuant to long-term gas transportation and storage agreements. The remainder of the daily fuel requirements is satisfied by open-market purchases.

On February 28, 2005, NJEA terminated its two off-peak power purchase contracts with PMI and TEMI, which had been entered into effective January 2004, each of which provided for the purchase of up to 125 mw per off-peak hour at a fixed price to supply power to the New Jersey utility.

ESI Northeast Fuel, an indirect wholly-owned subsidiary of FPL Energy, is the fuel manager for the Partnerships and provides fuel management and administrative services by contracting with PMI. On February 28, 2005, a supplemental fuel management subcontract agreement was entered into to allow PMI to purchase energy, ancillary services and capacity from the NEA facility or from the marketplace and sell to the purchasers under the NEA amended and restated power purchase agreements.

FPLE Operating Services, a wholly-owned indirect subsidiary of FPL Energy, provides O&M services for the Partnerships. See Management's Discussion - Related Party Information.

Seasonality. Payments due to NJEA under the JCP&L power purchase agreement during the winter and summer seasons are substantially higher than those in spring and fall. Otherwise, the business of the Partnerships is not materially subject to seasonal factors.

Environmental. Federal, state and local environmental laws and regulations cover air and water quality, land use, power plant and transmission line siting, lead paint, asbestos, noise and aesthetics, solid waste, natural resources, and other environmental matters. Compliance with these laws and regulations could increase the cost of operating the facilities by requiring, among other things, changes in the design and operation of these facilities. During 2004, 2003 and 2002, the registrants spent $0 on capital additions necessary to comply with environmental laws and regulations and do not anticipate incurring such costs in 2005.

Competition. Recent regulatory change has created additional competition in the form of wholesale power marketers that engage in purchase and resale transactions between power producers and power distributors. Although substantially all of the Partnerships' output is committed under the power purchase agreements described above, these factors may adversely affect energy prices under certain power purchase agreements that are tied to the wholesale electric market prices. NE LP and the Partnerships do not expect electric utility industry restructuring to result in any material adverse change to prices under the Partnerships' power purchase agreements. However, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain. Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. By allowing wholesale electr icity customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production. Similar initiatives are also being pursued on the federal level.

The Partnerships operate in two power pools. NEA operates in NEPOOL and NJEA operates in PJM, each of which has an independent system operator that manages the wholesale electricity market and the transmission of electricity. While legislators and state regulatory commissions will decide what impact, if any, competitive forces will have on retail transactions, the FERC has jurisdiction over potential changes which could affect competition in wholesale transactions. The FERC has approved various filings submitted by NEPOOL and PJM regarding electric industry deregulation initiatives.

Item 2. Properties

As of December 31, 2004, the Partnerships had the following properties:

Facility Type		Location	Principal Use

NEA cogeneration facility ^(a)		Bellingham, MA	Power production
NEA carbon dioxide plant ^(b)		Bellingham, MA	Carbon dioxide production
NEA residential properties ^(c)		Bellingham, MA	Private residences
NJEA cogeneration facility ^(b)		Sayreville, NJ	Power production


^(a)	Subject to the liens of a first and second mortgage.
^(b)	Subject to the lien of a first mortgage.
^(c)	NEA owns 12 properties, most with single-family dwellings, located on land immediately adjacent to the facility site. These properties are subject to the lien of a mortgage.

Item 3. Legal Proceedings

None.

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

None.

PART II

Item 5. Market for the Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

This item is not applicable to any of the registrants.

Item 6. Selected Financial Data
	Years Ended December 31,

	2004		2003		2002		2001		2000

	(Thousands of Dollars)
SELECTED CONSOLIDATED DATA OF NE LP AND SUBSIDIARIES:
Operating revenues	$	419,828	$	404,279	$	390,511	$	364,398	$	337,579
Net income	$	189,780	$	61,891	$	98,139	$	16,703	$	19,636
Total assets	$	1,076,568	$	1,117,219	$	1,162,882	$	1,220,024	$	1,282,309
Long-term debt, excluding current maturities	$	483,816	$	540,833	$	554,614	$	587,232	$	618,720
Energy bank and other liabilities	$	84,541	$	108,582	$	146,868	$	157,919	$	162,908
SELECTED COMBINED DATA OF THE PARTNERSHIPS:
Operating revenues	$	420,208	$	404,716	$	390,511	$	364,398	$	337,579
Net income	$	208,820	$	79,737	$	116,099	$	34,755	$	37,716
Total assets	$	1,073,808	$	1,113,097	$	1,158,039	$	1,214,461	$	1,276,271
Long-term debt, excluding current maturities	$	278,302	$	323,650	$	352,214	$	376,032	$	398,720
Energy bank and other liabilities	$	84,389	$	108,430	$	146,716	$	157,767	$	162,756
SELECTED DATA OF THE FUNDING CORP.:
Operating revenues	$	-	$	-	$	-	$	-	$	-
Net income	$	-	$	-	$	-	$	-	$	-
Total assets	$	323,651	$	352,215	$	376,033	$	398,721	$	418,881
Long-term debt, excluding current maturities	$	278,302	$	323,650	$	352,214	$	376,032	$	398,720
SELECTED DATA OF THE ACQUISITION CORP.:
Operating revenues	$	-	$	-	$	-	$	-	$	-
Net income	$	9	$	9	$	9	$	9	$	9
Total assets	$	193,752	$	202,552	$	211,352	$	220,152	$	220,152
Long-term debt, excluding current maturities	$	184,800	$	193,600	$	202,400	$	211,200	$	220,000

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with the Notes to Consolidated and Combined Financial Statements and Notes to Financial Statements contained herein. In the discussion of Results of Operations below, all comparisons are with the corresponding items in the prior year.

Results of Operations

NE LP Consolidated

NE LP's net income for 2004, 2003 and 2002 was $189.8 million, $61.9 million and $98.1 million, respectively. Net income for 2004 included a net gain of $103.2 million on restructuring of contracts and net unrealized mark-to-market gains of $40.4 million on derivatives. Net income for 2003 included a gain of $15.2 million on restructuring of contracts, a gain of $11.1 million on an energy bank settlement, and net unrealized mark-to-market losses of $3.9 million on derivatives. Net income for 2002 included a gain of $45.1 million on restructuring of contracts and net unrealized mark-to-market gains of $7.3 million on derivatives.

NE LP Consolidated - 2004 compared to 2003

The net gain on restructurings of contracts in 2004 consisted of a gain of $115.1 million recognized on the effective date of a partial termination agreement between NEA and one of its fuel suppliers, partially offset by a loss of $11.9 million recognized on the exercise date of NJEA's option to terminate its steam sales contract.

In December 2003, an agreement between NJEA and a New Jersey utility became effective to amend and restate the power purchase agreement in order to realize cost savings by sourcing power from the wholesale market rather than NJEA's facility during periods when market prices are lower than generation costs. In connection with that agreement, NJEA entered into two off-peak power purchase contracts with PMI and TEMI, which were effective in January 2004, each for the purchase of up to 125 mw per off-peak hour at a fixed price to supply power to the New Jersey utility under the amended and restated power purchase agreement. Under the terms of these contracts, PMI and TEMI purchased power from the wholesale market to be sold to NJEA. The pricing in the NJEA power purchase agreement with the New Jersey utility is based on a gas index; thus NJEA's purchase of off-peak power at a fixed price from PMI and TEMI and sale to the New Jersey utility at a gas indexed price exposes NJEA to decreases in the price of nat ural gas.

In order to reduce the Partnerships' exposure to natural gas prices relating to the amended and restated power purchase agreement, a Partial Termination Agreement between NEA and one of its fuel suppliers became effective in January 2004. Prior to the partial termination, the supplier provided 35,418 MMbtu/day to NEA, and now supplies 12,507 MMbtu/day or approximately 21% of NEA's daily fuel requirements, at a fixed price. The reduction in NEA's volume of fixed price gas exposed NEA to increases in the price of natural gas. When combined, NJEA's and NEA's exposures to changes in natural gas prices were minimal. The partial termination resulted in the fuel supplier paying NEA $5.0 million, the removal of a $108.1 million liability representing the unamortized deferred credit as of the termination date, the addition of a $2.0 million asset representing the value of the remaining contract, and recognition of a $115.1 million gain.

To replace the remaining fuel requirements, NEA entered into two additional replacement long-term gas supply agreements with PMI and TEMI which became effective in January 2004 and provide the partnership with gas indexed pricing.

In connection with the amended and restated power purchase agreement, in March 2004, NJEA exercised its option to terminate its steam sales contract since the NJEA facility is no longer operating as a base load facility. This resulted in the recognition of an $11.9 million loss representing the net present value of future payments to the steam offtaker. Under the terms of the termination agreement NJEA no longer supplies steam to the steam offtaker and NJEA is obligated to pay the offtaker a monthly fee of approximately $0.4 million through December 2007.

NE LP's revenues were derived from six power purchase agreements with regulated utilities in Massachusetts and New Jersey. Under the terms of these contracts power generated from the Partnerships' facilities (or, in the case of NJEA, from the wholesale market) were sold to these utilities at prices specified in the contracts. The pricing under three of the Massachusetts power purchase agreements was substantially fixed. The pricing under one of the Massachusetts power purchase agreements was indexed to a fuel index and the pricing under the remaining Massachusetts power purchase agreement was indexed to the power market prior to its termination in February 2005. The pricing under the New Jersey amended and restated power purchase agreement is indexed to fuel indices. The pricing under the NEA amended and restated power purchase agreement is indexed to market power indices.

Revenue increased in 2004 compared to 2003 primarily due to the net unrealized gain on derivative instruments of $40.4 million due to an increase in forward power prices, an increase of $32.4 million due to favorable pricing under the power purchase agreements indexed to fuel prices, and an increase in the utility energy bank amortization of $10.5 million, partially offset by net purchased power of $54.0 million and lower revenue of $16.1 million resulting primarily from planned and unplanned outages at the NEA facility. Revenues in 2004 were comprised of $418.6 million of power sales to utilities net of purchased power and $1.3 million of steam sales. Power sales to utilities reflect energy bank amortization of $38.8 million and $28.3 million in 2004 and 2003, respectively. Power sales to utilities includes $1.7 million of revenue from the sale of emission allowances in 2004.

Fuel expense decreased in 2004 compared to 2003 primarily as a result of the NJEA amended and restated power purchase agreement, planned and unplanned outages at the NEA facility and increased gains on fuel sales in 2004. By supplying power from the market rather than the NJEA facility, fuel expense decreased $80.9 million while the outages at the NEA facility resulted in a decrease of $5.9 million to fuel expense and gains on fuel sales increased $1.9 million in 2004. This decrease was partially offset by the increased cost of market priced gas of $58.7 million. Fuel costs in 2003 were partly offset by $13.6 million of deferred credit amortization for fuel contracts which were terminated in August 2003 and January 2004.

O&M expense increased in 2004 compared to 2003 primarily due to the unplanned outages at the NEA facility.

Depreciation and amortization expense increased in 2004 compared to 2003 primarily due to increased amortization resulting from an increase in the net book value of the NJEA amended and restated power purchase agreement in connection with the restructuring in December 2003.

NE LP makes scheduled interest and principal payments on its outstanding debt. NE LP is scheduled to make semi-annual principal and interest payments on June 30 and December 30. Interest expense for NE LP decreased in each of 2004 and 2003 as a result of decreasing principal balances on its outstanding debt. This decrease was partially offset by interest on the December 2003 $26.2 million loan to NE LP from an affiliate of NE LP mentioned below.

Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. By allowing wholesale electricity customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production. Similar initiatives are also being pursued on the federal level. NE LP does not expect electric utility industry restructuring to result in any material adverse change to prices under the Partnerships' power purchase agreements. However, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain.

NE LP Consolidated - 2003 compared to 2002

Revenue increased in 2003 primarily due to fixed escalators, and favorable pricing under the power purchase agreements tied to the fuel and power indices. In connection with the NJEA amended and restated power purchase agreement mentioned below, the New Jersey facility did not operate for the last thirteen days in December 2003, instead selling power purchased in the wholesale market to the New Jersey utility. Included as an offset to revenue in 2003 is $4.0 million of purchased power.

Revenues in 2003 were comprised of $401.3 million of power sales to utilities net of purchased power and $3.0 million of steam sales. Power sales to utilities reflect energy bank amortization of $28.3 million and $25.6 million in 2003 and 2002, respectively. The increases in energy bank amortization, which increased reported revenues, are determined in accordance with scheduled or specified rates under certain power purchase agreements.

Fuel expense increased in 2003 primarily as a result of increased prices of natural gas required to fuel the facilities. As a result of the contract restructuring in 2002, approximately 37% of the New Jersey facility's 2003 fuel requirements were purchased through variable priced fuel contracts. Approximately 50% of the Massachusetts facility's fuel requirements are purchased either through variable priced fuel contracts or through the wholesale market. In order to manage the fixed price exposure of natural gas prices in 2003, NE LP and the Partnerships entered into a costless collar in 2002. Settlements on the costless collar were $16.4 million in 2003, reflected as a reduction in fuel expense. In addition, as a result of the contract restructurings, the deferred credit amortization for fuel contracts decreased to $13.6 million in 2003 compared to $20.8 million in 2002.

O&M expense increased $1.6 million in 2003 primarily from preparing the New Jersey facility to operate as a merchant plant due to contract restructurings.

On August 31, 2003, the Termination Agreement became effective resulting in removal of a $39.2 million liability representing the unamortized deferred credit as of the termination date and a $15.2 million gain for NEA. In conjunction with this termination, NEA was to pay a termination fee of $24.0 million, of which $12.0 million was paid by the NE LP partners and recorded by NE LP and NEA as a capital contribution. Promissory notes were issued by the NE LP partners for the remaining $12.0 million which was also recorded as a capital contribution by NE LP and NEA. The notes bore interest at a rate of 6% per annum and were paid in full in January 2004.

NEA entered into two replacement long-term gas supply agreements with PMI and TEMI which became effective September 1, 2003. These two contracts provided NEA with the same combined quantity of natural gas and with pricing that was expected to be more favorable over the term of the agreements.

In accordance with the NJEA amended and restated power purchase agreement, in December 2003, NE LP and the Partnerships paid $26.2 million to the New Jersey utility which was funded through a loan to NE LP from an affiliate of NE LP which matures in June 2011.

In connection with this restructuring, NJEA amended its remaining long-term gas supply agreement and terminated the long-term gas supply agreements with TEMI and PMI. Under the terms of the amended long-term gas supply agreement, the supplier provides all of the fuel required to operate the facility when the partnership determines that it is economically beneficial to do so. The partnership is required to pay a monthly fee of $0.2 million to the fuel supplier regardless of whether fuel is purchased during the month. In addition, the partnership also amended its steam sales agreement. Under the terms of the amendment, the partnership is to pay a monthly fee of up to $0.4 million to the steam supplier when the partnership decides that it is not economically beneficial to operate the facility and therefore, cannot sell steam to the steam supplier.

In December 2000, NEA exercised its option to receive a reduced energy payment for the period remaining on one of the power purchase agreements in lieu of paying the energy bank balance existing as of that date. The $24.9 million balance as of December 31, 2000 was being amortized into revenue on a straight-line basis over the remaining life of the agreement which expires on September 15, 2021. NEA's accounting treatment reflected the position that, as of December 31, 2000, the energy bank balance represented deferred revenue and was being reduced for the discounted amount of the energy payments on a straight-line basis over the remaining life of the power purchase agreement. The power purchaser (Power Purchaser) disputed this position. The Power Purchaser contended that the energy bank balance was being adjusted monthly and could require a significant payment by NEA upon termination. On October 31, 2002, the Power Purchaser filed a demand for arbitration with the American Arbitration Ass ociation in this matter.

On March 31, 2003, the energy bank was terminated resulting in an $11.1 million gain for NEA. In connection with the termination, a settlement of the disputes in connection with the arbitration was reached between NE LP, acting on its behalf and on behalf of NEA, and another company (Agent), acting on its behalf and on behalf of the Power Purchaser. The registrants understand that the Agent acts as agent and representative of the Power Purchaser with respect to the power purchase agreement. Under the terms of the settlement, the arbitration was irrevocably dismissed and the related claims released, any energy bank obligations under the power purchase agreement were terminated, the energy bank balance of $22.2 million was eliminated, and NE LP paid approximately $11.1 million plus interest to the Agent in June 2003.

As a condition to this settlement, the Agent entered into an agreement (PMI Agreement) with PMI. Under the terms of the PMI Agreement, until termination of the power purchase agreement, PMI is to purchase power from the Agent under the same terms as the Agent purchases power under the power purchase agreement, as the Power Purchaser's agent and representative.

In February 2003, NJEA entered into an agreement to modify the gas index used for calculating the energy price in the power purchase agreement with a New Jersey utility. This modification was effective as of August 14, 2002 with the rate being adjusted annually on August 14th of each year. Since August 14, 2002, the New Jersey utility had been paying for power under the rate that was in effect prior to the modification and in March 2003 the New Jersey utility paid $9.2 million to NJEA representing the additional amount owed to NJEA using the agreed upon index. Payments for power delivered beginning February 1, 2003 through the end of the term of the power purchase agreement were made using the agreed upon index. In November 2003, this agreement was approved by the state regulatory authority. However, this agreement was terminated when the amended and restated power purchase agreement mentioned above became effective in December 2003.

The Partnerships

The Partnerships' net income for 2004, 2003 and 2002 was $208.8 million, $79.7 million and $116.1 million, respectively. Net income for 2004 included a net gain of $103.2 million on restructuring of contracts and net unrealized mark-to-market gains of $40.4 million on derivatives. Net income for 2003 included a gain of $15.2 million on restructuring of contracts, a gain of $11.1 million on an energy bank settlement, and net unrealized mark-to-market losses of $3.9 million on derivatives. Net income for 2002 included a gain of $45.1 million on restructuring of contracts and net unrealized mark-to-market gains of $7.3 million on derivatives.

The Partnerships - 2004 compared to 2003

The Partnerships' revenues were derived from six power purchase agreements with regulated utilities in Massachusetts and New Jersey. Under the terms of these contracts power generated from the Partnerships' facilities (or, in the case of NJEA, from the wholesale market) were sold to these utilities at prices specified in the contracts. The pricing under three of the Massachusetts power purchase agreements were substantially fixed. The pricing under one of the Massachusetts power purchase agreements was indexed to a fuel index and the pricing under the remaining Massachusetts power purchase agreement was indexed to the power market prior to its termination in February 2005. The pricing under the New Jersey amended and restated power purchase agreement is indexed to fuel indices. The pricing under the NEA amended and restated power purchase agreements is indexed to market power indices.

Revenue increased in 2004 compared to 2003 primarily due to the net unrealized gain on derivative instruments of $40.4 million due to an increase in forward power prices, an increase of $32.4 million due to favorable pricing under the power purchase agreements indexed to fuel prices, and an increase in the utility energy bank amortization of $10.5 million, partially offset by net purchased power of $54.0 million and lower revenue of $16.1 million resulting primarily from the planned and unplanned outages, at the NEA facility. Revenues in 2004 were comprised of $418.9 million of power sales to utilities net of purchased power and $1.3 million of steam sales. Power sales to utilities reflect energy bank amortization of $38.8 million and $28.3 million in 2004 and 2003, respectively. Power sales to utilities includes $1.7 million of revenue from the sale of emission allowances in 2004.

O&M expenses increased in 2004 compared to 2003 primarily due to the unplanned outages at the NEA facility.

The Partnerships make scheduled interest and principal payments on their outstanding debt. The Partnerships are scheduled to make semi-annual principal and interest payments on June 30 and December 30. Interest expense for the Partnerships decreased in each of 2004 and 2003 as a result of decreasing principal balances on their outstanding debt.

Both Massachusetts and New Jersey have enacted legislation designed to deregulate the production and sale of electricity. By allowing wholesale electricity customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production. Similar initiatives are also being pursued on the federal level. The Partnerships do not expect electric utility industry restructuring to result in any material adverse change to prices under the Partnerships' power purchase agreements. However, the impact of electric utility industry restructuring on the companies that purchase power from the Partnerships is uncertain.

The Partnerships - 2003 compared to 2002

Revenues in 2003 were comprised of $401.7 million of power sales to utilities net of purchased power and $3.0 million of steam sales. Power sales to utilities reflect energy bank amortization of $28.3 million and $25.6 million in 2003 and 2002, respectively. The increases in energy bank amortization, which increased reported revenues, are determined in accordance with scheduled or specified rates under certain power purchase agreements.

O&M expense increased $1.6 million in 2003 primarily from preparing the New Jersey facility to operate as a merchant plant due to contract restructurings.

On August 31, 2003, the Termination Agreement became effective resulting in removal of a $39.2 million liability representing the unamortized deferred credit as of the termination date and a $15.2 million gain for NEA. In conjunction with this termination, NEA was to pay a termination fee of $24.0 million, of which $12.0 million was paid by the NE LP partners and recorded by NE LP as a capital contribution. Promissory notes were issued by the NE LP partners for the remaining $12.0 million which was also recorded as a capital contribution. The notes bore interest at a rate of 6% per annum and were paid in full in January 2004.

NEA entered into two replacement long-term gas supply agreements with PMI and TEMI which became effective September 1, 2003. These two contracts provide NEA with the same combined quantity of natural gas and with pricing that is expected to be more favorable over the term of the agreements. Affiliates of PMI and TEMI have guaranteed certain of their respective obligations under the long-term gas supply agreements.

In December 2003, an agreement between NJEA and a New Jersey utility became effective to amend and restate the power purchase agreement in order to realize cost savings by sourcing power from the wholesale market rather than NJEA's facility during periods when market prices are lower than generation costs. The new agreement provides for, among other things, the ability to deliver electricity to the New Jersey utility from sources other than NJEA's facility at a payment that is less than the payment required under the prior power purchase agreement. In accordance with the agreement, NJEA paid $26.2 million to the New Jersey utility through a cash contribution by NE LP. NE LP received funding through a loan from an affiliate of NE LP which matures in June 2011.

In December 2000, NEA exercised its option to receive a reduced energy payment for the period remaining on one of the power purchase agreements in lieu of paying the energy bank balance existing as of that date. The $24.9 million balance as of December 31, 2000 was being amortized into revenue on a straight-line basis over the remaining life of the agreement which expires on September 15, 2021. NEA's accounting treatment reflected the position that, as of December 31, 2000, the energy bank balance represented deferred revenue and was being reduced for the discounted amount of the energy payments on a straight-line basis over the remaining life of the power purchase agreement. The Power Purchaser disputed this position. The Power Purchaser contended that the energy bank balance was being adjusted monthly and could require a significant payment by NEA upon termination. On October 31, 2002, the Power Purchaser filed a demand for arbitration with the American Arbitration Association in this m atter.

On March 31, 2003, the energy bank was terminated resulting in an $11.1 million gain for NEA. In connection with the termination, a settlement of the disputes in connection with the arbitration was reached between NE LP, acting on its behalf and on behalf of NEA, and the Agent, acting on its behalf and on behalf of the Power Purchaser. The registrants understand that the Agent acts as agent and representative of the Power Purchaser with respect to the power purchase agreement. Under the terms of the settlement, the arbitration was irrevocably dismissed and the related claims released, any energy bank obligations under the power purchase agreement were terminated, the energy bank balance of $22.2 million was eliminated, and NE LP paid approximately $11.1 million plus interest to the Agent in June 2003. As this amount was paid by NE LP on behalf of NEA, this $11.1 million was recorded as a capital contribution in the NEA and NJEA combined financial statements and is also included as a non-c ash transaction in the combined statements of cash flows.

As a condition to this settlement, the Agent entered into the PMI Agreement with PMI. Under the terms of the PMI Agreement, until termination of the power purchase agreement, PMI is to purchase power from the Agent under the same terms as the Agent purchases power u