SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----
FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997

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: 1-9208

NRG GENERATING (U.S.) INC.
(Exact name of registrant as specified in its charter)

Delaware 59-2076187
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

1221 Nicollet Mall, Suite 610, Minneapolis, Minnesota 55403
(612) 373-8834
(Address of principal executive offices) (Zip Code)
(Telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share

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, and (2) has been
subject to such filing requirements for the past 90 days. X Yes
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 registrant's 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.

As of March 18, 1998, there were outstanding 6,836,769 shares of
Common Stock. Based on the last sales price at which such stock was
sold on that date, the approximate aggregate market value of the shares
of Common Stock held by non-affiliates of the Company was $51,466,000.

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. X Yes No

Documents Incorporated By Reference

The information required for the following items is incorporated
by reference to the 1998 Definitive Proxy Statement of NRG Generating
(U.S.) Inc.:

Item 10 - Directors and Executive Officers of the Registrant
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial
Owners and Management
Item 13 - Certain Relationships and Related Transactions

Table of Contents

Page
Number
Part I
Item 1.Business 2
Item 2.Properties 21
Item 3.Legal Proceedings 21
Item 4.Submission of Matters to a Vote of Security Holders 23

Part II
Item 5.Market for the Registrant's Common Equity and Related
Stockholder Matters 24
Item 6.Selected Financial Data 26
Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 7A.Quantitative and Qualitative Disclosures about
Market Risk 37
Item 8.Financial Statements and Supplementary Data 37
Item 9.Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 37

Part III
Item 10.Directors and Executive Officers of the Registrant 38
Item 11.Executive Compensation 38
Item 12.Security Ownership of Certain Beneficial Owners
and Management 38
Item 13.Certain Relationships and Related Transactions 38

Part IV
Item 14.Exhibits, Financial Statement Schedules and Reports
on Form 8-K 39

Consolidated Financial Statements F-1

Index to Exhibits 41
PART I

ITEM 1. BUSINESS.

Certain of the statements made in this Item 1 and in other
portions of this Report and in documents incorporated by reference
herein constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such forward-looking statements are not
guarantees of future performance and are subject to risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. Such factors include, without limitation,
those discussed in "Business - Risk Factors" herein. See "Business -
Risk Factors - Risks Associated with Forward-Looking Statements."

General

NRG Generating (U.S.) Inc. (referred to herein with its
consolidated subsidiaries as "NRGG" or the "Company") is engaged
primarily in the business of developing, owning and operating
cogeneration projects which produce electricity and thermal energy for
sale under long-term contracts with industrial and commercial users and
public utilities. In addition to its energy business, the Company
sells and rents power generation and cogeneration equipment through
subsidiaries located in the United States and the United Kingdom. The
Company currently is pursuing several avenues for the disposition of
its equipment sales and rental business.

In its role as a developer and owner of energy projects, the
Company has developed the following projects in which it currently has
an ownership interest:

(a) The 52 megawatt ("MW") Newark Boxboard Project (the
"Newark Project"), located in Newark, New Jersey, began
operations in November 1990;

(b) The 122 MW E.I. du Pont de Nemours Parlin Project (the
"Parlin Project"), located in Parlin, New Jersey, began
operations in June 1991;

(c) The 22 MW Philadelphia Cogeneration Project (the
"Philadelphia PWD Project"), located in Philadelphia,
Pennsylvania, began operations in May 1993, and

(d) The 150 MW Grays Ferry Cogeneration Project (the "Grays
Ferry Project"), located in Philadelphia, Pennsylvania, began
operations in January 1998. The Company owns a one-third
interest in the Grays Ferry Cogeneration Partnership (the
"Grays Ferry Partnership"), which owns the Grays Ferry
Project. As of the date of this Report, the Company and the
Grays Ferry Partnership are in litigation with the electric
power purchaser from the Grays Ferry Project over, among
other things, the effectiveness of the applicable power
purchase agreements. See "Item 3. Legal Proceedings."

In December 1997, the Company acquired from NRG Energy, Inc. ("NRG
Energy") a 117 MW steam and electricity cogeneration project located in
Morris, Illinois (the "Morris Project").

The Morris Project is currently under construction with commercial
operation currently expected to occur during the fourth quarter of
1998.

Formerly known as O'Brien Environmental Energy, Inc. ("O'Brien"),
the Company changed its name to NRG Generating (U.S.) Inc. in
connection with its emergence from bankruptcy on April 30, 1996, under
a plan of reorganization (the "Plan") approved by the U.S. Bankruptcy
Court for the District of New Jersey (the "Bankruptcy Court"). O'Brien
had filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code on September 28, 1994. In connection
with the consummation of the Plan, all of the shares of O'Brien Class A
and Class B Common Stock were canceled and replaced by a new issue of
NRGG common stock, par value $.01 per share (the "Common Stock"). In
addition, NRG Energy advanced approximately $71.2 million under loan
agreements with the Company and purchased approximately 41.86% of the
Common Stock for aggregate consideration of approximately $21.2
million. NRG Energy also purchased certain subsidiaries of the Company
for $7.5 million and funded a cash distribution to the O'Brien
stockholders aggregating $7.5 million. NRG Energy's financial backing
of the Plan enabled the Company to provide for full and immediate
payment of all undisputed pre-petition claims as well as a provision
for post-petition interest. In addition, pursuant to the Plan, NRG
Energy and the Company entered into a Co-Investment Agreement (the "Co-
Investment Agreement"), pursuant to which NRG Energy has agreed to
offer to the Company ownership interests in certain power projects
which are initially developed by NRG Energy or with respect to which
NRG Energy has entered into a binding acquisition agreement with a
third party.

The Company was incorporated in Florida in 1981 and subsequently
merged with a Delaware corporation in 1984. Prior to the merger, the
Company was part of a group of several affiliated companies which had
served the power generation market since 1915.

Independent Power Market Overview

The independent power market (the market for power generated by
companies other than traditional utilities) has evolved and is expected
by the Company to continue to expand as a result of the growing need
for new and replacement power capacity by electric utilities and
industrial customers. Historically, regulated utilities in the United
States have been the only producers of electric power intended
primarily for sale to third parties. The increase in oil prices during
the late 1970s and the increasing cost of constructing and financing
large coal-fired or nuclear generating facilities along with the
enactment of the Public Utility Regulatory Policies Act of 1978
("PURPA") created a favorable regulatory environment and favorable
market conditions for the development of energy projects by companies
other than electric utilities. The basic policy judgment behind the
encouragement of the development of cogeneration facilities is that the
United States' dependence on oil and natural gas resources should be
reduced and that the very high incremental costs of large centralized
power production facilities should be avoided. However, economic
considerations remain the central issue affecting a decision to install
a cogeneration project.

PURPA provides significant incentives to developers of "qualifying
facilities" under PURPA. It designates certain small power production
(those utilizing renewable fuels and having a capacity of less than 80
MW) and certain cogeneration facilities as qualifying facilities
eligible for various benefits under federal law, including exemption
from many of the regulatory requirements

applicable to electric utilities. In accordance with PURPA, the
Company's projects with one exception are exempt as qualifying
facilities, and its proposed projects are intended to be exempt, from
rate, financial and similar regulation as a utility as long as they
meet the requirements of a qualifying facility. These projects also
benefit from regulations that require public utilities to purchase
power generated by qualifying projects at the utilities' "avoided cost"
(determined in accordance with a formula which varies from state to
state but which is generally calculated based upon what the cost to the
utility would be to generate the power itself or to purchase it from
another source). Power purchase contracts generally must be approved
by state public utility commissions. Since the Company benefits from
PURPA, the Company's business could be adversely affected by a
significant change in PURPA and could otherwise be materially impacted
by decisions of federal, state and local legislative, judicial and
regulatory bodies. See "Business - Regulation" and "- Risk Factors -
Proposed Restructuring of the Electric Utility Industry."

Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the market for the
ownership and operation of cogeneration projects. Many of these
companies have substantially greater resources and/or access to the
capital required to fund such activities than the Company. The
Company's primary market is the development and ownership of industrial
inside-the-fence cogeneration projects. A substantial portion of the
electric output of these facilities may be sold to public utilities.
Obtaining power contracts with utilities has become more competitive
with the increased use of competitive bidding procedures and the advent
of deregulation in the electric utility market. This increased
competition may make it more difficult for the Company to secure future
projects, may increase project development costs and may reduce the
Company's operating margins on any future projects. Any such
developments could have a material adverse effect on the Company's
results of operations and financial condition. See "Business -
Competition" and "- Risk Factors - Competition."

Products and Services

During the fiscal year ended December 31, 1997, the Company
operated principally in two industry segments: (i) energy - the
development and ownership of cogeneration projects, the development,
ownership and operation of standby/peak shaving projects through wholly-
owned subsidiaries and limited partnerships; and (ii) equipment sales,
rentals and service - the sale and rental of power generating,
cogenerating and standby/peak shaving equipment and associated
services. See Note 16 of the Notes to the Consolidated Financial
Statements for financial information with respect to industry segments.

Energy Segment

Overview

Set forth below are descriptions of the Company's projects in
operation as of December 31, 1997 and one additional project which
commenced commercial operation in January 1998. Each of these projects
is currently producing revenues through the sale of energy under long-
term contracts. In connection with the obtaining of financing for its
three cogeneration projects in operation, the Company or the owner of
the project has obtained business interruption insurance and
performance guarantees by the operators of the projects. These
arrangements are negotiated and secured prior to commencement of
operations of a project. Taken as a whole, these arrangements reduce
the risks associated with any past and future equipment problems or
unscheduled plant shutdowns. For

example, in the event of an unscheduled breakdown, the Company or the
owner of the project generally is entitled, pursuant to its business
interruption insurance policy, to the net profit which it is prevented
from earning from the particular project, including all charges and
expenses which continue during the period of interruption, less the
applicable deductible amounts. There can be no assurance, however,
that such insurance or guarantees will sufficiently mitigate the risk
of unforeseen contingencies. As of the date of this Report, the
Company and the Grays Ferry Partnership are in litigation with the
electric power purchaser from the Grays Ferry Project over, among other
things, the effectiveness of the applicable power purchase agreements.
See "Item 3. Legal Proceedings."

Name and Location Rated Approximate Date of Power Company's
Of Project Capacity (1) Capital Cost Operation Purchaser Lender Interest
(in MWs) (in millions)

Cogeneration
Parlin 122.0 $112.0 June 1991 Jersey Credit 100%
Central Power Suisse(2)
Power & Light
Company
Newark 52.0 56.0 November 1990 Jersey Credit 100%
Central Suisse(2)
Power & Light
Company
Grays Ferry 150.0 160.0 January 1998 PECO Energy Chase(3) 33.3%
Company
Standby/Peak
Shaving

Philadelphia 22.0 12.0 May 1993 Philadelphia (4) 83%
Municipal
Authority
____ _____
346.0 $340.0

(1) See discussion of each particular project which follows for
current contract production, which may be less than the stated
rated capacity.
(2) See Note 8 of the Notes to the Consolidated Financial Statements.
(3) This project is financed under a construction loan which may
be converted to a 15-year term loan. The Grays Ferry Partnership
has received a notice of default from the lender under this
construction loan which asserted default, as of the date
of this Report, has not been waived.
(4) This project is financed under the Company's revolving credit
facility. See Note 8 of Notes to the Consolidated Financial
Statements for a description of this facility.

Cogeneration

Cogeneration involves the sequential production of two or more
forms of usable energy (e.g. electricity and thermal energy) using a
single fuel source, thereby substantially increasing fuel efficiency.
The key elements of a cogeneration project are permit applications,
contracts for sales of electricity and thermal energy, contracts or
arrangements for fuel supply, and project financing and construction.
The Company attempts to design and develop its projects so that they
qualify for the benefits of PURPA, which exempts qualifying projects
from rate, financial and similar utility regulation and requires public
utilities to purchase power generated by these projects. Electricity
may be sold to utilities and end users of electrical power, including
large industrial facilities. Thermal energy from cogeneration plants
may be sold to commercial enterprises and other

institutions. Large industrial users of thermal energy include plants
in the chemical processing, petroleum refining, food processing,
pharmaceutical and paper industries.

The Company has developed and currently has ownership in three
cogeneration projects, the Newark, Parlin and the Grays Ferry Projects.
Natural gas for the Newark and Parlin projects is provided by Jersey
Central Power and Light Company ("JCP&L") as a part of its obligations
under the terms of its power purchase agreements ("PPAs") with NRG
Generating (Newark) Cogeneration Inc. ("NRGG Newark") and NRG
Generating (Parlin) Cogeneration Inc. ("NRGG Parlin"), respectively, as
renegotiated effective April 30, 1996. Previously, the Company bore
the risk of fluctuating natural gas prices. In the case of the Grays
Ferry Project, gas is currently being provided by purchases on the spot
market by the Grays Ferry fuel manager, Exelon Corporation. Natural
gas for the Grays Ferry Project will be provided by Aquila Energy
Marketing Corporation under a 16-year gas sales agreement.

Power Operations, Inc., a subsidiary of NRG Energy, is responsible
for the operation and maintenance of the Newark and Parlin facilities
under long-term contracts. Philadelphia United Power Corporation, an
affiliate of one of the partners, has been engaged under a long-term
contract to manage and perform all operation and maintenance of the
Grays Ferry Project. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Newark Project. This 52 MW project, which commenced operation in
November 1990, is 100%-owned by NRGG Newark, a wholly-owned subsidiary
of the Company. The Newark Project is designed to operate continuously
and to provide up to 75,000 lbs./hr. of steam to a recycled paper
boxboard manufacturing plant owned by Newark Group, Inc., and 52 MW of
electricity to JCP&L, each under agreements extending into the year
2015. See Note 8 of the Notes to the Consolidated Financial Statements
for a discussion of this project's refinancing. For the fiscal year
ended December 31, 1997, this project accounted for approximately $17.3
million in gross revenues, representing approximately 27% of the
Company's gross revenues.

Parlin Project. This 122 MW project, which commenced operation in
June 1991, is 100%-owned by NRGG Parlin, a wholly-owned subsidiary of
the Company. The Parlin Project provides up to 120,000 lbs./hr. of
steam to a manufacturing plant in Parlin, New Jersey owned by E.I. du
Pont de Nemours and Company ("E.I. du Pont"), under an agreement
extending until 2021. In addition, the project sells 41 MW of base
electric power and up to 73 MW of dispatchable power to JCP&L, under an
agreement with an initial term until 2011. Finally, the project sells
up to 9 MW of power to NRG Parlin, Inc. ("NPI"), a wholly-owned
subsidiary of NRG Energy. NPI resells this power at retail to E.I. du
Pont under an agreement extending until 2021. See Note 8 of the Notes
to the Consolidated Financial Statements for a discussion of this
project's refinancing. For the fiscal year ended December 31, 1997,
this project accounted for approximately $21.7 million in gross
revenues, representing approximately 33% of the Company's gross
revenues. Parlin is also occasionally able to sell marginal power
outside its PPA with JCP&L on a short-term basis.

Grays Ferry Project. This 150 MW project, which commenced
operation in January 1998, is 33.3%-owned by NRGG (Schuylkill)
Cogeneration, Inc., a wholly-owned subsidiary of the Company. The
Company has executed a partnership agreement with an affiliate of PECO
Energy Company ("PECO") and an affiliate of Trigen Energy Corporation
("Trigen") to jointly develop and own this project. The partnership
has executed a 25-year agreement with the Trigen-Philadelphia Thermal
Energy Corporation, a wholly owned subsidiary of Trigen, for the sale
of

steam and a 20-year agreement for the sale of electric output with
PECO. The project began commercial operation in January 1998 and did
not record any revenue in the fiscal year ended December 31, 1997. As
of the date of this Report, the Company and the Grays Ferry Partnership
are in litigation with PECO Energy over, among other things, the
effectiveness of the applicable power purchase agreements. See "Item
3. Legal Proceedings" and Note 19 of the Notes to the Consolidated
Financial Statements.

Standby/Peak Shaving

Standby/peak shaving projects utilize the Company's power
generation equipment as a back-up source of electricity for large
electrical demand customers. The availability of an alternative energy
source allows these customers to benefit from significantly discounted
interruptible energy tariffs from their primary electricity provider.
The standby/peak shaving generators typically will be required to
provide a specified amount of electricity during peak periods.

Philadelphia PWD Project. This 22 MW project, owned by O'Brien
(Philadelphia) Cogeneration, Inc. ("OPC"), commenced operations in May
1993. The Company owns an 83% interest in OPC, with the remaining 17%
interest owned by an unrelated private investor. See Note 18 to the
Consolidated Financial Statements. Pursuant to a 20-year energy
service agreement, the Philadelphia Municipal Authority (the
"Authority") has the right to be supplied with 20 MW of electricity
from the project at any time on one hour's notice. In addition, the
project uses excess digester gas collected at the Authority's northeast
and southwest Philadelphia plants to generate up to approximately 2 MW
of electricity which is delivered to the Authority pursuant to a 10-
year power generation agreement. In October 1998, the Authority's rate
structure with its electrical utility is due to be renegotiated. The
outcome of these negotiations could adversely affect the project.
However, in the December 23, 1997 Pennsylvania Public Utility
Commission order, PECO is to continue to offer the LILR tariff, which
is the underlying rate structure between the Authority and PECO, until
the end of the restructuring transition period (expected to be June
30th, 2007). The facility was not called on to provide standby power
in 1997. For the fiscal year ended December 31, 1997, this project
accounted for approximately $4.2 million in gross revenues,
representing approximately 6% of the Company's gross revenues.

Equipment Sales, Rentals and Services Segment

The Company has determined that OES and Puma are not a part of its
strategic plan for the future, and the Company is currently pursuing
several avenues for the disposition of these businesses. The
disposition of these businesses is not expected to have a material
impact on the Company's financial position or results of operations.

O'Brien Energy Services Company

A significant portion of the Company's equipment rental business
is attributable to the operations of OES. The Company rents power
generation and cogeneration equipment to the construction, industrial,
military, transportation, mining, utility and entertainment markets.
In addition to its rental business, OES sells (i) equipment
manufactured by others to turnkey contractors in connection with the
construction of the Company's projects, (ii) equipment purchased by it
for projects unrelated to those being developed by the Company, and
(iii) equipment purchased and reconditioned by it. Finally, OES
provides related services including the design, assembly, repair and
maintenance of permanent or standby power generation equipment. On a
national level, the Company competes with a number of other companies.
In addition, there are numerous local competitors in each of the
geographic areas in which the Company operates. The Company competes
on the basis of experience, service, price and depth of its rental
fleet.

Puma

Puma designs and assembles diesel and natural gas fueled power
generation systems ranging in size from 5 kilowatts to 5 MW. These
products are engineered and sold for use in prime power base load
applications as well as for standby or main failure emergency
situations. Major markets for these products include commercial
buildings, governmental institutions such as schools, hospitals and
public facilities, industrial manufacturing or production plants,
shipyards, the entertainment industry and offshore drilling operations.
The Company exports many of its products primarily through established
distributors and dealers in local areas for delivery to markets such as
the Far East, including Hong Kong and mainland China, together with the
Middle East and South America.

Puma also designs and manufactures custom electrical control and
distribution subsystems. These include medium voltage cubicle
switchboards, main distribution systems, control instrumentation panels
and packaged substations. This equipment receives and distributes
power through a building, ship or other self-contained structure.

The revenues and operations of the Company's operations in the
United Kingdom disclosed below are attributable solely to the equipment
sales and services segment of the Company's business. The revenues
from such operations accounted for in excess of 50% of that particular
segment's revenue in the fiscal year ended December 31, 1997.
Six Months
Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995
(In Thousands)
Revenues:
United States $ 51,504 $ 27,937 $ 82,917 $ 89,332
United Kingdom 13,300 11,979 13,630 12,915
$ 64,804 $ 39,916 $ 96,547 $ 102,247

Net Income (Loss):
United States $ 23,236 $ 6,087 $ (17,591) $ (40,905)
United Kingdom 116 336 (122) (14)
$ 23,352 $ 6,423 $ (17,713) $ (40,919)

Identifiable Assets:
United States $ 221,752 $ 164,631 $ 169,657 $ 179,793
United Kingdom 6,142 8,993 8,505 9,955
$ 227,894 $ 173,624 $ 178,162 $ 189,748

Project Development Activities

General

The Company, together with its subsidiaries and affiliates,
develops, owns and operates cogeneration projects which produce
electricity and thermal energy for sale under long-term contracts with
industrial and commercial users and public utilities. Potential
project structures include (but are not limited to) sole ownership,
general partnerships, limited partnerships, sale leaseback arrangements
and other forms of joint venture or debt arrangements. Development
activities are pursued by the Company's internal management team.
Under a Co-Investment Agreement with NRG Energy, the Company also may
acquire ownership interests in certain power projects initially
developed by NRG Energy or with respect to which NRG Energy has entered
into a binding acquisition agreement with a third party.

The Company sells the electricity produced by its projects
pursuant to long-term contracts either on a "retail basis" to specific
industrial and commercial users or on a "wholesale basis" to local
public utilities. Presently, most of the electricity produced by the
Company's projects in operation is sold on a wholesale basis. The mix
of future energy sales may differ based upon future economic conditions
and other circumstances.

Internal Project Development

The Company has assembled a management team with more than 80
combined years of experience in the development, financing and
operation of independent power projects. The Company has formed this
team to pursue projects in the industrial inside-the-fence cogeneration
market, focusing on natural gas projects in the United States in the 50
MW to 300 MW size. Internal project development activities will focus
on greenfield development, acquisitions of operating projects,
enhancement of current projects and acquisitions of competitor
companies or portfolios.

Co-Investment Agreement with NRG Energy

Pursuant to the Co-Investment Agreement, NRG Energy agreed to
offer to the Company ownership interests in certain power projects
which were initially developed by NRG Energy or with respect to which
NRG Energy has entered into a binding acquisition agreement with a
third party. If any eligible project reaches certain contract
milestones (which include the execution of a binding PPA and fuel
supply agreement and the completion of a feasibility and engineering
study) by April 30, 2003, NRG Energy has agreed to offer to sell to the
Company all of NRG Energy's ownership interest in such project.
Eligible projects include, with certain exceptions and exclusions,
proposed or existing electric power plants within the United States
which NRG Energy initially develop or in which NRG Energy proposes to
acquire an ownership interest. NRG Energy is obligated under the Co-
Investment Agreement to offer to the Company, during the three year
period ending on April 30, 1999, projects with an aggregate equity
value of at least $60.0 million or a minimum of 150 net MW. As of the
date of this Report, ownership interests in projects with an aggregate
of more than 130 net MW have been offered under the Co-Investment
Agreement, including the 117 net MW Morris Project.

Among the exclusions from the Co-Investment Agreement are (i) any
ownership interest in a project which is below a level that would cause
the project (or its owners) to be in violation of

the relevant power purchase agreement or applicable state or federal
law upon the generation of electricity for sale by such project, (ii)
any indirect ownership interest held by NRG Energy in an eligible
project arising from NRG Energy's direct or indirect ownership of
equity interests in the Company, (iii) any ownership interest in a
facility below 25 MW in capacity, and (iv) any ownership interest that
is retained in order to later be sold in an exempt transaction. Exempt
transactions include (i) any sale or disposition of an ownership
interest that is consummated as a result of a foreclosure or conveyance
in lieu of foreclosure of liens or security interests, (ii) any sale or
disposition of an ownership interest to a third party that is or will
become a participant in the eligible project, where the obligation to
sell the interest is incidental to the provision of services or the
contribution of assets to the project and is created prior to the
execution and delivery of a binding power purchase agreement and fuel
supply agreement and the completion of an engineering and feasibility
study with respect to the project, and (iii) any sale or disposition of
an ownership interest as part of a larger transaction involving the
sale of all or substantially all of the assets of NRG Energy or the
sale of an equity interest in NRG Energy, provided that the person
acquiring the ownership interest agrees to be bound by the Co-
Investment Agreement.

In December 1997, a wholly-owned subsidiary of the Company
purchased the Morris Project from NRG Energy. The Morris Project, with
an aggregate of 117 net MW, had been offered under the Co-Investment
Agreement. The Company has initiated an arbitration proceeding
pursuant to the terms of the Co-Investment Agreement to resolve a
dispute with NRG Energy concerning the rights and obligations of the
Company and NRG Energy with respect to a 110 MW cogeneration project
which the Company contends NRG Energy agreed to sell to an unrelated
third party without fulfilling its obligations with respect to such
project under the Co-Investment Agreement. See "Item 3. Legal
Proceedings."

To facilitate the Company's ability to acquire ownership interests
which may be offered pursuant to its Co-Investment Agreement, NRG
Energy has agreed to finance the Company's purchase of such ownership
interests at commercially competitive terms to the extent funds are
unavailable to the Company on comparable terms from other sources. Any
such financing provided by NRG Energy under the terms of the Co-
Investment Agreement is required to be recourse to the Company and
secured by a lien on the ownership interest acquired. Such financing
also is required to be repaid from the net proceeds received by the
Company from offerings of equity or debt securities of the Company
(when market conditions permit such offerings to be made on favorable
terms) after taking into account the working capital and other cash
requirements of the Company as determined by its Board of Directors.

In light of the Company's internal development activities, the
Company does not expect the Co-Investment Agreement to serve as the
primary source of future project development activities.

Morris Project

In December 1997, NRGG Funding Inc. ("NRGG Funding"), a wholly-
owned subsidiary of the Company, completed its acquisition from NRG
Energy of all of NRG Energy's interest in a 117 MW project located in
Morris, Illinois by acquiring 100% of the interests in NRG (Morris)
Cogen, LLC ("Morris LLC"). Morris LLC has the exclusive right to build
and operate a cogeneration plant to be located in Morris, Illinois
within a petrochemical manufacturing facility, which is owned by
Equistar Chemicals LP ("Equistar"), a joint venture of Millennium
Chemicals Inc. and Lyondell Petrochemical Company. A 25-year agreement
has been executed for the sale of steam and

electric output from the project. NRG Energy commenced construction of
the Morris Project in September 1997 with commercial operation
currently expected to occur in the fourth quarter of 1998.

NRGG Funding agreed to assume all of the obligations of NRG Energy
and to provide future equity contributions to Morris LLC which are
limited to the lesser of 20% of the total project cost or $22.0
million. NRG Energy has guaranteed to the Morris Project's lenders
that NRGG Funding will make these future equity contributions, and the
Company has guaranteed to NRG Energy the obligation of NRGG Funding to
make these future equity contributions. In addition, Morris LLC is
obligated to pay NRG Energy $1.0 million as and when permitted under
the project's principal loan agreement. Morris LLC has previously paid
$4.0 million to NRG Energy in connection with the financial closing of
the construction financing of the Morris Project.

The Company intends to arrange financing (the terms and manner of
which have not been determined by the Company) to fund the required
future equity contributions to Morris LLC. NRG Energy is obligated
under a Supplemental Loan Agreement between the Company, NRGG Funding
and NRG Energy to loan NRGG Funding and the Company (as co-borrower)
the full amount of such equity contributions by NRGG Funding, all at
NRGG Funding's option. Any such loan will be secured by a lien on all
of the membership interests of Morris LLC and will be fully recourse to
NRGG Funding and the Company.

Under the terms of its energy services agreement with Equistar,
Morris LLC has granted to Equistar an option to purchase the Morris
Project at its fair market value, as defined in the agreement, at
either the fifteenth or twentieth anniversary of the commercial
operations date. Equistar also was granted a one-time option to
purchase up to a 10% membership interest in Morris LLC. In February
1998 Equistar gave notice of its intention to purchase a 5% passive
membership interest. Under the terms of the proposed agreement,
Equistar would acquire a 5% passive interest in Morris LLC in exchange
for the assumption by Equistar of an obligation to make 5% of the
required equity contributions to Morris LLC, expected to be
approximately $1.1 million.

Other Potential Projects

The Company from time to time identifies and considers potential
opportunities to develop additional projects as well as to acquire
projects in operation or under development and owned by third parties.
As of the date of this report, the Company is not party to any
definitive agreements with respect to any such potential projects, and
no assurances can be made with respect to the likelihood of entering
into any such agreements with respect to any such potential projects.

As a project developer, the Company is responsible for the
evaluation, design, installation and operation of a project. The
Company also assumes the responsibility for evaluating project
alternatives; obtaining financing, insurance, all necessary licenses,
permits and certifications; conducting contract negotiations with local
utilities and arranging turnkey construction. In connection with
obtaining financing, the Company may negotiate for credit support
facilities with equipment suppliers, turnkey construction firms and
financial institutions.

The Company anticipates that in the ordinary course of its
business it will investigate and/or pursue opportunities with respect
to various potential projects which will not be completed. Moreover,
in certain instances the Company may not generate any revenue from such
projects and

may not be able to recover its investment in such projects, each of
which could have a material adverse effect on the Company.

Regulation

In connection with the development and operation of its projects,
the Company is significantly affected by federal, state and local
energy and environmental laws and regulations.

The enactment in 1978 of PURPA and the adoption of regulations
thereunder by the Federal Energy Regulatory Commission ("FERC")
provided incentives for the development of small power production
facilities (those utilizing renewable fuels and having a capacity of
less than 80 MW) and cogeneration facilities (collectively referred to
as "qualifying facilities" or "QFs"). Electric utilities are required
to purchase power from such facilities at rates based on the
incremental cost of electrical energy (so called "avoided cost").
Under regulations adopted by the FERC and upheld by the United States
Supreme Court, such rates are based upon "the incremental cost to an
electric utility of electrical energy or capacity or both which, but
for the purchase from the qualifying facility or qualifying facilities,
such utility would generate itself or purchase from another source."
Historically, and as it affects the Company's sales of power from
qualifying facilities, avoided cost is generally a function of the
purchasing utility's otherwise applicable cost of fuel required to
generate electricity and its cost of capital required to construct a
power plant to supply such capacity.

With the exception of the Parlin Project and parts of the
Philadelphia PWD Project, all of the Company's existing electric
generating facilities are qualifying small power production facilities
or qualifying cogeneration facilities, as these terms are defined in
PURPA. Pursuant to authority granted under PURPA, FERC has promulgated
regulations which at present generally exempt qualifying facilities
from the Federal Power Act, the Public Utility Holding Company Act of
1935 ("PUHCA") and state laws on electric utility regulation.

In order to qualify for the benefits provided by PURPA, the
Company's QFs must meet certain size, efficiency, fuel and ownership
requirements. However, the standards for qualification and the
regulations described above are subject to amendment. If the
regulations were to be amended, the Company cannot predict the effect
of any such amendment on the extent of regulation to which the Company
may thereby become subject.

In the event that one of the Company's cogeneration facilities
failed to meet the requirements of being a "qualifying facility" after
relying on that status, the Company would be materially adversely
affected. See "Business - Risk Factors - Proposed Restructuring of the
Electric Utility Industry."

The Company renegotiated the PPA for the Parlin Project during
1996. As permitted under the terms of its renegotiated agreements,
NRGG Parlin filed rates with the FERC as a public utility under the
Federal Power Act. Previously, the Parlin Project had been certified
as a QF by FERC. However, the effect of the rate filing by NRGG Parlin
was to relinquish its claim to QF status. FERC has approved the rates
filed by NRGG Parlin effective April 30, 1996, and given certain other
approvals to NRGG Parlin in connection with the consummation of the
Plan. Among other things, NRGG Parlin has received a determination
from FERC that it is an exempt wholesale generator ("EWG"). It is thus
exempt from all provisions of the PUHCA, and the

ownership of NRGG Parlin by the Company does not subject the Company to
regulation under PUHCA.

The Company is also subject to the Powerplant and Industrial Fuel
Use Act of 1978 ("FUA"), which generally limits the ability of power
producers to burn natural gas in new baseload generation facilities
unless such facilities also have the capability to use coal or any
other alternate fuel as a primary energy source. All of the Company's
existing projects have either received permanent exemption from the FUA
or otherwise complied with its provisions.

Environmental Regulations

In addition to the regulations described above, the Company's
projects must comply with applicable federal, state and local
environmental regulations, including those related to water and air
quality. These laws and regulations in many cases require a lengthy
and complex process of obtaining licenses, permits and approvals from
federal, state and local agencies. The environmental regulations under
which the Company's projects operate are subject to amendment. The
Company cannot predict what effect compliance with such amendments may
have on the Company's business or operations. Compliance could require
modification of a project and thereby increase its costs, extend its
completion date or otherwise adversely affect a project.

The environmental regulations likely to have the greatest impact
on the Company's business and operations are air quality regulations
under the Clean Air Act. All of NRGG's operating plants perform at
levels better than current federal performance standards mandated for
such plants under the Clean Air Act. Based on the current trend of
environmental regulation, management believes that this area of
regulation in the U.S. will become more strict.

In November 1990, Congress passed the Clean Air Act Amendments of
1990 ("the 1990 Amendments"). The Environmental Protection Agency (the
"EPA") is still in the process of implementing the requirements
mandated by the 1990 Amendments. In addition, the EPA and the states
are in the process of revising existing requirements under the Clean
Air Act to make them more stringent.

The 1990 Amendments require the EPA to establish technology-based
emission standards for hazardous air pollutants. "Electric utility
steam generating units" that are greater than 25 MW are excluded from
regulation while the EPA conducts a study of hazardous air pollutant
emissions from these units to determine whether such regulation is
"appropriate and necessary." The final report, which was issued in
February 1998, concluded that regulation of hazardous air pollutant
emissions from those units is not necessary with a few possible
exceptions. The EPA has decided to conduct further studies of certain
utility emissions including mercury and will determine at a later date
whether regulation of those emissions is appropriate. The EPA plans to
issue hazardous air pollutant regulations for combustion sources not
included within the scope of the EPA's electric utility study,
including internal combustion engines, by November 2000. These
regulations may also require the Company to meet additional control
requirements.

The Company's business and operations may also be impacted by
changes to existing regulations under the Clean Air Act. For example,
the EPA and the states are in the process of developing more stringent
emission limitations to control ground-level ozone. In November 1997,
the EPA proposed a rule that would require certain states in the
Eastern U.S. to make substantial reductions in NOx emissions. If
finalized as proposed, this rule could result in new NOx emission

standards being required by the affected states. If more stringent NOx
standards are adopted by certain states, NRGG could be required to
install additional NOx emission control technology at some of its
facilities. In addition, the EPA has revised the current National
Ambient Air Quality Standards for ground-level ozone and particulate
matter to make them more stringent. These new standards will be
implemented by the states over the next several years. Additional
control technology requirements may be imposed on existing NRGG plants
to comply with the new standards. The Company does not believe that
the effect of any such additional requirements, if implemented, will
have a material adverse effect on its financial condition or results of
operations.

All projects in operation and under development are believed to be
operating in substantial compliance with or designed to meet currently
applicable environmental requirements. To date, compliance with these
environmental regulations has not had a material effect on the
Company's earnings nor has it required the Company to expend
significant capital expenditures.

Competition

Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the cogeneration
market. Many of these organizations have substantially greater
resources than the Company. In addition, obtaining power contracts
with utilities has become more competitive with the increased use of
competitive bidding procedures and the movement towards deregulation of
the electricity energy market. This increased competition may make it
more difficult for the Company to secure future projects, may increase
project development costs and may reduce the Company's operating
margins. In addition, increased competition is leading to the
development of a market for merchant plants. Merchant plants are power
generation facilities that sell all or a portion of their electricity
into the competitive market rather than pursuant to long-term power
sales agreements. The operation of a merchant plant is essentially
participation in a commodity market, which creates certain risk
exposures, including, among other things, underlying price volatility,
credit risk, and variation in cash flows. Even though many of its
potential competitors have substantially greater resources than the
Company, management believes that its experience, particularly if
combined with a strategic alliance with a third party with regard to
larger projects, will enable it to compete effectively.

Principal Customer

The Company derived 57%, 46%, 62% and 65% of its revenues in the
fiscal year ended December 31, 1997, six months ended December 31,
1996, and the fiscal years ended June 30, 1996 and 1995, respectively,
from JCP&L as a result of the operation of the Newark and Parlin
facilities. The revenues from JCP&L, as a percent of total Company
revenues, are anticipated to decline in the future as new projects are
added to the Company's operations.

Employees

As of December 31, 1997, the Company had approximately 110 full-
time employees.

Patents

The Company and its subsidiaries do not own any patents or
trademarks.

Backlog

Total production backlog relating to the Company's equipment
sales, rental and services business was approximately $3.9 million and
approximately $1.2 million at December 31, 1997 and 1996, respectively.

Risk Factors

Capital Requirements

The Company's business is capital intensive. The long-term growth
of the Company, which involves the development and acquisition of
additional power generation projects, will require the Company to seek
substantial funds through various forms of financing. While the
Company is provided with certain rights under the Co-Investment
Agreement that may enable it to finance the acquisition of ownership
interests in certain projects that may be offered by NRG Energy, there
can be no assurance that the terms on which such financing may be made
available will be satisfactory to the Company, and no financing will be
made available under the Co-Investment Agreement for the development or
acquisition of projects that are not offered to the Company pursuant to
the terms of such agreement. There can be no assurance that the
Company will be able to arrange the financing needed for these
additional projects. Moreover, limitations in the Company's credit
agreements may limit its ability to finance future projects on a
recourse basis, thereby requiring the Company to finance such future
projects on a substantially non-recourse basis. The Company's ability
to arrange financing of additional projects and the costs of such
capital are dependent on numerous factors, including general economic
and capital market conditions, credit availability from banks and other
financial institutions, investor confidence in the Company, its
partners and in the independent power market, the success of current
projects, the perceived quality of new projects and provisions of tax
and securities laws that are conducive to raising capital in the manner
desired. If the Company is unable to secure such financing, or if the
terms of such financing as may be available under the Co-Investment
Agreement are not satisfactory to the Company, its business could be
materially adversely affected. Management believes that sources of
debt financing are available to finance future projects. See "Business
- - Project Development Activities."

Energy Price Fluctuations and Fuel Supply Costs

The Company's PPAs with utilities have typically contained, and
may in the future contain, price provisions which in part are linked to
the utilities' cost of generating electricity. In addition, the
Company's fuel supply prices, with respect to future projects, may be
fixed in some cases or may be linked to fluctuations in energy prices.
These circumstances can result in high volatility in gross margins and
reduced operating income, either of which could have a material adverse
effect on the Company's financial position or results of operations.
Effective April 30, 1996, the Company renegotiated its PPAs with JCP&L,
the primary electricity purchaser from its Newark and Parlin Projects.
Under the new PPAs, JCP&L is responsible for all natural gas supply and
delivery. Management believes that this change in these PPAs has
reduced its historical volatility in gross margins on revenues from
such projects by eliminating the Company's exposure to

fluctuations in the price of natural gas that must be paid by its
Newark and Parlin Projects. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Costs and
Expenses."

Project Development Risks

The development of cogeneration projects often requires many
months or years to complete and involves a high degree of risk that any
particular project will not be completed. Among the principal elements
involved in developing projects are the selection of a site, obtaining
commitments from others to purchase electrical power and steam,
negotiating fuel supply arrangements, obtaining environmental and other
governmental permits and approvals, arranging project financing and
turnkey construction. These objectives are subject to a host of
uncertainties which in many instances cannot be anticipated. Moreover,
these objectives often are achieved independently of one another, and
success in achieving one objective does not necessarily result in
success in achieving others. For example, the future growth of the
Company is dependent, in part, upon the demand for significant amounts
of additional or replacement electrical generating capacity and its
ability to obtain contracts to supply portions of this capacity.
However, even if the Company is successful in the development or
acquisition of an interest in a project, the Company may require
substantial additional debt or equity financing for such projects,
which additional financing may not be available on acceptable terms, if
at all.

During the period that the Company was in bankruptcy, project
development efforts virtually ceased. Since emerging from bankruptcy
these efforts have resumed, both through the re-staffing of an internal
development team and as a result of the Co-Investment Agreement. There
can be no assurance, however, that the Company will be able to obtain
satisfactory projects under the Co-Investment Agreement and
satisfactory project agreements, construction contracts, necessary
licenses and permits or satisfactory financing commitments or that any
of the projects discussed in this report or which otherwise might be
pursued will ultimately be completed. If its development efforts are
not successful, the Company may abandon a project under development.
At the time of abandonment, the Company would expense all capitalized
development costs incurred in connection therewith and could incur
additional losses associated with any related contingent liabilities.
Moreover, most acquisition agreements and power purchase agreements
permit the seller or customer, respectively, to terminate the agreement
or impose penalties if the acquisition or operation of the project (as
the case may be) is not achieved by a specified date. Any material
unremedied delay in, or unsatisfactory completion of, construction of
the Company's projects could have a material adverse effect on the
Company's business or financial condition. See "Business - Project
Development Activities."

Dependence on Certain Customers and Projects

The Company's projects (including projects in which it may make
minority investments) typically rely on a single customer or a few
customers to purchase all of a facility's output, in each case under
long-term agreements that provide the support for any project debt used
to finance such facilities. See "Business - Principal Customer." The
failure of any one customer to fulfill its contractual obligations to a
facility could have a material adverse effect on such facility's
financial results. As a result, the financial performance of such
facilities is dependent on continued performance by customers of their
obligations under such long-term agreements and, in addition, on the
credit quality of the project's customers. See "Item 3. Legal

Proceedings." Regulatory developments, including deregulation and
industry restructuring activity, may cause major customers to attempt
to renegotiate contracts or otherwise fail to perform their contractual
obligations, which in turn could adversely affect the Company's results
of operations. In addition, major customers may attempt to renegotiate
contracts or otherwise fail to perform their contractual obligations if
changes in current economic conditions make the terms of such contracts
less favorable to such customers.

Risks Involved in Making Minority Investments in Projects

The Company currently conducts its business primarily through
subsidiaries. However, one of the Company's current project
investments consists of a minority interest in a project entity (i.e.,
the Company beneficially owns 50% or less of the ownership interests),
and future investments in projects may also take the form of minority
interests. As a result, the Company's ability to control the
development, construction, acquisition or operation of such projects
may be limited. The Company may be dependent on its co-investors to
construct and/or to operate such projects. There can be no assurance
that such co-investors will have the same level of experience,
technical expertise, human resources management and other attributes as
the Company. Any such co-investor may have conflicts of interests,
including those relating to its status as a provider of goods or
services to, or a purchaser of power or other services from, the
project. The approval of its co-investors also may be required for
distributions of funds from projects to the Company.

General Operating Uncertainties

The operation of a power plant involves many risks, including the
breakdown or failure of power generation equipment, pipelines,
transmission lines or other equipment or processes, fuel interruption,
and performance below expected levels of output or efficiency. Each
facility may depend on a single or limited number of entities to
purchase electricity or thermal energy, to supply water, to supply gas,
to transport gas, to dispose of wastes or to wheel electricity. The
failure of any such purchasing utility, steam host, water or gas
supplier, gas transporter, wheeling utility or other relevant project
participant to fulfill its contractual obligations could have a
material adverse impact on the Company.

Competition

Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the market for the
development, ownership and operation of cogeneration projects. Many of
these companies have substantially greater resources and/or access to
the capital required to fund such activities than the Company. In
addition, obtaining power contracts with utilities has become more
competitive with the increased use of competitive bidding procedures
and the advent of deregulation in the electric utility market. This
increased competition may make it more difficult for the Company to
secure future projects, may increase project development costs and may
reduce the Company's operating margins on any future projects. Any
such developments could have a material adverse effect on the Company's
results of operations and financial condition. See "Business -
Independent Power Market Overview."

Proposed Restructuring of the Electric Utility Industry

The U.S. Congress is considering legislation to repeal PURPA
entirely, or at least to repeal the obligation of utilities to purchase
from qualifying facilities thereunder. There is strong support for
grandfathering existing QF contracts if such legislation is enacted,
and also support for requiring utilities to conduct competitive bidding
for new electric generation if the PURPA purchase obligation is
eliminated. Since the Company benefits from PURPA, the Company's
business could be adversely affected by a significant change in PURPA.
See "Business - Independent Power Market Overview," and "Business -
Regulation."

Various bills have also proposed repeal of PUHCA. Repeal of PUHCA
would allow both independent power producers and vertically integrated
utilities to acquire retail utilities in the U.S. that are
geographically widespread, as opposed to the current limitations of
PUHCA which generally require that retail electric systems be capable
of physical integration. Also, registered holding companies would be
free to acquire non-utility businesses, which they may not do now, with
certain limited exceptions.

With the repeal of PURPA or PUHCA, competition for independent
power generators from vertically integrated utilities would likely
increase. While the Company does not believe that any such repeal
would necessarily have a material adverse effect on its financial
position or results of operations, the long term effect on the Company
of any such repeal cannot be predicted. See "Business - Regulation."

In addition, the FERC, many state legislatures and public utility
commissions ("PUCs") and Congress are currently studying and in some
cases implementing proposals to restructure the electric utility
industry in the U.S. to permit consumers to choose their utility
supplier in a competitive electric energy market. The FERC issued
rules in 1996 to require utilities to offer wholesale customers and
suppliers open access on their transmission lines on a comparable basis
to the utilities' own use of the lines. Virtually all investor-owned
utilities have already filed "open access tariffs for wholesale
transmission." The utilities contend that they should recover from
departing customers their fixed costs that will be "stranded" by the
ability of their wholesale customers (and perhaps eventually, their
retail customers) to choose new electric power suppliers. These
include the costs utilities are required to pay under many QF contracts
which the utilities view as excessive when compared with current market
prices. Many utilities are therefore seeking ways to lower these
contract prices or rescind the contracts altogether, out of concern
that their shareholders will be required to bear all or part of such
"stranded" costs. Some utilities have engaged in litigation against
QFs to achieve these ends. In addition, future U.S. electric rates may
be deregulated in a restructured U.S. electric utility industry, and
increased competition may result in lower rates and less profit for
U.S. electricity sellers. Falling electricity prices and uncertainty
as to the future structure of the industry are inhibiting U.S.
utilities from entering into long-term power purchase contracts. At
the state level the New Jersey Board of Public Utilities ("BPU") has
issued a final report and recommendation for introducing retail
electric competition in New Jersey beginning in October 1998.
Consistent with the BPU's recommendation General Public Utilities, the
parent corporation of JCP&L, has filed a restructuring plan with the
BPU seeking the recovery of stranded costs including costs that it
characterizes as stemming from purchased power commitments. JCP&L is
the long term purchaser of power from the Parlin and Newark Projects.
The BPU has recently released draft proposed legislation that it
believes is necessary to implement retail competition fully in New
Jersey.

In Pennsylvania the Pennsylvania General Assembly enacted the
Electricity Generation Customer Choice and Competition Act in December
1996. The Act provides for phased in retail competition and stranded
cost recovery implemented by the Pennsylvania Public Utility Commission
("PaPUC") over several years. PECO Energy Company ("PECO"), the long
term purchaser of power from the Grays Ferry Project, recently notified
Grays Ferry Cogeneration Partnership that PECO believes the power
purchase agreements that it has with Grays Ferry are no longer in
effect based on the alleged denial of cost recovery by the PaPUC.
Grays Ferry Cogeneration Partnership and other parties including the
Company's wholly-owned subsidiary through which it owns its interest in
the Partnership have commenced litigation against PECO and the PaPUC
seeking injunctive relief and damages. See "Item 3. Legal
Proceedings" and Note 19 of the Notes to the Consolidated Financial
Statements.

While the Company does not believe that ongoing federal and state
restructuring efforts necessarily would have a material adverse effect
on its financial position or results of operations, the long term
effect of any such restructuring on the Company cannot be predicted at
this time. See "Business - Regulation."

Environmental Law and Regulation

The Company and its projects are subject to a number of complex
and stringent environmental laws and regulations, affecting many
aspects of its present and future operations. These laws and
regulations in many cases require a lengthy and complex process of
obtaining licenses, permits and approvals from federal, state and local
agencies. The environmental regulations under which the Company's
projects operate are subject to amendment. The Company cannot predict
what effect compliance with such amendments may have on the Company's
business or operations. Compliance could require modification of a
project and thereby increase its costs, extend its completion date or
otherwise adversely affect a project before or after its completion.
See "Business - Environmental Regulations."

Risks Associated with Foreign Operations

The Company's foreign operations (currently consisting primarily
of its equipment sales and rental operations) are subject to the risks
inherent in doing business in foreign countries, including changes in
currency exchange rates, currency restrictions, political changes and
expropriation. Although it is impossible to predict the likelihood of
such occurrences or their effect on the Company, management believes
these risks to be mitigated by the facts that the Company's foreign
activities historically have not been concentrated in any single
country and have been conducted largely in Europe, which management
believes to be subject to fewer of such risks than other regions. In
addition, the Company attempts to secure payment for export sales with
commercial letters of credit or other secured means. See "Business -
Products and Services - Equipment Sales, Rentals and Services Segment."

History of Losses

The Company reported net income of approximately $23.4 million and
$6.4 million for the fiscal year ended December 31, 1997 and six months
ended December 31, 1996, respectively. However, due in part to costs
associated with its bankruptcy proceeding, the Company incurred losses
of approximately $17.7 million and $40.9 million for the fiscal years
ended June 30, 1996, and June 30, 1995, respectively. These losses had
a material adverse effect on the Company's

liquidity and financial position and may continue to adversely affect
the Company's liquidity and results of operations in future periods by,
among other things, rendering it more difficult for the Company to
raise capital or otherwise to conduct project development activities.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Influence by NRG Energy, Inc.

NRG Energy holds approximately 45.21% of the Company's Common
Stock. Four of the Company's eight directors are executive officers of
NRG Energy. NRG Energy is a major domestic and international developer
of independent power projects. As a result, persons who simultaneously
serve as directors or executive officers of the Company and directors
or executive officers of NRG Energy may be subject to conflicts of
interest with respect to business opportunities or other investments
which may be of interest to both NRG Energy and the Company. While the
Company's Restated Articles of Incorporation impose certain
supermajority requirements in certain circumstances, and the
Independent Directors Committee of the Board has exclusive jurisdiction
over the Company's contractual relations and other material
transactions with NRG Energy (including under the Co-Investment
Agreement), NRG Energy's share ownership may permit it to effectively
control the outcome of matters which may be submitted to a vote of the
shareholders, including the election of directors of the Company. NRG
Energy also may exert significant influence over the Company's business
and affairs through its representation on the Board of Directors and
its other relationships with the Company, including the Co-Investment
Agreement. Moreover, NRG Energy, in its business relationships with
the Company and in its role as a shareholder of the Company, may have
interests which conflict with those of the Company under certain
circumstances. See "Business - Project Development Activities - Co-
Investment Agreement with NRG Energy."

Risks Associated with Forward-Looking Statements

This Form 10-K, including the information incorporated by
reference herein, contains various forward-looking statements and
information that are based on the Company's beliefs and assumptions, as
well as information currently available to the Company. From time to
time, the Company and its officers, directors or employees may make
other oral or written statements (including statements in press
releases or other announcements) which contain forward-looking
statements and information. Without limiting the generality of the
foregoing, the words "believe," "anticipate," "estimate," "expect,"
"intend," "plan," "seek" and similar expressions, when used in this
Form 10-K and in such other statements, are intended to identify
forward-looking statements. All forward-looking statements and
information in this Form 10-K are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act and are intended to be covered by the safe
harbors created thereby. Such forward-looking statements are not
guarantees of future performance and are subject to risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. Such factors include, without limitation,
those discussed above. Many of such factors are beyond the Company's
ability to control or predict, and readers are cautioned not to put
undue reliance on such forward-looking statements. The Company
disclaims any obligation to update or review any forward-looking
statements contained in this Report or in any statement referencing the
risk factors and other cautionary statements set forth in this Report,
whether as a result of new information, future events or otherwise.

ITEM 2. PROPERTIES.

The Company's corporate headquarters are located in Minneapolis,
Minnesota.

The headquarters for Puma's executive offices and its principal
manufacturing facility are located in Ash, Canterbury, Kent, United
Kingdom.

The headquarters of OES are located on approximately four acres in
Wilmington, Delaware. The premises are owned, subject to a mortgage, in
fee simple and include an approximately 55,000 square foot building.
In addition, OES owns, subject to a mortgage, office and warehouse
space in Houston, Texas, on approximately two acres of land. OES
leases space for similar purposes in each of Bakersfield and Benicia,
California. The office and warehouse space in Texas and in the
California locations range from approximately 5,000 to 10,000 square
feet.

The Newark, Parlin, Grays Ferry and Morris project entities lease
property on the site of the Newark, Parlin, Grays Ferry and Morris
cogeneration facilities, respectively, from the commercial user of
thermal energy for a nominal fee. The term of the lease equals or
exceeds that of each respective thermal supply agreement. Management
believes that the leased premises are suitable and adequate for the
Company's projects.

ITEM 3. LEGAL PROCEEDINGS.

Litigation

The Company or a subsidiary is party to the following legal
proceedings:

1. Stevens, et al. v. O'Brien Environmental Energy, Inc., et al.,
United States District Court for the Eastern District of
Pennsylvania, Civil Action No. 94-cv-4577, filed July 27, 1994.
This action was filed by certain purchasers of the Class A Common
Stock of the Company's predecessor during the class period who
allege various violations of the Federal securities laws. The
Plaintiffs claim that certain material misrepresentations and
nondisclosures concerning the Company's financial conditions and
prospects allegedly caused the price of the Common Stock to be
artificially inflated during the class period. Management does
not expect the outcome to have a material adverse effect on the
Company.

2. Blackman and Frantz v. O'Brien, United States District Court,
Eastern District of Pennsylvania, Civil Action No. 94-cv-5686,
filed October 25, 1995. This action was filed by purchasers of
O'Brien debentures during the class period. The Plaintiffs object
to treatment of the class under the Bankruptcy Plan. This matter
has been consolidated with the Stevens class action case described
in paragraph number 1 above. Management does not expect the
outcome to have a material adverse effect on the Company.

3. In re: O'Brien Environmental Energy, Case No. 94-26723, U.S.
Bankruptcy Court for the District of New Jersey, filed September
29, 1994. Calpine Corporation ("Calpine"), an unsuccessful bidder
for the acquisition of the debtor in the bankruptcy case, filed an
application for allowance of an administrative claim for
approximately $4.5 million in break-up fees and expenses in the
bankruptcy case. The Bankruptcy Court denied the

application in full, by order dated November 27, 1996. Calpine
filed an appeal from the Bankruptcy Court's order denying its
application. The appeal has now been fully briefed and the
parties are awaiting a decision. Management does not expect the
outcome of its bankruptcy case to have a material adverse effect
on the Company.

4. Grays Ferry Cogeneration Partnership, Trigen-Schuylkill
Cogeneration, Inc., NRGG (Schuylkill) Cogeneration Inc. and
Trigen-Philadelphia Energy Corp. v. PECO Energy Company, Adwin
(Schuylkill) Cogeneration,Inc. and the Pennsylvania Public Utility
Commission, the United States District Court for the Eastern
District of Pennsylvania, Civil Action No. 98-CV-1243, filed
March 9, 1998. This action arose out of PECO Energy Company's
("PECO") notification to the Grays Ferry Cogeneration Partnership
(the "Partnership") that PECO believes its power purchase
agreements with the Partnership relating to the Grays Ferry Project
are no longer effective and PECO's refusal to pay the electricity
rates set forth in the agreement based on its allegations that the
Pennsylvania Public Utility Commission has denied cost recovery of
the power purchase agreements in retail electric rates. The
Plaintiffs include, in addition to the Partnership, the Company's
wholly-owned subsidiary through which it owns its interest in the
Partnership and two subsidiaries of Trigen Energy Corporation
("Trigen"), one of which subsidiaries is also a one-third owner of
the Partnership. Defendant Adwin (Schuylkill) Cogeneration,Inc. is
a subsidiary of PECO and also a partner in the Partnership. The
Plaintiffs are seeking to enjoin PECO from terminating the power
purchase agreements and to compel PECO to pay the rates set forth
therein. In addition, the Plaintiffs are seeking actual damages
against PECO in an amount in excess of $200 million, punitive
damages and attorneys' fees and costs. The Plaintiffs have asserted
claims against PECO and its subsidiary which include breach of
contract, breach of implied covenant of good faith and fair dealing,
breach of fiduciary duties and tortious interference with a long-
term contract which one of the Trigen Plaintiffs has entered into
for the sale of steam to be produced predominantly by the Grays
Ferry Project. The lawsuit further seeks to compel PECO to take
the necessary actions before the Pennsylvania Public Utility
Commission to seek recovery of its costs under the power purchase
agreements and to compel the Pennsylvania Public Utility Commission
to allow cost recovery of the power purchase agreements in PECO's
retail electric rates. On March 19, 1998, the district court
dismissed the lawsuit for lack of subject matter jurisdiction. On
March 27, 1998, the Plaintiffs filed a motion for reconsideration
and leave to file an amended complaint. As of the date of this
Report, the Plaintiffs were awaiting the judge's decision on the
motion and reviewing their other legal options.

Arbitration

On January 30, 1998, the Company gave notice to NRG Energy of a
dispute to be arbitrated pursuant to the terms of the Co-Investment
Agreement. With certain exceptions, the Co-Investment Agreement
obligates NRG Energy to offer to sell to the Company "eligible
projects," which are defined in the Co-Investment Agreement as certain
facilities which generate electricity for sale through the combustion
of natural gas, oil or any other fossil fuel. The Co-Investment
Agreement provides that if NRG Energy offers to sell an eligible
project to the Company and the Company declines to purchase the
project, NRG Energy then has the right to sell the project to a third
party at a price which equals or exceeds that offered to the Company.
See "Business - Project Development Activities - Co-Investment
Agreement with NRG Energy." In the arbitration proceeding, the Company
contends that NRG Energy breached the Co-Investment Agreement by,

among other things, agreeing to sell to an affiliate of Oklahoma Gas
and Electric Company, a 110 MW cogeneration project in Oklahoma,
without fulfilling NRG Energy's commitment to offer the project to the
Company at the same price. The Company intends to request specific
performance of the Co-Investment Agreement. NRG Energy has advised the
Company that it believes that it had no obligation to offer the project
to the Company. Both parties have chosen their respective arbitrators
and are awaiting the selection of a third arbitrator from the American
Arbitration Association.

The Company is subject from time to time to various other claims
that arise in the normal course of business, and management believes
that the outcome of these matters (either individually or in the
aggregate) will not have a material adverse effect on the business or
financial condition of the Company.

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

No matters were submitted to a vote of the Company's stockholders
during the quarter ended December 31, 1997.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company's Common Stock has been quoted and traded under the
symbol "NRGG" on the Nasdaq SmallCap Market from March 1997 to November
1997 and on the Nasdaq National Market since November 1997. Prior to
March 1997, the Company's Common Stock was not listed on an exchange or
on the Nasdaq Stock Market but traded from time to time on the pink
sheets and on the OTC Bulletin Board. The high and low sales prices of
the Common Stock for the period from March 1997 to December 1997 are
shown in the table below. Such prices may have reflected inter-dealer
prices, without retail mark-ups, mark downs or commissions, and may not
necessarily represent actual transactions.

NRGG Common Stock Price Per Share Information for 1997
Price Per Share ($)
Period Low High
First Quarter (1) 11.250 13.750
Second Quarter 11.125 16.000
Third Quarter 14.250 21.000
Fourth Quarter 18.000 22.375

(1) The Company's Common Stock began trading on the Nasdaq SmallCap
Market on March 3, 1997. This information reflects the low and high
prices during the period from March 3, 1997 to March 31, 1997.

As of March 11, 1998, the Company had approximately 500 holders of
record of its Common Stock, not including beneficial owners whose
shares are held by banks, brokers and nominees.

The Company presently intends to retain all earnings for the
operation and expansion of its business and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. Any
future determination as to the payment of dividends on the common stock
will depend upon future earnings, results of operations, capital
requirements, the financial condition of the Company and any other
factors the Board of Directors of the Company may consider. Moreover,
as a holding company, the Company's ability to pay any dividends in the
future will depend largely on the ability of its operating subsidiaries
and project entities to pay cash dividends or other cash distributions,
which dividends or other cash distributions may be materially limited
by the terms of credit agreements or other material contracts to which
such operating subsidiaries or project entities may be parties.

Two of the Company's principal operating subsidiaries, NRGG Newark
and NRGG Parlin, are parties to a Credit Agreement which prohibits the
payment of dividends by such subsidiaries to the Company, provided that
such dividend payments may be made out of funds

available after the payment of various costs and expenses set forth in
the Credit Agreement (including without limitation operating costs,
various debt service payments and the funding of various accounts
required to be maintained pursuant to the Credit Agreement) if certain
conditions set forth in the Credit Agreement are satisfied, including
without limitation the maintenance of a debt service coverage ratio set
forth in the Credit Agreement, the absence of any default or event of
default under the Credit Agreement, and the satisfaction of certain
conditions relating to the composition of the Board of Directors of the
Company.

Morris LLC (the owner of the Morris Project) is party to a
Construction and Term Loan Agreement which prohibits the payment of
distributions or the return of capital to Morris LLC's members except
upon the satisfaction of certain conditions which include (i) the
acceptance and commercial operation of the facility and conversion of
the project's construction loan to term loans, (ii) the absence of any
default or event of default under various financing and project
documents, (iii) the full prior funding of various accounts required to
be maintained by Morris LLC under the Construction and Term Loan
Agreement, and (iv) the maintenance of a required debt service coverage
ratio. The Company and NRGG Funding also are parties to a supplemental
Loan Agreement with NRG Energy which prohibits NRGG Funding (which
directly or indirectly owns 100% of the membership interests of Morris
LLC) from paying any distributions or dividends unless, among other
things, the principal and interest then outstanding does not exceed a
prescribed maximum amount and is not projected to exceed the maximum
amount prescribed for the next two interest and principal payment
dates.

The Company is the borrower under another Credit Agreement which
prohibits the payment of dividends by the Company without prior written
consent unless the Company provides more than 30 days prior to the
proposed date of payment of such dividend a letter of credit and a
certificate signed by the chief financial officer of the Company that,
after giving effect to such dividend payment, no default or event of
default (as defined in therein) would occur or reasonably be
anticipated to occur.

On April 30, 1996, the Bankruptcy Court approved the issuance of
6,474,814 shares of Common Stock of the Company which have been issued
since such date and prior to March 31, 1998 pursuant to the terms of
the Plan to NRG Energy and holders of O'Brien Class A and Class B
Common Stock. Such shares issued to NRG Energy were issued in
consideration of a cash payment of approximately $21.2 million, and
such shares issued to holders of O'Brien Class A and Class B Common
Stock were issued in exchange for such shares of O'Brien Class A and
Class B Common Stock. The cash payment from NRG Energy was used by the
Company under the Plan to provide for full and immediate payment of all
undisputed pre-petition claims as well as a provision for post-petition
interest. In connection with the consummation of the Plan, the Company
also granted NRG Energy an option to convert $3.0 million of the
outstanding principal amount of the loan between NRG Energy and NRGG
(Schuylkill) Cogeneration, Inc. ("NSC") in the principal amount of
$10.0 million (the "Loan") into shares of Common Stock. On November
25, 1997, the Company issued 396,255 shares of its Common Stock to NRG
Energy upon conversion of such portion of the Loan. The securities
issued to NRG Energy and the holders of the O'Brien Class A and Class B
Common Stock were issued without registration under the Securities Act
or under any state or local law, in reliance on the exemptions set
forth in Section 1145 of the United States Bankruptcy Code.

ITEM 6. SELECTED FINANCIAL DATA.

The consolidated selected financial data as of and for each of the
periods indicated have been derived from the audited financial
statements of the Company. This data should be read in conjunction
with, and is qualified in its entirety by reference to, the related
financial statements and notes included elsewhere in this Report.

Year Six Months
Ended Ended
(Dollars in thousands, except per December 31, December 31, Year Ended June 30
share amounts) 1997 1996 (1) 1996 1995 1994 1993

Statement of Operations Data:

Revenues:
Energy $ 43,210 $ 21,669 $ 66,623 $ 74,455 $ 62,647 $ 65,136
Equipment sales and services 19,415 15,607 25,344 19,639 24,304 18,955
Rental 2,179 1,062 1,895 2,362 5,372 3,636
Related parties - - - - - 515
Development fees and other - 1,578 2,685 5,791 14,266 9,450
Total 64,804 39,916 96,547 102,247 106,589 97,692

Income (loss) before
extraordinary item 23,352 4,780 (17,713) (40,919) (16,501) (13,711)

Net income (loss). 23,352 6,423 (17,713) (40,919) (16,501) (13,711)

Basic earnings (loss) per share(2):
Before extraordinary item $ 3.59 $ 0.75 $ (4.24) $ (11.02) $ (4.45) $ (3.70)
Extraordinary item - 0.25 - - - -
$ 3.59 $ 1.00 $ (4.24) $ (11.02) $ (4.45) $ (3.70)

Diluted earnings (loss) per share(2)
Before extraordinary item $ 3.48 $ 0.74 $ (4.24) $ (11.02) $ (4.45) $ (3.70)
Extraordinary item - 0.25 - - - -
$ 3.48 $ 0.99 $ (4.24) $ (11.02) $ (4.45) $ (3.70)

Balance Sheet Data:

Total assets $227,894 $173,624 $178,162 $189,748 $237,816 $262,529

Long-term debt, net 190,020 150,311 66,789 3,405(3) 67,383 125,152

Convertible senior subordinated
Debentures - - - - - 49,174

<FN>
(1) Effective July 1, 1996, the Company changed its year end from June 30 to December 31.

(2) Net income (loss) per share has been restated for all periods presented to reflect the
common shares issued under the terms of the Plan.

(3) Excludes $60,310 of long-term project financing which was included in current liabilities
due to default under the debt agreement.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

Certain of the statements made in this Item 7 and in other
portions of this Report and in documents incorporated by reference
herein constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such forward-looking statements are not
guarantees of future performance and are subject to risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. Such factors include, without limitation,
those discussed in "Business - Risk Factors" herein. See "Business -
Risk Factors - Risks Associated with Forward-Looking Statements."

All amounts set forth in this Item 7 are in thousands.

The Company directly and through its subsidiaries develops and
owns cogeneration projects which produce electricity and thermal energy
for sale to industrial and commercial users and public utilities. In
addition, the Company, through its subsidiaries, sells and rents power
generation, cogeneration and standby/peak shaving equipment and
services.

On April 30, 1996, the Company emerged from bankruptcy under a
plan approved by the Bankruptcy Court on January 18, 1996. In
connection with the consummation of the Plan, NRG Energy advanced
approximately $107,418 and purchased approximately 41.86% of the Common
Stock. NRG Energy's financial backing of the Plan enabled the Company
to provide for full and immediate payment of all undisputed pre-
petition claims as well as a provision for post-petition interest. The
Plan also provided that all of the shares of O'Brien Class A and Class
B Common Stock were canceled and replaced by a new issue of NRGG Common
Stock. Net income (loss) per share has been restated for all periods
presented to reflect the new common shares issued under the terms of
the Plan.

Additionally, under the terms of the Plan, NRG Energy acquired the
stock of ten wholly-owned subsidiaries from the Company on the closing
date which included all of the Company's landfill gas projects (those
operating and those in development), the general partner holding a 3%
equity interest in the Artesia Cogeneration partnership and a standby
power project. Management believes that the sale of these subsidiaries
will not have a material adverse effect on its results of operations in
future years.

The Company currently owns two cogeneration facilities (the Newark
and Parlin Projects) with an electric generating capacity of 174 MW.
In addition, the Company operates and owns an 83% interest in two
standby/peak shaving facilities (together comprising the Philadelphia
PWD Project) with a capacity of 22 MW. The Company also has a one-
third ownership interest in a cogeneration facility (the "Grays Ferry
Project") with an electric generating capacity of 150 MW, which
commenced operation in January 1998. As of the date of this Report,
the Company and the Grays Ferry Partnership are in litigation with the
electric power purchaser from the Grays Ferry Project over, among other
things, the effectiveness of the applicable power purchase agreements.
See "Item 3. Legal Proceedings".

Both the Newark and Parlin Projects were previously certified as
qualifying facilities ("QFs") by the FERC under PURPA. The effect of
QF status is generally to exempt a project's owners from relevant
provisions of the Federal Power Act, PUHCA, and state utility-type
regulation. However, as permitted under the terms of its renegotiated
PPAs, Parlin has chosen to file rates with FERC as a public utility
under the Federal Power Act. The effect of this filing was to
relinquish the Parlin Project's claim to QF status. The FERC approved
Parlin's rates effective April 30, 1996 and has determined Parlin to be
an EWG. As an EWG, Parlin is exempt from PUHCA, and the ownership of
Parlin by the Company does not subject the Company to regulation under
PUHCA. Finally, as a seller of power exclusively at wholesale, Parlin
is not generally subject to state regulation and, in any case,
management believes that Parlin complies with all applicable
requirements of state utility law.

In addition to the energy business, the Company sells and rents
power generation and cogeneration equipment and provides related
services. The Company operates its equipment sales, rentals and
services business principally through two subsidiaries. In the United
States, the equipment sales, rentals and services business operates
under the name of O'Brien Energy Services Company. NRG Generating
Limited, a wholly-owned United Kingdom subsidiary, is the holding
company for a number of subsidiaries that operate in the United Kingdom
under the common name of Puma. The Company has determined that OES and
Puma are not a part of its strategic plan for the future, and the
Company is currently pursuing several avenues for the disposition of
these businesses. The disposition of these businesses is not expected
to have a material impact on the Company's financial position.

Effective January 1, 1997, Power Operation, Inc., a wholly-owned
subsidiary of the Company providing operation and maintenance for the
Newark and Parlin facilities under long-term contracts, was sold to NRG
Energy. This transaction did not have a material financial impact on
the operations of these facilities or on the Company's financial
condition or results of operations. The terms of this transaction were
approved by the Independent Directors Committee of the Company's Board
of Directors as required by the Company's Bylaws.

The Company entered into a Liquidating Asset Management Agreement
on April 30, 1996 with Wexford Management Corp. ("Wexford"), a co-
sponsor of the Plan, which, in accordance with the Plan, retains
Wexford as manager, operator and liquidator of the Liquidating Assets
(as defined in the agreement) of the Company pursuant to the terms and
conditions of the agreement. The Board of Directors and officers of
the Company have the right to direct and control which assets will be
liquidated and the extent of management services required for each

Liquidating Asset. The Liquidating Assets identified in the agreement
consist of (a) the Company's engine generator sales, service and rental
business, (b) the Philadelphia PWD Project, (c) unused equipment and
(d) American Hydrotherm ("American Hydrotherm") and two related
companies. In December 1996, the Company sold American Hydrotherm and
the two related companies to the management of American Hydrotherm.
The Company's Board of Directors has decided not to liquidate the
Philadelphia PWD Project. Wexford has received compensation in
accordance with the terms of the agreement (see Note 1 of the Notes to
the Consolidated Financial Statements).

Effective July 1, 1996, the Company changed its year end from June
30 to December 31. As a result, "fiscal 1995" refers to the 12-month
period ended June 30, 1995 ; "fiscal 1996" refers to the 12-month
period ended June 30, 1996; the "1996 transition period" refers to the
6-month period ended December 31, 1996; and "fiscal 1997" refers to the
12-month period ended December 31, 1997.

Results of Operations for Fiscal 1997, the 1996 Transition Period and
Fiscal 1996 and 1995

Revenues

Energy revenues for fiscal 1997, the 1996 transition period and
fiscal 1996 and 1995 were $43,210, $21,669, $66,623 and $74,455,
respectively. Energy revenues primarily reflect billings associated
with the Newark and Parlin Projects and the Philadelphia PWD Project.
The increase in energy revenues for fiscal 1997 as compared to the 1996
transition period was primarily due to only six months of revenues
reported in the 1996 transition period. The decrease in energy
revenues for the 1996 transition period as compared to fiscal 1996 was
primarily due to only six months of revenues reported in the 1996
transition period and to the amended PPAs affecting both the Newark and
Parlin Projects. The decrease in energy revenues in fiscal 1996 from
fiscal 1995 was primarily attributable to a voluntary curtailment of
operations at Parlin and to the negative impact of unit fuel cost
fluctuations on the energy rate calculation under the Parlin Project's
previous PPA. Additionally, a portion of the decrease is attributable
to the amended PPAs affecting both the Newark and Parlin Projects for
the final two months of fiscal 1996.

Revenues recognized by NRGG Parlin for fiscal 1997, the 1996
transition period and fiscal 1996 and 1995 were $21,685, $10,327,
$34,867 and $40,784, respectively. NRGG Parlin revenues increased for
fiscal 1997 as compared to the 1996 transition period primarily due to
only six months of revenues reported in the 1996 transition period.
NRGG Parlin revenues decreased for the 1996 transition period as
compared to fiscal 1996 primarily due to only six months of revenues
reported in the 1996 transition period and to the amended PPA. NRGG
Parlin initiated a voluntary curtailment of electric output beginning
in the first quarter and extending into the second quarter of fiscal
1996, during off-peak hours, to maintain the correct ratio of thermal
to electric production after E.I. du Pont, the steam host,
significantly decreased its steam demand by moving a business segment
overseas. Additionally, NRGG Parlin's fiscal 1996 revenues were
affected by a decrease in the energy rate under the previous PPA
adjusted quarterly based on, in part, the average cost of fuel over the
preceding year. A mild 1995 winter resulted in unusually low natural
gas costs which, after a five quarter lag, lowered the energy rate
received during fiscal 1996. NRGG Parlin revenues also decreased in
fiscal 1996 by approximately $2,680 from the amended PPA implemented on
April 30, 1996.

Revenues recognized at NRGG Newark for fiscal 1997, for the 1996
transition period and fiscal 1996 and 1995 were $17,319, $9,259,
$26,820 and $28,908, respectively. NRGG Newark revenues increased for
fiscal 1997 as compared to the 1996 transition period primarily due to
only six months of revenues reported in the 1996 transition period.
NRGG Newark revenues decreased for the 1996 transition period as
compared to fiscal 1996 primarily due to only six months of revenues
reported in the 1996 transition period and to the amended PPA. The
decrease in revenues in fiscal 1996 from 1995 is primarily attributable
to the implementation of the amended PPA in May 1996.

Equipment sales and services revenues for fiscal 1997, for the
1996 transition period and fiscal 1996 and 1995 were $19,415, $15,607,
$25,344 and $19,639, respectively, which principally reflect the
operations of OES, Puma and American Hydrotherm. American Hydrotherm
was sold in December 1996. Revenues increased for fiscal 1997 as
compared to the 1996 transition period primarily due to only six months
of revenues reported in the 1996 transition period and to higher sales
volumes. Revenues decreased for the 1996 transition period as compared
to fiscal 1996 primarily due to only six months of revenues reported in
the 1996 transition period, offset in part by the inclusion of nine
months of revenues in the period from the operations of Puma. Puma
changed its fiscal year end from a fiscal year ended March 31 to a
calendar year fiscal year effective on December 31, 1996. Management
attributes the increase in fiscal 1996 to a volume increase resulting
from successful marketing efforts as well as to an improvement in the
U.S. economy. The Company also believes that its bankruptcy filing in
September 1994 had some negative impact in fiscal 1995 revenues because
of customer uncertainty.

OES equipment sales and services revenues for fiscal 1997, for the
1996 transition period and fiscal 1996 and 1995 were $6,115, $1,575,
$5,232 and $3,575, respectively.

Rental revenues for fiscal 1997, for the 1996 transition period
and fiscal 1996 and 1995 were $2,179, $1,062, $1,895 and $2,362,
respectively. Revenues increased for fiscal 1997 as compared to the
1996 transition period primarily due to only six months of revenues
reported in the 1996 transition period. Revenues decreased for the
1996 transition period as compared to fiscal 1996 primarily due to only
six months of revenues reported in the 1996 transition period.

There were no development fees and other revenues for fiscal 1997.
Development fees and other revenues for the 1996 transition period and
fiscal 1996 and 1995 were $1,578, $2,685 and $5,791, respectively.
Revenues decreased for the 1996 transition period as compared to fiscal
1996 primarily due to only six months of revenues reported in the 1996
transition period. The decrease in revenues in 1996 from 1995 was
attributable primarily to the Company selling its rights to develop a
standby electric project for $1,763, the expiration of a purchase
option whereby, the Company retained $775 in forfeited escrow deposits,
offset in part to higher gas sales to the Artesia Cogeneration
partnership in 1995.

Costs and Expenses

Cost of energy revenues for fiscal 1997, for the 1996 transition
period and fiscal 1996 and 1995 were $14,841, $7,229, $45,663 and
$46,694, respectively. Cost of energy revenues increased for fiscal
1997 primarily due to only six months of costs reported in the 1996
transition period. Cost of energy revenues decreased for the 1996
transition period as compared to fiscal 1996 primarily due to only six
months of costs reported in the 1996 transition period and the

result of the amended PPAs in which JCP&L began assuming the cost of
fuel for the Newark and Parlin facilities.

Cost of equipment sales and services for fiscal 1997, for the 1996
transition period and fiscal 1996 and 1995 were $17,037, $12,365,
$22,153 and $17,622, respectively. Cost of equipment sales and
services increased for fiscal 1997 primarily due to only six months of
costs reported in the 1996 transition period, except for the operations
of Puma which included nine months of costs for the 1996 transition
period and to the recording of $190 in the fourth quarter to reserve
for the writedown of inventory. Cost of equipment sales and services
decreased for the 1996 transition period as compared to fiscal 1996
primarily due to only six months of costs reported in the 1996
transition period. The fluctuations in cost of equipment sales and
services between fiscal 1996 and 1995 primarily correlate to the
changes in sales volume in the Company's equipment sales, rental and
service businesses.

Cost of rental revenues for fiscal 1997, for the 1996 transition
period and fiscal 1996 and 1995 were $1,817, $834, $1,406 and $2,357,
respectively. Cost of rental revenues increased for fiscal 1997
primarily due to only six months of costs reported in the 1996
transition period. Cost of rental revenues decreased for the 1996
transition period as compared to fiscal 1996 primarily due to only six
months of costs reported in the 1996 transition period. The decrease
in cost of equipment rentals between fiscal 1996 and 1995 is
attributable to the reacquisition of the Philadelphia PWD Project from
an unrelated private investor.

There were no development fees and other costs for fiscal 1997.
Cost of development fees and other for the 1996 transition period and
fiscal 1996 and 1995 were $1,559, $2,531 and $5,491, respectively.
These costs consist principally of costs associated with the sale of
various projects either under development or in operation.

The Company's gross margins were $31,109 (48.0% of sales), $17,929
(44.9% of sales), $24,794 (25.7% of sales), and $30,083 (29.4% of
sales) for fiscal 1997, for the 1996 transition period and for fiscal
1996 and 1995, respectively. The fluctuations are primarily
attributable to increased operating efficiency in the energy segment of
the Company and to fluctuations in the recovery of fuel costs through
energy revenues under the Newark and Parlin Project PPAs in effect
until April 30, 1996.

Provision for Impaired Assets

In the fourth quarter of 1997, the Company completed a thorough
review of its business operations and market opportunities. As a
result of this review, the Company concluded that the estimated future
cash flows to be generated by certain assets were not sufficient to
recover their carrying values. Accordingly, the Company recorded an
impairment provision of $5,274 for such assets. The provision
consisted of property, plant and equipment write downs of $2,778
primarily related to the generator sales and services business, $1,553
for equipment held for sale, $500 to reduce the carrying value of the
equity investment in PoweRent, $371 to expense project development
costs and $72 for other impairments. The property plant and equipment
and PoweRent provisions reduced the asset carrying values to estimated
fair values determined by management and the board of directors based
on prices of similar assets and various valuation techniques. The
equipment held for sale provision represents the write off of remaining
equipment which is being scrapped. The project development write off
was necessary due to abandonment of certain projects.

During fiscal 1996 unrecoverable project development costs of $180
were written off. In fiscal 1995, based on independent market
appraisals, the Company recorded charges of $15,985 to write-down
property, plant and equipment and $5,655 to write-down equipment held
for sale to lower fair values. In addition, project development costs
of $4,418 determined to be unrecoverable were written off.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") for fiscal
1997, for the 1996 transition period and fiscal 1996 and 1995 were
$9,479, $6,149, $12,612 and $15,902, respectively. SG&A increased for
fiscal 1997 primarily due to only six months of costs reported in the
1996 transition period, except for the operations of Puma which
included nine months of costs for the 1996 transition period and to the
recording of $914 in the fourth quarter for various staffing and
relocation costs and other reserves. SG&A decreased for the 1996
transition period as compared to fiscal 1996 primarily due to only six
months of costs reported in the 1996 transition period. Fiscal 1996
includes a $3,100 cost incurred to terminate an interest rate swap
agreement in connection with the Parlin nonrecourse project debt
refinancing. Fiscal 1996 SG&A expenses benefited from lower payroll
and related tax costs as well as reduced insurance expenses by
approximately $2,347 as compared to fiscal 1995.

Interest and Other Income

Interest and other income for fiscal 1997, for the 1996 transition
period and fiscal 1996 and 1995 were $1,310, $413, $569 and $2,587,
respectively. Interest and other income increased for fiscal 1997
primarily due to only six months of income reported in the 1996
transition period, the settlement of a legal suit, the sale of a
development project in Pakistan, offset in part by fees paid to Wexford
under the Liquidating Asset Management Agreement and the sale of unused
equipment. Interest and other income for the 1996 transition period
was positively impacted by interest income earned on escrow account
balances established in connection with the nonrecourse financing on
the Newark and Parlin facilities. Fiscal 1995 other income includes
$1,180 recognized in connection with the original construction of the
Philadelphia PWD Project.

Reorganization Costs

Reorganization costs represent all costs incurred after filing
bankruptcy that relate to the Company's reorganization and
restructuring efforts. Reorganization costs for fiscal 1996 and 1995
were $12,101 and $8,366, respectively. These costs consist primarily
of professional and administrative fees and expenses. Fiscal 1995
expense includes $3,387 to write-off deferred financing costs due to
Court-approved reductions in the carrying value of certain prepetition
subordinated debentures.

Interest and Debt Expense

Interest and debt expense for fiscal 1997, for the 1996 transition
period and fiscal 1996 and 1995 were $14,768, $7,681, $18,646 and
$20,583, respectively. Interest and debt expense increased for fiscal
1997 as compared to the 1996 transition period primarily due to only
six months of expense reported in the 1996 transition period. Interest
and debt expense decreased for the 1996 transition period as compared
to fiscal 1996 primarily due to only six months of expenses reported in
the 1996 transition period and to the refinancing of the Newark and
Parlin

Projects. Fiscal 1996 and 1995 interest and debt expense includes post-
petition interest on prepetition liabilities of $6,487 and $6,194,
respectively. Fiscal 1996 also includes $1,098 in interest costs
associated with loans provided by NRG Energy and $1,433 of deferred
financing costs attributable to the nonrecourse debt relating to the
Newark and Parlin Projects which were refinanced during the year (see
"Liquidity and Capital Resources"). Fiscal 1995 interest and debt
expense includes $1,050 paid to the unrelated private investor to
extend the Company's reacquisition option period for the Philadelphia
PWD Project to August 1994.

Extraordinary Item

In the 1996 transition period, the Company negotiated a buyout of
a subsidiary's capital lease obligation. The lender agreed to accept a
$1,100 payment in full satisfaction of the lease. The transaction
resulted in an extraordinary gain of $1,643 (net of $124 of state
income taxes).

Income Taxes

For fiscal 1997, for the 1996 transition period and fiscal 1996,
the Company realized an overall income tax benefit of $20,454, $268 and
$463, respectively. For fiscal 1995, the provision for income taxes
was $2,680. The benefit for fiscal 1997 and for the 1996 transition
period is derived from the Company's ability to reduce its current and
deferred tax liabilities by using net operating loss carryforwards and
existing deductible temporary differences to offset current taxable
income and future reversals of taxable temporary differences. The
benefit for fiscal 1997 was attributable to the reversal of a valuation
reserve that was applied against deferred tax assets relating to net
operating losses incurred by the Company from fiscal 1992 to fiscal
1996. The benefit for fiscal 1996 was attributable to the utilization
of state net operating loss carryforwards as well as a decrease in the
deferred tax liability primarily attributable to a change in temporary
differences resulting from the landfill gas equipment sold to NRG on
April 30, 1996. The 1995 tax provision, consisting primarily of
deferred taxes relating to property and equipment, results from the
uncertainty of realizing the benefits of the tax loss carryforwards in
future years against them. Additionally, most professional fees
incurred during the bankruptcy period included in reorganization costs
are treated as capital expenditures and are not deductible for income
tax purposes (see Note 14 of the Notes to the Consolidated Financial
Statements).

Net Earnings (Loss) and Earnings (Loss) Per Share

The net earnings for fiscal 1997 were $23,352 compared to net
earnings for the 1996 transition period of $6,423 and a net loss for
fiscal 1996 and 1995 of $17,713 and $40,919, respectively. The basic
earnings per share for fiscal 1997 was $3.59 compared to basic earnings
per share for the 1996 transition period of $1.00 and basic losses per
share for fiscal 1996 and 1995 of $4.24 and $11.02, respectively.

The fiscal 1997 net earnings are primarily due to the reversal of
a valuation reserve that was applied against deferred tax assets
relating to net operating losses incurred by the Company from fiscal
1992 to fiscal 1996 offset in part by the write-off of certain assets.
The 1996 transition period net earnings are primarily attributable to
higher gross margins due in part to the amended PPAs in which JCP&L
began assuming the cost of fuel for the Newark and Parlin facilities.
The fiscal 1996 and 1995 net losses are primarily due to the
reorganization costs incurred after filing for bankruptcy that relate
to the Company's reorganization and restructuring

efforts and to the impact of higher fuel costs prior to the amendment
of the PPAs at Newark and Parlin in May 1996.

Liquidity and Capital Resources

On April 30, 1996, NRG Energy funded $107,418 in accordance with
the Plan. The Company received $99,918 of which $71,240 was advanced
under the terms of three loan agreements between the Company and NRG
Energy; $21,178 represented the purchase of new common stock of NRGG
and $7,500 was designated as the proceeds for the sale of ten wholly-
owned subsidiaries sold to NRG Energy. In addition, NRG Energy
transferred $7,500 directly to the Company's stock transfer agent
representing a cash distribution by NRG Energy to the O'Brien common
stockholders.

In May 1996, the Company's wholly-owned subsidiaries NRGG Newark
and NRGG Parlin entered into a Credit Agreement (the "Credit
Agreement") which established provisions for a $155,000 fifteen-year
loan and a $5,000 five-year debt service reserve line of credit. The
interest rate on the outstanding principal is variable based on, at the
option of Newark and Parlin, LIBOR plus a 1.125% margin or a defined
base rate plus a 0.375% margin, with nominal margin increases in the
sixth and eleventh year. For any quarterly period where the debt
service coverage ratio is in excess of 1.4:1, both margins are reduced
by 0.125%. Concurrent with the Credit Agreement, Newark and Parlin
entered into an interest rate swap agreement with respect to 50% of the
principal amount outstanding under the Credit Agreement. This interest
rate swap agreement fixes the interest rate on such principal amount
($71,726 at December 31, 1997) at 6.9% plus the margin.

The Company used the proceeds of the loan to repay certain
preexisting obligations of the Company including $87,291 of
indebtedness to NRG Energy. NRG Energy provided the Company with loans
during fiscal 1996 of which $101,679 was outstanding to NRG Energy at
June 30, 1996, $14,388 was outstanding at December 31, 1996 and $2,539
was outstanding at December 31, 1997.

NSC, a wholly-owned subsidiary of the Company, owns a one-third
partnership interest in the Grays Ferry Project currently under
construction. In March 1996, the partnership entered into a credit
agreement with The Chase Manhattan Bank N.A. to finance the project.
The credit agreement obligated each of the project's three partners to
make a $10,000 capital contribution prior to the commercial operation
of the facility. The Company made its required capital contribution in
1997, and the facility began commercial operations in January 1998.

NRG Energy entered into a loan commitment to provide NSC the
funding, if needed, for the NSC capital contribution obligation to the
Grays Ferry Partnership. Prior to December 31, 1997, NSC had borrowed
$10,000 from NRG Energy under this loan agreement, of which $1,900
remained outstanding to NRG Energy at December 31, 1997, and
contributed the proceeds to the Grays Ferry Partnership as part of the
above-referenced capital contribution. In connection with this loan
commitment for the Grays Ferry Project, the Company granted NRG Energy
the right to convert $3,000 of borrowings under the commitment into
396,255 shares of common stock of the Company. In October 1997, NRG
Energy exercised such conversion right in full.

In connection with its acquisition of the Morris Project, NRGG
Funding (a wholly-owned subsidiary of the Company) assumed all of the
obligations of NRG Energy to provide future equity

contributions to Morris LLC, which obligations are limited to the
lesser of 20% of the total project cost or $22.0 million. NRG Energy
has guaranteed to the Morris Project's lenders that NRGG Funding will
make these future equity contributions, and the Company has guaranteed
to NRG Energy the obligation of NRGG Funding to make these future
equity contributions. The Company intends to arrange financing for
either NRGG Funding or itself (the terms and manner of which have not
been determined by the Company) to fund the required future equity
contributions by NRGG Funding to Morris LLC. In addition, NRG Energy
is obligated under a Supplemental Loan Agreement between the Company,
NRGG Funding and NRG Energy to loan NRGG Funding and the Company (as co-
borrower) the full amount of such equity contributions by NRGG Funding,
all at NRGG Funding's option. Any such loan will be secured by a lien
on all of the membership interests of Morris LLC and will be recourse
to NRGG Funding and the Company.

On December 17, 1997, the Company entered into a credit agreement
providing for a $30,000 reducing revolving credit facility with a new
lender. The facility is secured by the assets and cash flows of the
Philadelphia PWD Project as well as the distributable cash flows of the
Newark and Parlin projects, and the Grays Ferry Partnership. On
December 19, 1997 the Company borrowed $25,000 under this facility.
The proceeds were used to repay $16,949 to NRG Energy, to repay $6,551
of obligations of the Philadelphia PWD Project and $1,500 for general
corporate purposes. The remaining $5,000 of the facility will become
available once security interests in the Philadelphia PWD Project are
perfected. The facility reduces by $2,500 on the first and second
anniversaries of the agreement and repayment of the outstanding balance
is due on the third anniversary of the agreement. Interest is based,
at the Company's option, on LIBOR plus a margin ranging from 1.50% to
1.875% or the prime rate plus a margin ranging from 0.75% to 1.125%.
The interest rate was 7.84% at December 31, 1997. The facility
provides for commitment fees of 0.375% on the unused facility.

The Company's principal credit agreements (including the NRGG
Newark and NRGG Parlin Credit Agreement) include cross-default
provisions that generally permit its lenders to accelerate the
indebtedness owed thereunder, to decline to make available any
additional amounts for borrowing thereunder, and to exercise certain
other remedies in respect of any collateral securing such indebtedness
in the event certain defaults or other adverse events occur under
certain other instruments or agreements (including financing and other
project documents) to which the Company or one or more of its
subsidiaries or other entities in which it owns an ownership interest
is a party. As a result, a default under one such other instrument or
agreement could have a material adverse effect on the Company by
causing one or more cross-defaults to occur under one or more of the
Company's principal credit agreements, potentially having one or more
of the effects set forth above and otherwise adversely affecting the
Company's liquidity and capital position.

The Grays Ferry Partnership has received a notice of default from
the agent for the lenders under its principal loan agreement. As of
the date of this Report, management believes that it is not in default
under any of its principal credit agreements as a result of the
asserted Grays Ferry default. However, either (i) the passage of time
under the current circumstances, or (ii) certain actions which may be
taken by the lenders to the Grays Ferry Partnership as a consequence of
the asserted Grays Ferry default, would result in a cross-default under
a $30,000 reducing revolving credit facility that the Company entered
into in December 1997 which is further described above. Such a cross-
default, if it were to occur, could result in further cross-defaults
under other credit agreements of the Company and its subsidiaries. The
Company has discussed the Grays Ferry situation with the lender under
the $30,000 reducing revolving credit facility and has obtained a
temporary waiver

of any cross-default under such facility which otherwise might
occur. However, there can be no assurance that the Company will be
successful continuing to obtain any such waiver if and when it may be
needed or in avoiding such cross-defaults. As a result, management
believes there exists a risk that the dispute between the Grays Ferry
Partnership and its electric power purchaser which caused the asserted
Grays Ferry default, if not promptly resolved in favor of the Grays
Ferry Partnership, will result in action by the lenders to the Grays
Ferry Partnership which could result in cross-defaults under one or
more of the Company's principal credit agreements. While the Grays
Ferry Partnership is actively pursuing a rapid and favorable resolution
of its dispute with the power purchaser, there can be no assurance that
the Grays Ferry Partnership will be successful in that regard. As a
result, there can be no assurance that the Grays Ferry default will not
result in cross-defaults which would have a material adverse effect on
the Company's liquidity and financial condition.

The Company's Board of Directors has decided not to liquidate the
Philadelphia PWD Project, which was identified in the Liquidating Asset
Management Agreement. As a result of this decision, Wexford received
compensation in accordance with the terms of the Liquidating Asset
Management Agreement in fiscal 1997.

Inflation

Due to the relatively low rate of inflation in recent years
management believes that inflation has not had a material impact on its
results of operations or financial condition.

Year 2000

The Year 2000 issue refers generally to the data structure problem
that will prevent systems from properly recognizing dates after the
year 1999. For example, computer programs and various types of
electronic equipment that process date information by reference to two
digits rather than four to define the applicable year may recognize a
date using "00" as the year 1900 rather than the year 2000. The Year
2000 problem could result in system failures or miscalculations causing
disruptions of operations. The Year 2000 problem may occur in computer
software programs, computer hardware systems and any device that relies
on a computer chip if that chip relies on date information. Based on a
preliminary study, the Company does not anticipate either a significant
amount of incremental expense or a disruption in service associated
with the Year 2000 and its impact on the Company's systems. However,
there can be no assurance that the Company's systems nor the systems of
other companies with whom the Company conducts business will be Year
2000 compliant prior to December 31, 1999 or that the failure of any
such system will not have a material adverse effect on the Company's
business, operating results and financial condition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The following Consolidated Financial Statements of the Company and
its subsidiaries and independent auditors' report thereon are included
as pages F-1 through F-24 immediately following the signature page of
this Annual Report on Form 10-K, and is incorporated herein by
reference:

Report of Independent Accountants F-1

Financial Statements:
Consolidated Balance Sheets as of December 31, 1997,
December 31, 1996 and June 30, 1996 F-2

Consolidated Statements of Operations for the
year ended December 31, 1997, the six months ended
December 31, 1996 and the years ended
June 30, 1996 and 1995 F-3

Consolidated Statements of Stockholders' Equity
(Deficit) for the year ended December 31, 1997,
the six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995 F-4

Consolidated Statements of Cash Flows for the year
Ended December 31, 1997, the six months ended
December 31, 1996 and the years ended June 30,
1996 and 1995 F-5

Notes to Consolidated Financial Statements F-6 through F-24

All other supplementary financial information has been omitted
because of the absence of the conditions under which it is required.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required for this item is incorporated by
reference to the Company's 1998 Definitive Proxy Statement which the
Company will file with the Securities and Exchange Commission no later
than 120 days subsequent to December 31, 1997.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K.
(a) Documents filed as part of this report.

1. Financial Statements

The following consolidated financial statements of the Company and
its Subsidiaries and report of independent auditors thereon are
included as Pages F-1 through F-24 immediately following the signature
page of this Annual Report on Form 10-K.

Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997, December 31,
1996 and June 30, 1996
Consolidated Statements of Operations for the year ended December
31, 1997, the six months ended December 31, 1996 and for the years
ended June 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficit) for the
year ended December 31, 1997, the six months ended December 31,
1996 and for the years ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the year ended December
31, 1997, the six months ended December 31, 1996 and for the years
ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements

2. Financial Statement Schedules

All schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
included in the financial statements or notes thereto.

3. Exhibits

The "Index to Exhibits" following the Consolidated Financial
Statements of the Company and its subsidiaries is incorporated herein
by reference.

(b) Reports on Form 8-K

The following reports on Form 8-K were filed during the last
quarter of the calendar year ended December 31, 1997:

1. Current Report on Form 8-K dated December 30, 1997 reporting
information under Items 2 and 7.

Signature

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

NRG GENERATING (U.S.) INC.

/s/ Timothy P. Hunstad
By: Timothy P. Hunstad
Title: Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the
dates indicated:

Signature Title Date

/s/ Robert T. Sherman President and March 30, 1998
By: Robert T. Sherman, Jr. Chief Executive Officer

/s/ Timothy P. Hunstad Vice President and March 30, 1998
By: Timothy P. Hunstad Chief Financial Officer
(Principal Accounting Officer)

/s/ David H. Peterson Chairman of the Board
of Directors March 30, 1998
By: David H. Peterson

/s/ Julie A. Jorgensen Director March 30, 1998
By: Julie A. Jorgensen

/s/ Lawrence I. Littman Director March 30, 1998
By: Lawrence I. Littman

/s/ Craig A. Mataczynski Director March 30, 1998
By: Craig A. Mataczynski

/s/ Spyros S. Skouras, Jr. Director March 30, 1998
By: Spyros S. Skouras, Jr.

/s/ Charles J. Thayer Director March 30, 1998
By: Charles J. Thayer

/s/ Ronald J. Will Director March 30, 1998
By: Ronald J. Will

NRG Generating (U.S.) Inc.
Consolidated Financial Statements
December 31, 1997

Report of Independent Accountants

To the Stockholders and Board of Directors
of NRG Generating (U.S.) Inc.

In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of
operations, of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the
financial position of NRG Generating (U.S.) Inc. and its
subsidiaries at December 31, 1997, December 31, 1996, and
June 30, 1996, and the results of their operations and
their cash flows for the year ended December 31, 1997,
the six months ended December 31, 1996, and the years
ended June 30, 1996 and 1995, in conformity with
generally accepted accounting principles. These
financial statements are the responsibility of the
company's management; our responsibility is to express an
opinion on these financial statements based on our
audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion
expressed above.

As discussed in Note 1 to the consolidated financial
statements, on April 30, 1996, the company, formerly
known as O'Brien Environmental Energy, Inc., was
reorganized and emerged from bankruptcy.

Price Waterhouse LLP
Minneapolis, Minnesota
March 30, 1998

F-1

NRG Generating (U.S.) Inc.
Consolidated Balance Sheets

(Dollars in thousands)
December 31, December 31, June 30,
1997 1996 1996

Assets
Current assets:
Cash and cash equivalents $ 3,444 $ 3,187 $ 5,022
Restricted cash and cash equivalents 8,527 8,174 8,719
Accounts receivable, net 11,099 11,920 11,627
Receivables from related parties 87 186 461
Notes receivable 27 1,119 1,029
Inventories 2,134 2,897 2,995
Other current assets 1,022 992 1,721
Total current assets 26,340 28,475 31,574

Property, plant and equipment, net 127,574 132,203 134,694
Projects under development 46,376 346 253
Equipment held for sale - 2,628 2,678
Notes receivable, noncurrent - 83 86
Investments in equity affiliates 13,381 3,653 3,449
Deferred financing costs, net 5,643 5,530 4,630
Deferred tax assets, net 7,996 - -
Other assets 584 706 798
Total assets $ 227,894 $ 173,624 $ 178,162

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of loans and payables due NRG Energy $ 2,864 $ 1,256 $ 5,485
Current portion of nonrecourse long-term 8,525 7,595 3,000
Current portion of recourse long-term debt 495 3,225 4,115
Short-term borrowings 1,313 2,388 1,793
Accounts payable 20,582 6,131 8,708
Prepetition liabilities 775 2,537 6,895
Other current liabilities 3,083 2,852 7,789
Total current liabilities 37,637 25,984 37,785

Loans due NRG Energy 4,439 14,388 96,929
Nonrecourse long-term debt 165,020 143,972 60,415
Recourse long-term debt 25,000 6,339 6,374
Deferred income taxes - 13,404 14,182
Other liabilities - 50 50
Total liabilities 232,096 204,137 215,735

Stockholders' equity (deficit):
Preferred stock, par value $.01, 20,000,000 shares
authorized; none issued or outstanding - - -
Common stock, par value $.01, 50,000,000 shares
authorized; 6,871,069, 6,474,814 and 6,474,814
shares, issued, 6,836,769, 6,440,514 and 6,422,014
shares outstanding, respectively 68 64 64
Additional paid-in capital 65,715 62,719 62,515
Accumulated deficit (69,592) (92,944) (99,367)
Other (393) (352) (785)
Total stockholders' equity (deficit) (4,202) (30,513) (37,573)
Total liabilities and stockholders' equity (deficit) $ 227,894 $ 173,624 $ 178,162

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

F-2

NRG Generating (U.S.) Inc.
Consolidated Statements of Operations

(Dollars in thousands)

Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995

Energy revenues $ 43,210 $ 21,669 $ 66,623 $ 74,455
Equipment sales and services 19,415 15,607 25,344 19,639
Rental revenues 2,179 1,062 1,895 2,362
Development fees and other - 1,578 2,685 5,791
64,804 39,916 96,547 102,247

Cost of energy revenues 14,841 7,229 45,663 46,694
Cost of equipment sales and services 17,037 12,365 22,153 17,622
Cost of rental revenues 1,817 834 1,406 2,357
Cost of development fees and other - 1,559 2,531 5,491
33,695 21,987 71,753 72,164

Gross profit 31,109 17,929 24,794 30,083

Selling, general and administrative
expenses 9,479 6,149 12,612 15,902
Provision for impaired assets 5,274 - 180 26,058

Income (loss) from operations 16,356 11,780 12,002 (11,877)

Interest and other income 1,310 413 569 2,587
Reorganization costs - - (12,101) (8,366)
Interest and debt expense (14,768) (7,681) (18,646) (20,583)

Income (loss) before income taxes 2,898 4,512 (18,176) (38,239)

Provision for income taxes (benefit)(20,454) (268) 2,680 (463)

Income (loss) before
extraordinary item 23,352 4,780 (17,713) (40,919)

Extraordinary item, net of
income taxes - 1,643 - -

Net income (loss) $ 23,352 $ 6,423 $(17,713) $(40,919)

Basic earnings (loss) per share:
Before extraordinary item $ 3.59 $ 0.75 $ (4.24) $ (11.02)
Extraordinary item - 0.25 - -
$ 3.59 $ 1.00 $ (4.24) $ (11.02)

Diluted earnings (loss) per share:
Before extraordinary item $ 3.48 $ 0.74 $ (4.24) $ (11.02)
Extraordinary item - 0.25 - -
$ 3.48 $ 0.99 $ (4.24) $ (11.02)

Weighted average shares
outstanding - Basic 6,511 6,430 4,182 3,712
Weighted average shares
outstanding - Diluted 6,725 6,463 4,182 3,712

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

F-3

NRG Generating (U.S.) Inc.
Consolidated Statements of Stockholders' Equity (Deficit)

(Dollars in thousands)
Class A Class B Additional Total
Common Common Common Preferred Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Capital Deficit Other Equity

Balance, June 30, 1994 $130 $39 $ - $ - $41,353 $(40,735) $ (651) $ 136
Currency translation
adjustment 25 25
Net loss (40,919) (40,919)
Balance, June 30, 1995 130 39 - - 41,353 (81,654) (626) (40,758)
Plan of reorganization:
Purchase of common stock by
NRG Energy 27 21,151 21,178
Exchange class A and B
common stock for new common
shares, retire treasury
shares (130) (39) 37 68 64 -
Issue preferred shares
to Wexford 49 4,908 4,957
Redemption of preferred
shares (49) (4,908) (4,957)
Preferred dividends (57) (57)
Currency translation
Adjustment (223) (223)
Net loss (17,713) (17,713)
Balance, June 30, 1996 - - 64 - 62,515 (99,367) (785) (37,573)

Payment received on
treasury stock resulting
from reorganization 105 105
Issue restricted stock 99 99
Currency translation
adjustment 433 433
Net income 6,423 6,423
Balance, December 31, 1996 - - 64 - 62,719 (92,944) (352) (30,513)

NRG Energy conversion
of stock option 4 2,996 3,000
Currency translation
Adjustment (41) (41)
Net income 23,352 23,352
Balance, December 31, 1997 $ - $ - $ 68 $ - $65,715 $(69,592) $ (393) $ (4,202)

F-4

NRG Generating (U.S.) Inc.
Consolidated Statements of Cash Flows

(Dollars in thousands) Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995

Cash flows from operating activities:
Net income (loss) $ 23,352 $ 6,423 $ (17,713) $ (40,919)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Extraordinary item, net of
income taxes - (1,643) - -
Depreciation and amortization 7,840 4,869 9,441 14,872
Deferred tax (benefit) expense (21,400) (778) (904) 2,278
Provision for impaired assets 5,274 - 180 26,058
Loss on disposition of property
and equipment 756 59 - -
Reserve for uncollectible note
receivable - - - 3,121
Bankruptcy professional fees accrued - - 432 4,415
Other, net (212) 148 (216) 709
Changes in operating assets and
liabilities:
Accounts receivable 772 (1,011) 730 (257)
Inventories 621 (13) 615 (369)
Receivables from related parties 97 275 223 (51)
Other assets 178 (277) - -
Accounts payable and other current
liabilities (289) (6,996) (838) 1,639
Net cash provided by (used in)
operating activities 16,989 1,056 (8,050) 11,496

Cash flows from investing activities:
Capital expenditures and project
development costs (5,858) (1,315) (1,783) (1,102)
Proceeds from sale of property
and equipment 552 104 - -
Proceeds from sale of subsidiaries
and projects - - 7,500 1,762
Investment in equity affiliates (10,000) - - -
Collections on notes receivable 1,175 10 816 824
Withdrawals from (deposits into)
restricted cash accounts - net (353) 545 (5,156) 1,032
Other, net - (120) 227 (676)
Net cash (used in) provided by
investing activities (14,484) (776) 1,604 1,840

Cash flows from financing activities:
Proceeds from long-term debt 24,582 95,000 60,226 5,711
Proceeds from NRG Energy loans 10,000 - 128,078 -
Repayments of NRG Energy loans (16,949) (86,035) (26,398) -
Repayments of long-term debt (16,857) (6,098) (92,816) (18,061)
NRG Energy capital contribution - - 21,178 -
Net (repayments) proceeds of
short-term borrowings (1,072) 595 193 (785)
Payments on prepetition liabilities (1,762) (4,660) (73,483) (1,799)
Deferred financing costs (190) (1,121) (4,579) -
Payment received on treasury stock
resulting from reorganization - 105 - -
Issuance of restricted stock - 99 - -
Redemption of and dividends on
preferred shares - - (5,014) -
Net cash (used in) provided
by financing activities (2,248) (2,115) 7,385 (14,934)
Net increase (decrease) in cash
and cash equivalents 257 (1,835) 939 (1,598)
Cash and cash equivalents at
beginning of year 3,187 5,022 4,083 5,681
Cash and cash equivalents at
end of year $ 3,444 $ 3,187 $ 5,022 $ 4,083

Supplemental disclosure of cash
flow information:
Interest paid $ 15,887 $ 12,472 $ 18,926 $ 11,869
Income taxes paid 1,477 495 110 -

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

F-5

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

1. Business - Liquidity, Capital Resources and Emergence from
Bankruptcy

NRG Generating (U.S.) Inc. and its subsidiaries ("NRGG" or the
"Company") develop and own cogeneration projects which produce
electricity and thermal energy for sale to industrial and commercial
users and public utilities. In addition, the Company sells and rents
power generation, cogeneration and standby/peak shaving equipment and
services.

On April 30, 1996, O'Brien Environmental Energy, Inc. ("OEE"), the
formerly named parent company, emerged from bankruptcy pursuant to a
plan (the "Plan") submitted by NRG Energy, Inc. ("NRG Energy"), the
O'Brien Official Committee of Equity Security Holders and Wexford
Management LLC ("Wexford") and approved by the U.S. Bankruptcy Court
for the District of New Jersey (the "Court"). The Plan awarded NRG
Energy the rights to acquire a 41.86% equity interest in the Company
and generally provided for full and immediate payment of all undisputed
prepetition liabilities and included a provision for post-petition
interest. The Company was renamed on the April 30, 1996 closing date
to NRG Generating (U.S.) Inc.

OEE filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code with the Court on September 28, 1994
to pursue financial restructuring efforts under the protection afforded
by the U.S. bankruptcy laws. The decision to seek Chapter 11 relief
was based on the conclusion that action had to be taken to preserve its
business relationships, restructure its debt and maintain the
operational strength and assets of the Company. The Company continued
its normal operations as Debtor-in-Possession during the bankruptcy
period but could not engage in transactions outside the ordinary course
of business without approval of the Court.

On April 30, 1996, NRG Energy funded approximately $107,418 in
accordance with the Plan and OEE's existing Class A and Class B common
stock was canceled and became exchangeable for 3,764,457 (58.14%)
shares of new common stock. The NRG Energy funding was comprised of:
$71,240 advanced under the terms of three loan agreements; $21,178 to
purchase 2,710,357 (41.86%) of new common stock; $7,500 for the
purchase of ten wholly-owned subsidiaries of OEE; and $7,500 deposited
with the Company's stock transfer agent representing a cash
distribution of approximately $0.44 per share by NRG Energy to OEE's
Class A and Class B common stockholders.

Also, on April 30 the Company issued 49,574 shares of series A, 13.5%
cumulative preferred stock to Wexford in satisfaction of $4,957 of
prepetition unsecured claims allowed by the Court. The preferred
shares were redeemed by the Company in May 1996 for $4,957 plus $57 in
dividends.

The funds received from NRG Energy were disbursed according to the
Plan's terms which generally provided for full payment (or
cure/reinstatement) of all undisputed prepetition liabilities including
the payment of post-petition interest on most prepetition obligations.
Additionally, disbursements were made to certain creditors of
subsidiary companies whose obligations were not included in prepetition
liabilities and for professional fees incurred during the bankruptcy
proceedings. Certain other bankruptcy claims filed with the Court
remain in dispute. An escrow fund has been established to fully
reserve for the remaining disputed claims submitted to the Court. Any
remaining escrow funds resulting from the Court disallowing any
disputed claims will be disbursed pro rata to all reinstated creditor
claimholders as additional post-petition interest.

F-6

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

In accordance with the Plan, on April 30, 1996 the Company and Wexford
entered into a Liquidating Asset Management Agreement whereby Wexford
agreed to assist the Company with the possible liquidation of certain
specified assets consisting of (a) the Company's engine generator
business, (b) the Philadelphia Cogeneration Project (the "Philadelphia
PWD Project"), (c) certain unused equipment, and (d) American
Hydrotherm Corporation and two other related subsidiaries. Under the
agreement, the Company's board of directors and officers direct and
control which assets will be liquidated and the extent of Wexford's
services. During 1996 and 1997, the unused equipment, American
Hydrotherm and the two other related subsidiaries were sold or
otherwise disposed. During 1997, the board of directors decided to
retain the Philadelphia PWD Project. The Company has determined that
its engine generator business is not a part of its strategic plan for
the future and is currently pursuing several avenues for the
disposition of this business. Management does not expect that the
disposition of this business will have a material effect on the
Company's financial position or results of operations. In accordance
with the agreement and as approved by the Court, the Company paid
Wexford $1,219, and $281 in compensation for services during the year
ended December 31, 1997 and six months ended December 31, 1996.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of all
majority-owned subsidiaries and all significant intercompany accounts
and transactions have been eliminated. Investments in companies,
partnerships and projects that are more than 20% but less than majority-
owned are accounted for by the equity method.

Effective July 1, 1996, the Company changed its year end from June 30
to December 31. The Company filed a transition report on Form 10-K for
the period July 1, to December 31, 1996. The periods presented in the
Company's consolidated statements of operations, stockholders' equity
(deficit) and of cash flows are for the twelve months ended December
31, 1997, the six months ended December 31, 1996 and the twelve months
ended June 30, 1996 and 1995. The twelve months ended June 30, 1996
and 1995 are sometimes referred to in these Notes to Consolidated
Financial Statements as fiscal 1996 and 1995.

Following are condensed results of operations for the twelve months
ended December 31, 1997 and 1996 (unaudited). Due to the
reorganization, results are not comparable.

Unaudited
Year Ended Year Ended
December 31, December 31,

1997 1996

Revenue $ 64,804 $ 85,562
Cost of revenues 33,695 59,491
Gross profit 31,109 26,071
Operating and other expenses 28,211 38,686
Income (loss) before income tax benefit 2,898 (12,615)
Income tax benefit (20,454) (757)
Income (loss) before extraordinary item 23,352 (11,858)
Extraordinary item - 1,643
Net income (loss) $ 23,352 $(10,215)

F-7

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.

Reorganization Costs and Prepetition Liabilities

Expenses incurred after filing bankruptcy related to the Company's
reorganization and restructuring efforts have been presented in the
consolidated statement of operations as reorganization costs.
Liabilities which remain subject to the bankruptcy proceeding are
classified on the balance sheet as prepetition liabilities and include
provisions for post-petition interest.

Revenue Recognition

Energy revenues from cogeneration projects are recognized as
electricity and steam are delivered. Revenue from sales and rental of
power generation equipment are recognized upon shipment or over the
term of the rental. Development fee revenue is generally recognized on
a cost recovery basis as cash is received (without future lending
provisions).

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.

Inventories

Inventories, consisting principally of power generation equipment and
related parts held for sale, are valued at the lower of cost
(determined primarily by the specific identification method) or market.

Property, Plant and Equipment

Property, plant and equipment, net of estimated salvage, is depreciated
using the straight-line method over the estimated useful lives of the
assets which range from five to thirty years. Amortization of
equipment acquired under capital leases is recognized on a straight
line basis over the shorter of the estimated asset life or lease term.

Cost of maintenance and repairs is charged to expense as incurred.
Betterments and improvements are capitalized.

F-8

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Project Development Costs

Project development costs consist of fees, licenses, permits, site
testing, bids and other charges, including employee costs, incurred
incidental to specific projects under development. Project development
costs are expensed in any period in which management determines the
costs to be unrecoverable.

Deferred Financing Costs

Financing costs are deferred and amortized on a straight-line basis
over the term of the related debt. Interest expense includes
amortization of $407, $199, $1,480 and $570 for the year ended December
31, 1997, the six months ended December 31, 1996 and the years ended
June 30, 1996 and 1995, respectively. Accumulated amortization was
$585, $410 and $180 at December 31, 1997, December 31, 1996 and June
30, 1996, respectively. Fiscal 1995 reorganization costs reported in
the consolidated statement of operations includes $3,387 to write-off
deferred financing costs due to Court-approved reductions in the
carrying value of certain prepetition subordinated debentures.

Nonrecourse Long-term Debt

Nonrecourse long-term debt consists of project financing for which the
repayment obligation is limited to specific project subsidiaries.

Income Taxes

The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109. SFAS No. 109 is an asset and
liability approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and tax basis of other assets
and liabilities. Valuation allowances are recorded when it is more
likely than not that a tax benefit will not be realized.

Interest Rate Swap Agreement

The Company has entered into an interest rate swap agreement to reduce
the impact of changes in interest rates on certain of its variable rate
long-term debt. The differentials paid or received under the swap
agreement are accrued and recorded as adjustments to interest expense.

Foreign Currency Translation

The accounts of foreign subsidiaries have been translated in accordance
with SFAS No. 52, whereby assets and liabilities are translated at
rates of exchange existing at the balance sheet date and revenues and
expenses are translated at the average rates of exchange for the
period.

F-9

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Concentration of Credit Risk

The Company primarily sells electricity and steam to public utilities
and corporations on the east coast of the United States under long-term
agreements. Also, the Company services, sells and rents equipment to
various entities worldwide. The Company performs on-going credit
evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses and such
losses have been within management's expectations.

Reclassifications

Certain reclassifications have been made to conform prior years' data
to the current presentation. These reclassifications had no impact on
previously reported net income or stockholders' deficit.

3. Restricted Cash and Cash Equivalents

Cash and cash equivalents that are not fully available for use in
operations are classified as restricted. Restricted cash and cash
equivalents relate primarily to debt service reserve accounts required
by the nonrecourse project debt for NRG Generating (Newark)
Cogeneration, Inc. ("Newark") and NRG Generating (Parlin) Cogeneration,
Inc. ("Parlin") and to bankruptcy escrow accounts.

Restricted cash and cash equivalents consist of the following:

December 31, December 31, June 30,
1997 1996 1996

Bankruptcy escrow accounts $ 770 $2,388 $8,490
Debt service reserve accounts 7,757 5,786 -
Other - - 229
$8,527 $8,174 $8,719

4. Property, Plant and Equipment

Property, plant and equipment consists of the following:

December 31, December 31, June 30,
1997 1996 1996

Plant and equipment $169,839 $171,035 $169,744
Furniture and fixtures 687 759 898
Land, buildings and improvements 1,528 1,538 1,972
Other equipment 37 44 378
$172,091 $173,376 $172,992
Accumulated depreciation and
amortization (44,517) (41,173) (38,298)
$127,574 $132,203 $134,694

Depreciation expense was $7,320, $3,626, $7,858, and $8,892 for the
year ended December 31, 1997, the six months ended December 31, 1996,
and the years ended June 30, 1996 and 1995, respectively.

F-10

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Plant and equipment relates primarily to the Newark and Parlin
cogeneration plants and the Philadelphia PWD Project standby facility.

The Newark project consists of a 52 MW cogeneration power plant in
Newark, New Jersey which commenced operations in November 1990 and is
supplying electricity and steam pursuant to 25-year supply contracts.

The Parlin project consists of a 122 MW cogeneration power plant in
Parlin, New Jersey which commenced operations on June 26, 1991 and is
supplying up to 114 MW of electricity pursuant to a 20-year electric
supply contract and steam pursuant to a 30-year supply contract.

Effective April 30, 1996, the Company renegotiated its power purchase
agreements with Jersey Central Power and Light ("JCP&L"), the primary
electricity purchaser from its Newark and Parlin projects. Under the
new amendments, JCP&L is responsible for all natural gas supply and
delivery. As a result, subsequent to the amendment, energy revenues
and cost of energy revenues exclude fuel supply and delivery costs.

The Newark project is a qualifying facility as defined in the Public
Utility Regulatory Policies Act of 1978.

Parlin relinquished its claim to qualifying facility status and filed
rates as a public utility under the Federal Power Act. However, Parlin
has been determined to be an exempt wholesale generator (EWG). The
Parlin project has also changed from a full base load operation to a
partial base load/partial dispatchable project.

The Philadelphia PWD Project is a 22 MW standby/peak shaving facility
in Philadelphia, Pennsylvania which commenced operations in May 1993
and is supplying electricity pursuant to a 20-year energy service
agreement. The Company owns an 83% interest in this project.

5. Morris Acquisition

In December 1997, NRGG Funding, Inc. ("NRGG Funding"), a wholly owned
subsidiary, acquired from NRG Energy the entire ownership interest in a
117 MW steam and electricity cogeneration project ("Morris LLC" or the
"Morris Project") under construction in Morris, Illinois. The purchase
price was $5 million, of which $4 million was previously paid by Morris
LLC from construction financing proceeds. Payment of the remaining $1
million, which is subject to certain contingencies, has been accrued at
December 31, 1997. Identifiable assets acquired were $46,480 which are
primarily included in the balance sheet caption "Projects Under
Development". Identifiable liabilities assumed were $46,480 consisting
of nonrecourse long-term debt of $29,855, accounts payables of $15,446
and payables to NRG Energy of $1,179.

The estimated total cost of the Morris project is $107,600 which is
being financed with project bank debt and future equity contributions.
NRGG Funding is obligated to make future equity contributions to Morris
LLC in an amount which is the lesser of 20% of the total project cost
or $22,000. The future equity contributions are guaranteed by the
Company and NRG Energy. In addition, NRG Energy has agreed to make
loans available to NRGG Funding and the Company to make the equity
contributions.

F-11

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

The Morris Project is scheduled to begin commercial operations in the
fourth quarter of 1998. Morris LLC has entered into an Energy Services
Agreement (the "ESA") with Equistar Chemicals LP ("Equistar") to supply
720,000 pounds of steam per hour and 78 MW of electricity for 25 years.
The Company will arrange for the sale of excess energy and non-firm
capacity to third parties.

Under the terms of the ESA, Equistar has the option to purchase the
project for the fair market value, as defined, at either the fifteenth
or twentieth anniversary of the commercial operation date.
Additionally, Equistar was granted a one-time option to purchase up to
a 10% membership interest in the project. On February 10, 1998,
Equistar gave notice of its intention to purchase a 5% passive
membership interest. Under terms of the proposed agreement, Equistar
would acquire a 5% passive interest in the project in exchange for the
obligation to assume 5% of the required equity contribution expected to
be approximately $1,100. The Company extended the option expiration
date to April 30, 1998, to close this transaction.

6. Investments in Equity Affiliates

Investments in equity affiliates consists of the following:

December 31, December 31, June 30,
1997 1996 1996

Grays Ferry (33% owned) $12,845 $2,659 $2,778
PoweRent Limited (50% owned) 536 994 671
$13,381 $3,653 $3,449

Grays Ferry

NRGG (Schuylkill) Cogeneration, Inc. ("NSC"), a wholly-owned
subsidiary, has a one-third partnership interest in the Grays Ferry
Cogeneration Partnership ("Grays Ferry"). The other partners are
affiliates of PECO Energy Company and Trigen Energy Corporation. Grays
Ferry has constructed a 150 MW cogeneration facility located in
Philadelphia which began commercial operations in January 1998. Grays
Ferry has a 25-year contract to supply all the steam produced by the
project to Trigen-Philadelphia Energy Corporation through January 8,
2023 and a 20-year contract to supply all of the electricity produced
by the project to PECO Energy Company through January 8, 2018. In
March 1998, PECO Energy Company asserted that, as a consequence of
certain regulatory developments, its power purchase agreement with
Grays Ferry was no longer effective. See Note 19. NSC's investment is
comprised of $10,000 equity contributed during 1997 pursuant to its
commitment under Grays Ferry's financing arrangements and development
costs incurred during formation and development of the project.

PoweRent Limited

PoweRent Limited ("PoweRent) is a 50% owned United Kingdom company that
sells and rents power generation equipment. The remaining 50% of
PoweRent is owned by a private investor. In 1997 the Company recorded
a charge of $500 to reduce the carrying value of its investment in
PoweRent (see Note 12).

F-12

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

7. Short-Term Borrowings

Short-term borrowings consist of amounts owed financial institutions
under lines of credit, primarily in the United Kingdom. At December
31, 1997, December 31, 1996 and June 30, 1996 the Company had aggregate
lines of credit of approximately $2,000, $2,400 and $1,800 of which
$1,313, $2,388 and $1,793 was outstanding, respectively. The weighted
average interest rate on short-term borrowings as of December 31, 1997,
December 31, 1996 and June 30, 1996 was approximately 10.0%, 9.9% and
9.1%, respectively.

8. Long-Term Debt

Long-term debt consists of the following:

December 31, December 31, June 30,
1997 1996 1996

Notes payable, due in monthly
installments of principal
plus interest at rates ranging
from 8.3% to 13.48% maturing
on various dates through 1999 $ 733 $ 8,610 $ 8,995
Capital lease obligations - 1,474 4,909
Revolving credit facility 25,000 - -
Morris Project financing (nonrecourse) 29,855 - -
Newark and Parlin financing
(nonrecourse) 143,452 151,047 60,000
199,040 161,131 73,904
Less amounts classified as current (9,020) (10,820) (7,115)
$190,020 $150,311 $66,789

Aggregate amounts of long-term debt maturing during each of the next
five years are $9,020, $9,848, $33,602, $11,322 and $11,945 in 1998,
1999, 2000, 2001 and 2002, respectively.

The Company's principal credit agreements; a revolving credit facility,
Morris Project financing and Newark and Parlin financing, include
cross-default provisions. As a result, a default under one such
instrument or agreement could have a material adverse effect on the
Company's liquidity and capital position. The Company was not in
default under any of its principal credit agreements at December 31,
1997. See note 19.

Revolving Credit Facility

On December 17, 1997, the Company entered into a $30,000, three-year
reducing, revolving credit facility agreement. At December 31, 1997,
$25,000 of the credit facility was utilized; the remaining $5,000 will
become available once security interests in the Philadelphia PWD
Project are perfected. The proceeds were used to repay $16,949 to NRG
Energy, $6,551 of obligations of the Philadelphia PWD Project and
$1,500 for general corporate purposes. The facility reduces by $2,500
on the first and second anniversaries of the agreement and repayment of
the outstanding balance is due on December 17, 2000. Interest is
based, at the Company's option, on LIBOR plus a margin ranging from
1.50% to 1.875% or the prime rate plus a margin ranging from 0.75% to
1.125%, based on the Company's debt service coverage ratio. The
interest rate resets based on the borrowing period selected, generally
one to six months, and was 7.84% at December 31, 1997. The facility
provides for commitment fees of 0.375% on the unused facility.
Borrowings are secured by the assets, capital stock and cash flows of
the Philadelphia PWD Project as well as the distributable cash flows of
Newark, Parlin and Grays Ferry as permitted by these projects' primary
lenders.

F-13

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

The revolving credit facility agreement specifies that the Company
maintain certain covenants with which the Company is in compliance at
December 31, 1997. The Company may under certain circumstances be
limited in its ability to make restricted payments, as defined, which
include dividends and certain purchases and investments, incur
additional indebtedness and engage in certain transactions.

Morris Project Financing

On September 15, 1997, Morris LLC entered into a $91,000 construction
and term loan agreement (the "Agreement") to provide nonrecourse
project financing for a major portion of the Morris Project. The
Agreement provides $85,600 of 20-month construction loan commitments
and $5,400 in letter of credit commitments (the "LOC Commitment").
Upon completion of the project, the Construction Loan is due and
payable or, if certain criteria are satisfied, may be converted to a
five year term loan based on a 25-year amortization with a balloon
payment at maturity. At December 31, 1997, $29,855 was outstanding
under the Construction Loan and no amounts were pledged under the LOC
Commitment. Interest on the Construction Loan is based, at the
Company's option, either on the base rate, as defined in the Agreement,
or LIBOR plus 0.75%. The interest rate resets based on the Company's
selection of the borrowing period ranging from one to six months. The
interest rate was 6.6875% at December 31, 1997. Borrowings are secured
by NRGG Funding's ownership interest in Morris LLC, cash flows,
dividends and any other property that NRGG Funding may be entitled to
as an owner in Morris LLC.

The Agreement specifies that the Company maintain certain covenants
with which the Company is in compliance at December 31, 1997. The
Company may under certain circumstances be limited in its ability to
make restricted payments, as defined, which include dividends and
certain purchases and investments, incur additional indebtedness and
engage in certain transactions.

Newark and Parlin Financing

On May 17, 1996, Newark and Parlin entered into a Credit Agreement (the
"Credit Agreement") with provisions for a $155,000 fifteen-year
nonrecourse term loan and a $5,000 five-year debt service reserve line
of credit. On May 23, 1996, Newark borrowed $60,000 in the form of a
temporary term loan under the Credit Agreement. On July 11, 1996, an
additional $95,000 was borrowed and the aggregate borrowings were
converted into a $155,000 fifteen-year nonrecourse term loan (the "Term
Loan") which is a joint and several liability of Newark and Parlin.
The Term Loan will be amortized as specified by the Credit Agreement.

The interest rate on the outstanding principal is variable based on, at
the Company's option, LIBOR plus a 1.125% margin or a defined base rate
plus a 0.375% margin. For any quarterly period where the debt service
coverage ratio is in excess of 1.4:1, both margins are reduced by
0.125%. The interest rate resets based on the borrowing period
selected, generally one to three months. The interest rate was 6.8125%
at December 31, 1997. Nominal margin increases for both the LIBOR and
the defined base rate will occur in year six and eleven of the Credit
Agreement. Upon entering into the Credit Agreement, Newark and Parlin
entered into an interest rate swap agreement which fixes the interest
rate on 50% of the principal amount outstanding under the Term Loan at
6.9% plus the margin in effect as described above.

F-14

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

No amounts were outstanding on the debt service reserve line of credit
at December 31, 1997 and 1996. The line carries a commitment fee of
1.125% on the undrawn amount. Newark and Parlin are required to
maintain debt service reserve accounts with the lender to provide for
future debt service, capital improvements and major maintenance. At
December 31, 1997, these balances totaled $7,757 and earned interest at
3.25%. These balances are recorded as restricted cash and cash
equivalents in the accompanying financial statements.

The Term Loan is secured by all Newark and Parlin assets and a pledge
of Newark's and Parlin's capital stock. NRGG has guaranteed repayment
of up to $25,000 of the Term Loan and also guaranteed payment by Newark
and Parlin of all income and franchise taxes when due. As an
inducement to obtain the $60,000 temporary term loan, effective May 23,
1996, NRG Energy guaranteed payment of pre-existing liabilities of
Newark and Parlin up to $5,000. The maximum guarantee is reduced as
certain defined milestones are reached and eliminated no later than
May 23, 2001. At December 31, 1997, the guarantee amount was $3,000.

The Credit Agreement specifies that the Company maintain certain
covenants with which the Company is in compliance at December 31, 1997.
The Company may under certain circumstances be limited in its ability
to make restricted payments, as defined, which include dividends and
certain purchases and investments, incur additional indebtedness and
engage in certain transactions.

9. Loans and Accounts Payables Due NRG Energy

Amounts owed to NRG Energy are comprised as follows:

December 31, December 31, June 30,
1997 1996 1996
Long-term debt:
Note due April 30, 2001 bearing
interest at 9.5% $ 2,539 $14,388 $101,679
Grays Ferry note due July 1, 2005
bearing interest at 10.75% 1,900 - -
4,439 14,388 101,679
Less current portion - - (4,750)
$ 4,439 $14,388 $ 96,929

Current maturities and accounts payable:
Current maturities $ - $ - $ 4,750
Morris LLC acquisition 1,000 - -
Accrued interest 821 648 735
Management services, operations
and other 1,043 608 -
$ 2,864 $ 1,256 $ 5,485

F-15

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

10. Stockholders' Equity

NRG Energy stock option

During 1997 NRG Energy made loans aggregating $10,000 to NSC to provide
funding for NSC's equity contribution obligation to Grays Ferry.
Pursuant to a stock option right approved by the Court and included in
the loan commitment agreement, in October 1997 NRG Energy converted
$3,000 of the borrowings into 396,255 shares of the Company's common
stock. Following exercise of the option, NRG Energy's ownership
interest in the Company increased to 45.21%.

Earnings per share

The Company has adopted SFAS No. 128, "Earnings Per Share", which
became effective for financial statements issued for periods ending
after December 15, 1997. SFAS No. 128 requires presentation of basic
and diluted earnings per share ("EPS") and restatement of EPS data for
all prior periods. Basic EPS includes no dilution and is computed by
dividing net income (loss) by the weighted average shares of common
stock outstanding. Diluted EPS is computed by dividing net income
(loss) by the weighted average shares of common stock and dilutive
common stock equivalents outstanding. The Company's dilutive common
stock equivalents result from stock options and are computed using the
treasury stock method. The following table reconciles the numerators
and denominators of the basic and diluted EPS computations for the year
ended December 31, 1997 and the six months ended December 31, 1996.
The dilutive stock options became outstanding subsequent to June 30,
1996. Accordingly, there was no difference in basic and diluted EPS for
the years ended June 30, 1996 and 1995.

Year ended Six months ended
December 31, 1997 December 31, 1996
Income Shares Income Shares
(Numerator)(Denominator) EPS (Numerator)(Denominator) EPS

Income before
extraordinary item:
Basic EPS $23,352 6,511 $3.59 $4,780 6,430 $0.75
Effect of
dilutive
stock options 33 214 - 33
Diluted EPS $23,385 6,725 $3.48 $4,780 6,463 $0.74

Stock options

The Company has reserved 750,000 shares of common stock for issuance
under its 1996 and 1997 stock option plans. The plans provide for
nonqualified and incentive stock options to be granted to directors,
officers, and key employees at an exercise price not less than the fair
market value of the common stock at the date of grant. An option will
generally expire ten years after the date it is granted and will
ordinarily become exercisable as to one third of the shares subject to
the option on each of the first three anniversaries of the grant.
Following a "change of control" all options granted under the stock
option plans may become immediately exercisable.

F-16

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Option transactions under these plans are summarized as follows:

Weighted Average
Number of Shares Option Price

Outstanding at June 30, 1996 -
Granted 399,000 $5.46
Outstanding at December 31, 1996 399,000 5.46
Granted 305,000 13.19
Canceled (75,000) 5.44
Outstanding at December 31, 1997 629,000 $9.21

The following table summarizes the stock options outstanding and
exercisable at December 31, 1997:

Outstanding Exercisable
Weighted-Average
Exercise Number of Contractual Life Weighted-Average Number of Weighted-Average
Price Range Options Remaining Exercise Price Options Exercise Price

$5.44-$6.58 324,000 8.8 years $ 5.47 108,000 $ 5.47
$11.58-$16.47 305,000 9.5 years $13.19 - -
629,000 9.1 years $ 9.21 108,000 $ 5.47

The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plans. Had
the Company's compensation costs been determined based on the fair
value of the awards at the option grant dates consistent with the
accounting provisions of SFAS 123 "Accounting for Stock Based
Compensation," the Company's net income and EPS for the year ended
December 31, 1997 and six months ended December 31, 1996 would have
been adjusted to the pro-forma amounts indicated below:

Year Ended Six Months Ended
December 31, 1997 December 31, 1996
Net Income
As reported $23,352 $6,423
Pro-forma $22,695 $6,362

EPS (Diluted)
As reported $ 3.48 $ 0.99
Pro-forma $ 3.38 $ 0.98

The estimated weighted average fair value of stock options granted
during the year ended December 31, 1997 and the six months ended
December 31, 1996 was $6.24 and $2.30 per option, respectively. The
fair values were estimated on the grant dates utilizing the Black-
Scholes option-pricing model and the following assumptions:

F-17

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Year Ended Six Months Ended
December 31, 1997 December 31, 1996
Risk free interest rates 6.2 - 6.6% 5.8 - 6.1%
Expected life 6 years 6 years
Expected volatility 36.7% 30.0%
Expected dividends - -

Restrictions on retained earnings

As a holding company, the Company's ability to pay any dividends in the
future will depend largely on the ability of its operating subsidiaries
and project entities to pay cash dividends or other cash distributions,
which dividends or other cash distributions may be materially limited
by the terms of credit agreements or other material contracts to which
such operating subsidiaries or project entities may be parties.

11. Extraordinary Item

During the six months ended December 31, 1996, the Company negotiated a
buyout of a subsidiary's capital lease obligation resulting in an
extraordinary gain of $1,643 (net of $124 of state income taxes).

12. Provision for Impaired Assets

In the fourth quarter of 1997, the Company completed a thorough review
of its business operations and market opportunities. As a result of
this review, the Company concluded that the estimated future cash flows
to be generated by certain assets were not sufficient to recover their
carrying values. Accordingly, the Company recorded an impairment
provision of $5,274 for such assets. The provision consisted of
property, plant and equipment write downs of $2,778 primarily related
to the generator sales and services business, $1,553 for equipment held
for sale, $500 to reduce the carrying value of the equity investment in
PoweRent, $371 to expense project development costs and $72 for other
impairments. The property plant and equipment and PoweRent provisions
reduced the asset carrying values to estimated fair values determined
by management and the board of directors based on prices of similar
assets and various valuation techniques. The equipment held for sale
provision represents the write off of remaining equipment which is
being scrapped. The project development write off was necessary due to
abandonment of certain projects.

During fiscal 1996 unrecoverable project development costs of $180 were
written off. In fiscal 1995, based on independent market appraisals,
the Company recorded charges of $15,985 to write-down property, plant
and equipment and $5,655 to write-down equipment held for sale to lower
fair values. In addition, project development costs of $4,418
determined to be unrecoverable were written off.

13. Disclosures about Fair Value of Financial Instruments

At December 31, 1997 and December 31, 1996, the carrying amounts and
fair values of the Company's financial instruments are as follows:

F-18

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and cash equivalents $ 3,444 $ 3,444 $ 3,187 $ 3,187
Restricted cash and cash
equivalents 8,527 8,527 8,174 8,174
Notes receivable 27 27 1,202 1,202

Liabilities:
Short-term borrowings 1,313 1,313 2,388 2,388
Long-term debt 199,040 199,040 161,131 161,131
Loans and payables due
NRG Energy 7,303 7,303 15,644 15,644
Interest rate swap - 2,691 - 1,439

The carrying amounts of cash and cash equivalents, restricted cash and
cash equivalents and notes receivable approximates the fair value of
those instruments due to their short maturity. The fair value of short-
term and long-term debt and amounts due NRG Energy are estimated based
on interest rates available to the Company for issuance of debt with
similar terms and remaining maturities. The fair value of the interest
rate swap is the estimated amount that the Company would pay to
terminate the interest rate swap agreement at the reporting date.

Fair value estimates are made at a specific point in time based on
relevant market information about the financial instruments. The
estimated fair values of financial instruments presented are not
necessarily indicative of the amounts the Company might realize in
actual market transactions.

14. Income Taxes

Income (loss) before income taxes and extraordinary item consists of
the following:

Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995

United States $ 2,758 $ 4,195 $(18,054) $(38,225)
Foreign 140 317 (122) (14)
$ 2,898 $ 4,512 $(18,176) $(38,239)

The income tax provision (benefit) consists of:

Current income taxes:
Federal $ - $ 803 $ - $ -
State 946 570 792 402
946 1,373 792 402
Deferred income taxes:
Federal (20,400) (2,292) (493) 912
State (1,000) 651 (762) 1,366
(21,400) (1,641) (1,255) 2,278
Income tax provision (benefit)
excluding extraordinary
item $(20,454) $ (268) $ (463) $ 2,680

F-19

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Deferred income taxes arise from temporary differences between the tax
bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are
comprised of the following:

December 31, December 31, June 30,
1997 1996 1996
Deferred income tax liabilities:
Property, plant & equipment $(18,925) $(18,445) $(18,109)
Total deferred tax liabilities (18,925) (18,445) (18,109)

Deferred income tax assets:
Net operating loss carryforwards 27,525 26,502 28,219
Alternative minimum tax credits 159 183 84
Investment tax credits 1,427 1,622 1,622
Miscellaneous 5,040 5,571 5,521
Valuation allowance (7,230) (28,837) (31,519)
Total deferred tax assets 26,921 5,041 3,927
Net deferred tax assets
(liabilities) $ 7,996 $(13,404) $(14,182)

The difference between tax expense (benefit) calculated at the U.S.
federal statutory tax rate and the recorded tax expense (benefit) on
pre-tax income before extraordinary item is reconciled below:

Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995

Income tax (benefit) on the amount
of Federal statutory rate $ 985 $ 1,534 $ (6,180) $(13,001)
State income taxes (benefit) (36) 806 252 (286)
Current benefit of state operating
loss carryforwards (353) (655) (232) -
Operating losses with
no current tax benefit 1,182 - 3,204 2,272
Other increase (decrease)
in valuation allowance (22,232) (1,630) (544) 6,233
Excess liabilities - - - 4,000
Reorganization costs - - 2,636 1,712
Other - (323) 401 1,750
Total income tax provision
(benefit) $ (20,454) $ (268) $ (463) $ 2,680

F-20

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

At December 31, 1997, the Company has federal net operating loss
carryforwards available to offset future regular taxable income and
investment tax credit carryforwards available to offset future federal
income taxes payable. These carryforwards expire as follows:

Net Operating Loss Investment Tax
December 31, Carryforwards Credit Carryforwards

1998 $ - $ 255
1999 - 240
2000 - 409
2001 353 82
2002 3,725 174
2003 1,720 52
2004 4,968 215
2005 13,089 -
2006 4,545 -
2007 15,089 -
2008 10,682 -
2009 6,358 -
2010 9,031 -
2011 - -
2012 1,695 -
Total $71,255 $1,427

The Company has $48,719 of state and local net operating loss
carryforwards available to offset future state and local taxable
income. These carryforwards will expire starting in 1998 and will
continue to expire through 2012. The Company also has foreign net
operating loss carryforwards of approximately $1,500. The net
operating loss carryforwards for alternative minimum tax purposes are
approximately $35,363 at December 31, 1997.

A valuation allowance was recorded in prior years to reserve primarily
for deferred tax assets that were not expected to be recovered through
future reversal of existing temporary differences. In management's
judgment, realization of the reserved tax benefits did not meet the
"more likely than not" recognition criteria of SFAS No. 109 due to the
Company's history of operating losses and projections of future taxable
income. At December 31, 1997, the valuation allowance was reduced to
$7,230 based on management's evaluation of the weight of available
evidence about the likelihood of realizing the deferred tax assets.
Positive factors contributing to the decision to reduce the valuation
allowance included the sustained period of profitability since
emergence from bankruptcy and improved outlooks for future earnings.
The remaining valuation allowance at December 31, 1997 reserves a
portion of the state operating loss carryforwards and certain other
temporary differences and all of the investment tax credit, capital
loss, and foreign operating loss carryforwards.

Under the Plan, NRG Energy acquired a 41.86% equity interest in the
Company. This acquisition, along with other shifts in shareholders'
stock holdings, amounted to a more than 50% change in ownership in the
Company over a three year period. Under the general net operating loss
and tax credit carryover rules, utilization of these losses and tax
credits would be limited. However, the Internal Revenue Code provides
an exception to the general rules for loss corporations that undergo an

F-21

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

ownership change by reason of certain bankruptcy proceedings. The
Company believes it qualifies for the bankruptcy exception and its net
operating loss and tax credit carryforwards are not subject to the
change of ownership limitations. The bankruptcy exception rules also
provide that if a subsequent ownership change should occur within the
two years following the bankruptcy-protected change, the benefits of
the bankruptcy exception will be lost and the Company's net operating
loss and tax credit carryforwards will be effectively eliminated. As
of December 31, 1997, the Company has not undergone a subsequent
ownership change in the two year period following the bankruptcy
protected change.

15. Transactions with Related Parties

NRG Energy provides management, administrative, operation and
maintenance services and certain other services to the Company.
Interest expense related to loans from NRG Energy was $1,327, $648 and
$1,098, for the year ended December 31, 1997, the six months ended
December 31, 1996 and for fiscal 1996. Selling, general and
administrative expenses include $562, $479 and $129 for reimbursement
of services provided by NRG Energy under the terms of a management
services agreement for the year ended December 31, 1997, the six months
ended December 31, 1996 and for the year ended June 30, 1996.

Effective January 1, 1997, Power Operation, Inc., a wholly-owned
subsidiary of the Company providing operations and maintenance for the
Newark and Parlin facilities under long-term contracts, was sold to NRG
Energy. The amount expensed by the Company for these services was $350
in 1997.

The Parlin project sells up to 9 MW of power to NRG Parlin, Inc.
("NPI"), a wholly-owned subsidiary of NRG Energy. NPI resells this
power at retail to a customer of the Company under an agreement
extending until 2021. Total sales to NPI were $1,300 in 1997.

NRG Energy is the project manager of the Morris Project acquired in
December 1997 by the Company from NRG Energy.

16. Segment Information and Major Customers

The Company operates principally in two industry segments. The energy
segment consists of the development and ownership of cogeneration and
standby/peak shaving projects. The equipment sales, rental and
services segment consists of the selling and renting of power
generation, cogeneration and standby/peak shaving equipment and
services. Information with respect to these business segments is as
follows:
Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995
Revenues:
Energy $ 43,210 $ 23,247 $ 69,308 $ 80,246
Equipment sales, rental
and services 21,594 16,669 27,239 22,001
$ 64,804 $ 39,916 $ 96,547 $102,247

Identifiable assets:
Energy $195,027 $141,890 $142,390 $164,243
Equipment sales, rental
and services 8,332 16,170 21,342 22,866
Corporate assets 24,535 15,564 14,430 2,639
$227,894 $173,624 $178,162 $189,748

F-22

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995
Operating income (loss):
Energy $ 24,984 $ 12,136 $ 16,785 $ 19,642
Equipment sales, rental
and services (2,020) 1,018 (754) (20,265)
General corporate expenses (6,608) (1,374) (4,029) (11,254)
$ 16,356 $ 11,780 $ 12,002 $(11,877)
Depreciation expense:
Energy $ 6,788 $ 3,272 $ 7,025 $ 7,152
Equipment sales, rental
and services 498 333 756 1,494
Not allocable 34 21 77 246
$ 7,320 $ 3,626 $ 7,858 $ 8,892
Capital expenditures:
Energy $ 5,115 $ 1,189 $ 273 $ 457
Equipment sales, rental
and services 432 31 7 161
Not allocable 168 2 19 126
$ 5,715 $ 1,222 $ 299 $ 744

Revenue by segment consists of sales to unaffiliated customers;
intersegment sales are not significant. For the purpose of this
presentation, development and other fees are considered revenues of the
energy segment. Selling, general and administrative expenses have been
allocated to the individual segments on the basis of segment revenues
and geographical location.

Identifiable assets are those assets that are used in the operations of
each business segment. Corporate assets are those not used in the
operations of a specific segment and consist primarily of cash,
deferred financing costs and deferred taxes.

Information with respect to the Company's geographical areas of
business is as follows:

Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30, June 30,
1997 1996 1996 1995
Revenues:
United States $ 51,504 $ 27,937 $ 82,917 $ 89,332
United Kingdom 13,300 11,979 13,630 12,915
$ 64,804 $ 39,916 $ 96,547 $102,247
Net income (loss):
United States $ 23,236 $ 6,087 $(17,591) $(40,905)
United Kingdom 116 336 (122) (14)
$ 23,352 $ 6,423 $(17,713) $(40,919)
Identifiable assets:
United States $221,752 $164,631 $169,657 $179,793
United Kingdom 6,142 8,993 8,505 9,955
$227,894 $173,624 $178,162 $189,748

F-23

NRG Generating (U.S.) Inc.
Notes to Consolidated Financial Statements

(Dollars in thousands)

Revenues from one energy customer accounted for 57%, 46%, 62% and 65%
for the year ended December 31, 1997, the six months ended December 31,
1996, and the years ended June 30, 1996 and 1995, respectively.

17. Operating Leases

Total rental expense under various operating leases was approximately
$178, $504, $804 and $1,300 for the year ended December 31, 1997, the
six months ended December 31, 1996, and the years ended June 30, 1996
and 1995, respectively.

18. Minority Interest

O'Brien (Philadelphia) Cogeneration ("OPC"), a subsidiary of the
Company, is 17% owned by an unrelated private investor. OPC is
required to make quarterly distributions to the minority owner of 17%
of its net earnings. These distributions totaled $244, $125 and $227
for the year ended December 31, 1997, the six months ended December 31,
1996, and fiscal 1996, respectively, and are recorded as interest
expense in the consolidated statement of operations. The 17% minority
interest is redeemable by the Company at its option for a price equal
to 17% of the present value of the projected income stream of OPC. The
Company is obligated upon certain events of default to redeem the
minority interest at 60% of the Company's redemption price. The
Company's redemption price at December 31, 1997 was approximately
$2,315. There are no events of default.

19. Subsequent Event

On March 9, 1998, the Company announced that it had received notice
from PECO Energy ("PECO"), the purchaser of electric power from Grays
Ferry Cogeneration Partnership, that PECO believed that its power
purchase agreements with the partnership relating to the Grays Ferry
project were no longer in effect and that PECO refused to pay the
electricity rates set forth in the agreements. The Company has filed
a lawsuit against PECO and the Pennsylvania Public Utility Commission
seeking to prevent PECO from terminating its power purchase agreements
with the Grays Ferry Cogeneration Partnership, to compel PECO to pay
the electricity rates set forth in the agreements, and to compel the
Pennsylvania Public Commission to allow the costs of the power purchase
agreements to be recovered in retail electric rates. The Company is
uncertain as to what the outcome of this matter will be or what effect
it will have on the business or financial condition of the Company.

The Grays Ferry Cogeneration Partnership has received a notice of
default from the agent for the lenders under its principal loan
agreement. As of the date of this Report, management believes that it
is not in default under any of its principal credit agreements as a
result of the asserted Grays Ferry default. However, either (i) the
passage of time under the current circumstances, or (ii) certain
actions which may be taken by the lenders to the Grays Ferry Partnership
as a consequence of the asserted Grays Ferry default, would result in a
cross-default under a $30,000 reducing revolving credit facility that
the Company entered into in December 1997. Such a cross-default, if it
were to occur, could result in further cross-defaults under other
credit agreements of the Company and its subsidiaries. The Company has
obtained a temporary waiver of any cross-default under the
$30,000 reducing revolving credit facility. However, there can be no
assurance that the Company will be successful continuing to obtain any
such waiver if and when it may be needed or in avoiding such cross-
defaults. As a result, there can be no assurance that the Grays Ferry
default will not result in cross-defaults which would have a material
adverse effect on the Company's liquidity and financial condition.

F-24

Index to Exhibits

Exhibit
No. Description
2.1 Composite Fourth Amended and Restated Plan of Reorganization
for the Company dated January 31, 1996 and proposed by the
Company, the Official Committee of Equity Security Holders,
Wexford Management Corp. ("Wexford") and NRG Energy, Inc.
("NRG Energy") filed as Exhibit 2.1 to Amendment No. 1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

2.2 Order confirming Composite Fourth Amended and Restated Plan
of Reorganization for the Company proposed by the Company,
the Official Committee of Equity Security Holders, Wexford
and NRG Energy dated February 13, 1996 and entered on
February 22, 1996 and filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated February 13, 1996 and
incorporated herein by this reference.

2.3 Amended and Restated Stock Purchase and Reorganization
Agreement dated January 31, 1996 between the Company and NRG
Energy filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K dated February 13, 1996 and incorporated herein
by this reference.

2.4 Letter Agreement dated April 26, 1996 between the Company and
NRG Energy amending the Stock Purchase and Reorganization
Agreement filed as Exhibit 2.4 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

3.1 Amended and Restated Certificate of Incorporation of the
Company filed as Exhibit 3.1 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

3.2 Preferred Stock Certificate of Designation of the Company
filed as Exhibit 3.3 to the Company's Current Report on Form
8-K dated April 30, 1996 and incorporated herein by this
reference.

3.3 Restated Bylaws of the Company.

10.1 Co-Investment Agreement dated April 30, 1996 between the
Company and NRG Energy filed as Exhibit 10.1 to Amendment No.
1 to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by this
reference.

10.2.1 Chapter 11 Financing Agreement dated August 30, 1995 between
the Company and NRG Energy filed as Exhibit 10.2.1 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.2.2 Letter Agreement dated February 20, 1996 between the Company
and NRG Energy amending the Chapter 11 Financing Agreement
filed as Exhibit 10.2.2 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1996 and incorporated herein by this reference.

10.2.3 Letter Agreement dated April 30, 1996 between the Company and
NRG Energy further amending the Chapter 11 Financing
Agreement filed as Exhibit 10.2.3 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.3 Liquidating Asset Management Agreement dated April 30, 1996
between the Company and Wexford filed as Exhibit 10.3 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.4 Management Services Agreement dated as of January 31, 1996
between the Company and NRG Energy filed as Exhibit 10.4 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.5.1 Loan Agreement dated April 30, 1996 between the Company and
NRG Energy filed as Exhibit 10.5.1 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.5.2 Note dated April 30, 1996 from the Company to NRG Energy in
the principal amount of $45,000,000 filed as Exhibit 10.5.2
to Amendment No. 1 to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.6.1 Supplemental Loan Agreement dated April 30, 1996 between NRG
Energy and the Company filed as Exhibit 10.6.1 to Amendment
No. 1 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996 and incorporated herein by
this reference.

10.6.2 Note dated April 30, 1996 from the Company to NRG Energy in
the principal amount of $15,855,545.25 filed as Exhibit
10.6.2 to Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.7.1 NRG Newark Cogen Loan Agreement dated April 30, 1996 between
NRG Energy and the Company filed as Exhibit 10.7.1 to
Amendment No. 2 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.7.2 Note dated April 30, 1996 from the Company to NRG Energy in
the principal amount of $24,000,000 filed as Exhibit 10.7.2
to Amendment No. 1 to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.8.1 Credit Agreement dated May 17, 1996 between NRG Generating
(Newark) Cogeneration Inc. ("NRGG Newark"), NRG Generating
(Parlin) Cogeneration Inc. ("NRGG Parlin"), Credit Suisse,
Greenwich Funding Corporation and any Purchasing lender, as
Lenders thereunder filed as Exhibit 10.8.1 to Amendment No. 1
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by this
reference.

10.8.2 Amendment No. 1 to the Credit Agreement dated June 28, 1996
between NRG Generating (Newark) Inc., NRG Generating (Newark)
Inc. and Credit Suisse, Greenwich Funding Corporation and any
Purchase Lender (as defined therein) filed as Exhibit 10.8.2
to Amendment No. 1 to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.8.3 Stock Pledge Agreement dated June 28, 1996 between the
Company as Pledgor and

Credit Suisse filed as Exhibit 10.8.3 to Amendment No. 1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.8.4 Guaranty dated as of May 17, 1996 by NRG Energy, as
Guarantor, to Credit Suisse, as Agent for the benefit of
Credit Suisse, Greenwich Funding Corporation and any
Purchasing Lender, as Lenders under the Credit Agreement (as
defined therein) filed as Exhibit 10.8.4 to Amendment No. 1
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by this
reference.

10.8.5 Guaranty dated as of June 28, 1996 by the Company as
Guarantor to Credit Suisse as Agent for the benefit of Credit
Suisse, Greenwich Funding Corporation and any Purchasing
Lender, as Lenders under the Credit Agreement (as defined
therein) filed as Exhibit 10.8.5 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.8.6 Tax Indemnification Agreement dated June 28, 1996 between the
Company, NRGG Newark, NRGG Parlin and Credit Suisse filed as
Exhibit 10.8.6 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.8.7 Assignment and Security Agreement dated June 28, 1996 between
NRGG Parlin and Credit Suisse filed as Exhibit 10.8.7 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.8.8 Amended and Restated Leasehold Mortgage, Assignment of Leases
and Rents and Security Agreement dated June 28, 1996 between
NRGG Newark and Credit Suisse filed as Exhibit 10.8.8 to
Amendment No. 2 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.8.9 Leasehold Mortgage, Assignment of Leases and Rents and
Security Agreement dated June 28, 1996 between NRGG Parlin
and Credit Suisse filed as Exhibit 10.8.9 to Amendment No. 2
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by this
reference.

10.8.10 Interest Rate Swap Agreement dated August 2, 1996 between
NRGG Newark, NRGG Parlin and Credit Suisse filed as Exhibit
10.8.10 to Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.9.1 Loan Agreement dated March 8, 1996 between O'Brien
(Schuylkill) Cogeneration Inc. and NRG Energy in connection
with the Grays Ferry Partnership filed as Exhibit 10.9.1 to
Amendment No. 2 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.9.2 Option Agreement dated May 1, 1996 between O'Brien
(Schuylkill) Cogeneration Inc. and NRG Energy filed as
Exhibit 10.9.2 to Amendment No. 2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.10.1 Gas Supply Agreement dated June 30, 1992 between the Company
and The

Philadelphia Municipal Authority (the "PMA") regarding the NE
Plant (Philadelphia Project) and filed as an exhibit to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992 and incorporated herein by this
reference.

10.10.2 Gas Supply Agreement dated June 30, 1992 between the Company
and the PMA regarding the SW Plant (Philadelphia Project) and
filed as an exhibit to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1992 and incorporated
herein by this reference.

10.10.3 Energy Service Agreement dated June 30, 1992 between the
Company and the PMA regarding the NE Plant (Philadelphia
Project) and filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1992
and incorporated herein by this reference.

10.10.4 Energy Service Agreement dated June 30, 1992 between the
Company and the PMA regarding the SW Plant (Philadelphia
Project) and filed as an exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1992
and incorporated herein by this reference.

10.10.5 Stock Purchase Agreement dated November 12, 1993 between the
Company, OPC Acquisition, Inc. and BioGas Acquisition, Inc.
and filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993 and
incorporated herein by this reference.

10.10.6 Loan Agreement between the Company and PECO Energy Company
("PECO") filed as Exhibit 10.10.6 to Amendment No. 2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.11.1 Long Term Power Purchase Contract for Cogeneration and Small
Power Production dated March 10, 1986 between the Company and
Jersey Central Power and Light ("JCP&L") and filed as an
exhibit to the Company's Registration Statement (File No. 33-
11789) and incorporated herein by this reference.

10.11.2 Letter Agreement dated June 2, 1986 between the Company and
JCP&L amending the Long Term Power Purchase Contract filed as
Exhibit 10.11.2 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.11.3 Second Amendment to Power Purchase Agreement dated March 1,
1988 between the Company and JCP&L filed as Exhibit 10.11.3
to Amendment No. 1 to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.11.4 Letter Agreement dated April 30, 1996 between O'Brien
(Newark) Cogeneration, O'Brien (Parlin) Cogeneration and
JCP&L filed as Exhibit 10.11.4 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.11.5 Third Amendment to Power Purchase Agreement dated April 30,
1996 between O'Brien (Newark) Cogeneration and JCP&L filed as
Exhibit 10.11.5 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.12 Transmission Service and Interconnection Agreement dated
November 17, 1987

between O'Brien Energy Systems, Inc. and Public Service
Electric and Gas Company filed as Exhibit 10.14 to Amendment
No. 2 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996 and incorporated herein by
this reference.

10.13.1 Steam Purchase Agreement dated October 3, 1986 between
O'Brien Cogeneration IV, Inc. and Newark Boxboard Co. filed
as Exhibit 10.15.1 to Amendment No. 2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.13.2 Amendment to Steam Purchase Agreement dated March 15, 1988
between O'Brien Cogeneration IV, Inc. and Newark Boxboard Co
filed as Exhibit 10.15.2 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1996 and incorporated herein by this reference.

10.13.3 Amendment to Steam Purchase Agreement dated July 18, 1988
between O'Brien (Newark) Cogeneration, Inc. and Newark Group
Industries, Inc. filed as Exhibit 10.15.3 to Amendment No. 1
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by this
reference.

10.14.1 Operating and Maintenance Agreement dated May 1, 1996 between
NRGG Newark and Stewart & Stevenson Operations, Inc. filed as
Exhibit 10.16.1 to Amendment No. 2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.14.2 Letter Agreement dated May 10, 1996 between the Company and
Stewart & Stevenson Operations, Inc. filed as Exhibit 10.16.2
to Amendment No. 2 to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.14.3 Letter Agreement dated May 20, 1996 between NRG Generating
(Newark) Cogeneration and Stewart & Stevenson Operations,
Inc. filed as Exhibit 10.16.3 to Amendment No. 2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.15.1 Agreement for Purchase and Sale of Electric Power dated
October 20. 1986 between the Company and JCP&L and filed as
an exhibit to the Company's Registration Statement (File No.
33-11789) and incorporated herein by this reference.

10.15.2 First Amendment to Agreement for Purchase and Sale Electric
Power dated June 11, 1991 between the Company and JCP&L filed
as Exhibit 10.17.2 to Amendment No. 2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.15.3 Amended and Restated Agreement for Purchase and Sale of
Electric Power dated April 30, 1996 between O'Brien (Parlin)
Cogeneration, Inc. and JCP&L filed as Exhibit 10.17.3 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.15.4 Letter Agreement dated April 30, 1996 between O'Brien
(Parlin) Cogeneration, Inc. and JCP&L filed as Exhibit
10.17.4 to Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.16.1 Steam Purchase Contract dated December 8, 1986 between the
Company and E.I. du Pont de Nemours("E.I. du Pont") and
Company filed as Exhibit 10.20.1 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.16.2 Amendment No. 1 to Steam Purchase Contract dated January 12,
1988 between the Company and E.I. du Pont filed as Exhibit
10.20.2 to Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.16.3 Letter Agreement dated July 25, 1988 between the Company and
E.I. du Pont filed as Exhibit 10.20.3 to Amendment No. 1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.16.4 Amendment No. 3 to Steam Purchase Agreement dated December
12, 1988 between the Company and E.I. du Pont filed as
Exhibit 10.20.4 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.16.5 Amendment No. 4 to Steam Purchase Contract dated July 14,
1989 between the Company and E.I. du Pont filed as Exhibit
10.20.5 to Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.16.6 Amendment No. 5 to Steam Purchase Contract dated February 16,
1993 between the Company and E.I. du Pont filed as Exhibit
10.20.6 to Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.17.1 Electricity Purchase Contract dated January 18, 1988 between
the Company and E.I. du Pont filed as Exhibit 10.21.1 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.17.2 Electricity Purchase Contract dated April 30, 1996 between
O'Brien (Parlin) Cogeneration Inc. and NRG Parlin Inc. filed
as Exhibit 10.21.2 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.17.3 Assignment of Electricity Purchase Contract dated April 30,
1996 between O'Brien (Parlin) Cogeneration, Inc., NRG Parlin,
Inc. and E.I. du Pont filed as Exhibit 10.21.3 to Amendment
No. 1 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996 and incorporated herein by
this reference.

10.18.1 Operating & Maintenance Agreement dated May 1, 1996 between
NRG Generating (Parlin) Cogeneration, Inc. and Stewart
Stevenson Operations, Inc. filed as Exhibit 10.22.1 to
Amendment No. 2 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.18.2 Agreement dated May 1, 1996 between the Company, NRGG Newark,
NRGG Parlin and Stewart & Stevenson Operations, Inc. filed as
Exhibit 10.22.2 to Amendment No. 2 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.18.3 Letter Agreement dated May 20, 1996 between NRG Generating
(Parlin)

Cogeneration, Inc. and Stewart & Stevenson Operations, Inc.
filed as Exhibit 10.22.3 to Amendment No. 2 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1996 and incorporated herein by this reference.

10.19 Amended and Restated Partnership Agreement of Grays Ferry
Cogeneration Partnership ("Grays Ferry") dated March 1, 1996,
between Adwin (Schuylkill) Cogeneration, Inc. ("Adwin
Schuylkill"), O'Brien (Schuylkill) Cogeneration, Inc.
("O'Brien Schuylkill") and Trigen-Schuylkill Cogeneration,
Inc. ("Trigen-Schuylkill") filed as Exhibit 10.23 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.20.1 Acquisition Agreement dated March 1, 1996 between Adwin
Schuylkill, O'Brien Schuylkill and Trigen-Schuylkill filed as
Exhibit 10.24.1 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.20.2 Side Agreement dated March 1, 1996 between Adwin Schuylkill,
O'Brien Schuylkill and Trigen-Schuylkill filed as Exhibit
10.24.2 to Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.21.1 Contingent Capacity Purchase Addendum to the Agreement for
Purchase of Electric Output (Phase I) dated September 17,
1993 between PECO and Grays Ferry filed as Exhibit 10.25.1 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.21.2 Contingent Capacity Purchase Addendum to the Agreement for
Purchase of Electric Output (Phase II) dated September 17,
1993 between PECO and Grays Ferry filed as Exhibit 10.25.2 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.21.3 Amendment Agreement dated January 31, 1994 between PECO and
Grays Ferry filed as Exhibit 10.25.3 to Amendment No. 2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.21.4 Agreement for Purchase of Electric Output (Phase I) dated
July 28, 1992 between PECO and Grays Ferry filed as Exhibit
10.25.4 to Amendment No. 2 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.21.5 Agreement for Purchase of Electric Output (Phase II) dated
July 28, 1992 between PECO and Grays Ferry filed as Exhibit
10.25.5 to Amendment No. 2 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by this reference.

10.22.1 Amended and Restated Steam Purchase Agreement dated September
17, 1993 among Philadelphia Thermal Energy Corporation
("PTEC"), Adwin Equipment Company ("Adwin"), The Company and
Grays Ferry filed as Exhibit 10.26.1 to Amendment No. 1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.22.2 Amended and Restated Steam Venture Agreement dated September
17, 1993 among PTEC, Philadelphia United Power Corporation
("PUPCO"), Adwin and the Company filed as Exhibit 10.26.2 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.23.1 Amended and Restated Project Services and Development
Agreement dated September 17, 1993 by and between PUPCO and
Grays Ferry filed as Exhibit 10.27.1 to Amendment No. 2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.23.2 Consent to Assignment of Agreement dated March 1, 1996
between PUPCO, Grays Ferry Cogeneration Partnership and The
Chase Manhattan Bank, N.A. filed as Exhibit 10.27.2 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.24 Amended and Restated Site lease, dated September 17, 1993
between PTEC and Grays Ferry filed as Exhibit 10.28 to
Amendment No. 1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 and incorporated
herein by this reference.

10.25.1 NRG Generating (Newark) Cogeneration Inc./Power Operations,
Inc. Operating and Maintenance Agreement dated November 8,
1996 between NRG Generating (Newark) Cogeneration Inc. and
Power Operations, Inc.

10.25.2 NRG Generating (Parlin) Cogeneration Inc./Power Operations,
Inc. Operating and Maintenance Agreement dated December 31,
1996 between NRG Generating (Parlin) Cogeneration Inc. and
Power Operations, Inc.

10.25.3 Guarantee of Operator's Obligations by the Company dated
November 8, 1996 relative to NRG Generating (Newark)
Cogeneration Inc.

10.25.4 Indemnification Agreement dated March 21, 1997 between NRG
Generating (Newark) Cogeneration Inc., NRG Generating
(Parlin) Cogeneration Inc., NRG Energy and Credit Suisse
First Boston.

10.25.5 Stock Purchase Agreement dated January 1, 1997 between NRG
Energy and the Company.

10.25.6 Guarantee of Operator's Obligations by NRG Energy dated March
21, 1997 between NRG Generating (Newark) Cogeneration Inc.
and NRG Generating (Parlin) Cogeneration Inc.

10.25.7 Consent to Assignment of Operating Guaranty Agreement dated
March 21, 1997 between NRG Generating (Newark) Cogeneration
Inc., NRG Generating (Parlin) Cogeneration Inc., NRG Energy
and Credit Suisse First Boston.

10.26.1 Credit Agreement dated December 17, 1997 between NRG
Generating (U.S.) Inc., MeesPierson Capital Corp. and the
Lenders (as defined therein).

10.26.2 Promissory Note dated December 17, 1997 from the Company to
MeesPierson Capital Corp. in the principal amount of
$30,000,000.

10.26.3 Pledge Agreement dated December 17, 1997, between NRG
Generating (U.S.) Inc. and MeesPierson Capital Corp.

10.26.4 Guarantee dated as of December 17, 1997, made by O'Brien
(Philadelphia)

Cogeneration Inc. in favor of MeesPierson Capital Corp.

10.26.5 General Security Agreement dated as of December 17, 1997,
between O'Brien (Philadelphia) Cogeneration Inc. and
MeesPierson Capital Corp.

10.26.6 General Security Agreement dated as of December 17, 1997, by
NRG Generating (U.S.) Inc. in favor of MeesPierson Capital
Corp.

10.26.7 General Security Agreement dated as of December 17, 1997, by
O'Brien Energy Services Company in favor of MeesPierson
Capital Corp.

10.26.8 Subordination Agreement dated as of December 10, 1997, among
MeesPierson Capital Corp., the Senior Lenders, NRG Generating
(U.S.) Inc. and NRG Energy, Inc.

10.26.9 Subordination Agreement dated as of December 17, 1997 among
MeesPierson Capital Corp., the Senior Lenders, O'Brien
(Philadelphia) Cogeneration Inc. and O'Brien Energy Services
Company.

10.27.1 Membership Interest Purchase Agreement dated December 10,
1997 between NRG Energy, NRGG Funding Inc. ("NRGG Funding")
and the Company filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 30, 1997 and incorporated
herein by this reference.

10.27.2 Equity Commitment Agreement dated September 15, 1997 between
NRG Energy and The Chase Manhattan Bank ("Chase").

10.27.3 Assignment and Assumption Agreement dated December 10, 1997
between NRG Energy and NRGG Funding.

10.27.4 Equity Commitment Guaranty, dated as of December 10, 1997 by
NRG Energy in favor of Chase and NRG (Morris) Cogen, LLC
("Cogen, LLC").

10.27.5 Amendment and Consent, dated as of December 10, 1997 among
Cogen, LLC and the banks (the "Banks") party to the Credit
Agreement, dated as of September 15, 1997, among Cogen, LLC,
the Banks and Chase.

10.27.6 Construction Services Agreement dated August 29, 1997 between
Cogen, LLC and NRG Energy.

10.27.7 First Amendment to Construction Services Agreement dated
December 10, 1997 between Cogen, LLC and NRG Energy.

10.27.8 Construction and Term Loan Agreement dated September 15, 1997
between Cogen, LLC, Chase and the Banks.

10.27.9 Consent and Amendment, dated as of December 10, 1997, among
Cogen, LLC, the Banks and Chase.

10.27.10 Pledge and Security Agreement, dated as of December 10, 1997
by NRGG Funding and Morris in favor of Chase.

10.27.11 Supplemental Loan Agreement, dated as of December 10, 1997
between NRG Energy, the Company and NRGG Funding.

10.27.12 Subordination Agreement, dated as of December 10, 1997
between Chase and NRG Energy.

10.27.13 Subordinated Pledge and Security Agreement, dated as of
December 10, 1997 by NRGG Funding and Morris to NRG Energy.

10.27.14 Operation and Maintenance Agreement dated September 19, 1997
between Cogen, LLC and NRG Morris Operations Inc.

10.27.15 First Amendment to Operation and Maintenance Agreement dated
December 10, 1997 between Cogen, LLC and NRG Morris
Operations Inc.

10.27.19 Assignment, Assumption and Consent, dated as of December 30,
1997 among NRG Energy, NRGG Funding, the Company and Equistar
Chemicals, LP a successor in interest to Millennium
Petrochemicals, Inc.

10.27.20 Limited Guaranty dated September 19, 1997 by NRG Energy for
the benefit of Cogen, LLC.

10.27.21 First Amendment to Limited Guaranty, dated as of the 10th day
of December, 1997 that amends the Limited Guaranty made by
NRG Energy for the benefit of Cogen, LLC dated September 19,
1997.

10.28 Newark Lease filed as Exhibit 10.29 to Amendment No. 2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.29 Parlin Lease filed as Exhibit 10.30 to Amendment No. 2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.30.1 NRG Generating (U.S.) Inc. 1996 Stock Option Plan ("1996
Plan") dated September 20, 1996 and filed as Appendix A to
the Company's Proxy Statement dated October 28, 1996 and
incorporated herein by this reference.

10.30.2 Form of 1996 Plan Incentive Stock Option Agreement filed as
Exhibit 10.31.2 to Amendment No. 1 to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996
and incorporated herein by this reference.

10.30.3 Form of 1996 Plan Employee Nonqualified Stock Option
Agreement filed as Exhibit 10.31.3 to Amendment No. 1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996 and incorporated herein by this
reference.

10.30.4 Form of 1996 Plan Nonemployee Director Nonqualified Stock
Option Agreement filed as Exhibit 10.31.4 to Amendment No. 1
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by this
reference.

10.31.1 NRG Generating (U.S.) Inc. 1997 Stock Option Plan ("1997
Plan") dated May 1, 1997 and filed as an Appendix to the
Company's Proxy Statement dated April 24, 1997 and
incorporated herein by this reference.

10.31.2 Form of 1997 Plan Incentive Stock Option Agreement.

10.31.3 Form of 1997 Plan Employee Nonqualified Stock Option
Agreement.

10.31.4 Form of 1997 Plan Nonemployee Director Nonqualified Stock
Option Agreement.

10.32 Employment Agreement dated March 28, 1997 between the Company
and Robert T. Sherman, Jr., and filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997 and incorporated herein by
this reference.

10.33 Employment Agreement dated August 28, 1997 between the
Company and Richard Stone.

10.34 Employment Agreement dated April 30, 1996 between the Company
and Leonard A. Bluhm filed as Exhibit 10.32 to Amendment No.
1 to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 and incorporated herein by this
reference.

10.35 Confidentiality Agreement dated October 3, 1997 between the
Company and NRG Energy.

21 List of Subsidiaries of the Registrant.

23.1 Consent of Price Waterhouse LLP.

27 Financial Data Schedule.