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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

[ ] 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: 1-16077

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ORION POWER HOLDINGS, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 52-2087649
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR IDENTIFICATION NO.
ORGANIZATION)
C/O RELIANT RESOURCES, INC.
1111 LOUISIANA STREET
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 207-3000

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

AS OF AUGUST 14, 2002, ORION POWER HOLDINGS, INC. HAD 1,000 SHARES OF
COMMON STOCK OUTSTANDING, ALL OF WHICH WERE HELD BY RELIANT RESOURCES, INC.

ORION POWER HOLDINGS, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTIONS H(1)(a) AND (d) OF FORM 10-Q AND IS THEREFORE FILING THIS 10-Q WITH
THE REDUCED DISCLOSURE FORMAT.

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ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2002

INDEX

<Table>
<Caption>
Page
----

PART I. FINANCIAL INFORMATION............................................................................ 3

Item 1. Financial Statements............................................................................. 3

Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002 (unaudited)................ 4

Consolidated Statements of Operations for the three months ended June 30, 2001 and 2002
(unaudited) ..................................................................................... 5

Consolidated Statements of Operations for the six months ended June 30, 2001, for the
period January 1, 2002 through February 19, 2002, and for the period February 20, 2002
through June 30, 2002 (unaudited)................................................................ 6

Consolidated Statements of Cash Flows for the six months ended June 30, 2001, for the
period January 1, 2002 through February 19, 2002, and for the period February 20, 2002
through June 30, 2002 (unaudited)................................................................ 7

Notes to Unaudited Consolidated Financial Statements............................................. 8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 18

Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 25

Item 6. Exhibits and Reports on Form 8-K................................................................. 26
</Table>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)

<Table>
<Caption>
FORMER ORION CURRENT ORION
----------------- --------------
DECEMBER 31, 2001 JUNE 30, 2002
----------------- --------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 183,719 $ 5,457
Restricted cash 336,714 368,333
Accounts receivable, net of allowances for bad debts of $1,631 and
$7,393, respectively 134,113 153,339
Inventories and supplies 58,969 65,850
Deferred income tax asset 3,754 12,202
Derivative assets 13,472 10,165
Prepaid expenses and other 22,544 65,098
---------- ----------
Total current assets 753,285 680,444
---------- ----------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $247,543
AND $53,481, RESPECTIVELY 3,350,893 3,996,116
OTHER NON CURRENT ASSETS:
Prepaid expenses and other 7,089 11,808
Derivative assets, non current 11,563 13,339
Other intangibles, net of accumulated amortization of $10,203 and
$7,152, respectively 65,734 84,700
Goodwill, net of accumulated amortization of $857 at December 31, 2001 101,972 1,410,592
Deferred financing costs, net of accumulated amortization of $30,084 at
December 31, 2001 37,762 --
---------- ----------
Total other non current assets 224,120 1,520,439
---------- ----------
Total assets $4,328,298 $6,196,999
========== ==========
</Table>

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

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)

<Table>
<Caption>
FORMER ORION CURRENT ORION
------------------ --------------
DECEMBER 31, JUNE 30,
2001 2002
------------------ --------------

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt $ 1,614,334 $ 1,665,836
Accounts payable 76,336 22,758
Payable to affiliates, net -- 28,728
Accrued interest 17,276 16,864
Deferred revenue 1,875 --
Derivative liabilities 3,090 26,805
Contractual obligations - 59,000
Other 26,432 43,442
----------- -----------
Total current liabilities 1,739,343 1,863,433
----------- -----------
LONG-TERM DEBT 870,000 745,280
Deferred income tax liabilities 1,204 168,089
Derivative liabilities 88,634 5,259
Contractual obligations -- 103,636
Other long-term liabilities 47,487 71,855
----------- -----------
Total liabilities 2,746,668 2,957,552
----------- -----------

COMMITMENTS AND CONTINGENCIES (NOTE 9)

STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 200 million shares authorized;
103,648,909 shares issued and outstanding at December 31, 2001 and
$1.00 par value; 1,000 shares authorized, issued and outstanding at
June 30, 2002, respectively 1,037 --
Additional paid-in capital 1,503,891 3,207,585
Deferred compensation (1,763) --
Notes receivable from officers (3,736) --
Accumulated other comprehensive loss (51,061) (8,786)
Retained earnings 133,262 40,648
----------- -----------
Total stockholder's equity 1,581,630 3,239,447
----------- -----------
Total liabilities and stockholder's equity $ 4,328,298 $ 6,196,999
=========== ===========
</Table>

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

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)

<Table>
<Caption>
FORMER ORION CURRENT ORION
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2002
------------------ ------------------

OPERATING REVENUES......................................... $ 305,699 $ 290,445

OPERATING EXPENSES:
Fuel.................................................... 113,500 83,314
Purchased power......................................... 12,964 20,842
Operations and maintenance.............................. 29,778 39,860
General and administrative 15,401 13,392
Taxes other than income taxes........................... 18,084 16,795
Depreciation and amortization........................... 32,999 34,090
-------------- -------------
Total operating expenses................................... 222,726 208,293
-------------- -------------
OPERATING INCOME........................................... 82,973 82,152

Interest income............................................ 5,154 1,765
Interest expense........................................... (51,040) (41,087)
-------------- -------------
Income before provision for income tax..................... 37,087 42,830
Income tax provision....................................... (15,753) (15,272)
-------------- -------------
NET INCOME ............................................. $ 21,334 $ 27,558
============== =============
</Table>

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

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)

<Table>
<Caption>
FORMER ORION CURRENT ORION
------------------------------------------ ---------------------
SIX MONTHS ENDED JANUARY 1, 2002 THROUGH FEBRUARY 20, 2002
JUNE 30, 2001 FEBRUARY 19, 2002 THROUGH JUNE 30, 2002
---------------- ----------------------- ---------------------

OPERATING REVENUES $ 581,472 $ 122,408 $ 403,454
--------- --------- ---------
OPERATING EXPENSES:
Fuel 215,443 43,282 117,661
Purchased power 22,749 3,232 22,248
Operations and maintenance 57,684 22,419 51,426
General and administrative 28,180 86,188 19,335
Taxes other than income taxes 35,870 8,576 24,944
Depreciation and amortization 65,195 25,530 53,481
--------- --------- ---------
Total operating expenses 425,121 189,227 289,095
--------- --------- ---------
OPERATING INCOME (LOSS) 156,351 (66,819) 114,359

Interest income 10,945 1,101 2,372
Interest expense (103,931) (25,067) (53,398)
--------- --------- ---------
Income (loss) before provision/benefit for
income tax 63,365 (90,785) 63,333
Income tax (provision) benefit (26,914) 38,611 (22,685)
--------- --------- ---------
NET INCOME (LOSS) $ 36,451 $ (52,174) $ 40,648
========= ========= =========
</Table>

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

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
FORMER ORION CURRENT ORION
----------------------------------------- -----------------
SIX MONTHS ENDED JANUARY 1, 2002 FEBRUARY 20, 2002
JUNE 30, THROUGH FEBRUARY 19, THROUGH JUNE 30,
2001 2002 2002
---------------- -------------------- -----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 36,451 $ (52,174) $ 40,648
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Deferred income taxes 9,054 (4,787) (5,963)
Deferred compensation 798 1,763 --
(Gain) loss on derivative instruments (1,659) 12,065 (6,248)
Interest income on officers' note receivable (178) -- --
Depreciation and amortization 72,932 25,530 53,481
Change in assets and liabilities:
Restricted cash 62,007 86,339 (117,958)
Accounts receivable (24,663) (50,375) 47,807
Inventories and supplies (7,186) (539) (15,620)
Prepaid expenses and other current assets 13,200 (44,279) 1,726
Prepaid expenses and other non current assets (42,588) (37,798) 37,011
Accounts payable (21,951) 26,041 (66,096)
Payables to affiliates, net -- -- 28,729
Accrued interest (1,455) 16,738 (17,136)
Deferred revenue -- (517) --
Other current liabilities 2,849 (10,958) (29,986)
Other long-term liabilities 1,496 45,802 (51,330)
--------- --------- ---------
Net cash provided by (used in) operating activities 99,107 12,851 (100,935)
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (199,134) (49,642) (55,479)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net 271,184 491 --
Payments on debt (206,543) (78,758) (244,266)
Borrowings on debt 382,100 21,000 71,200
Payments on deferred financing fees (10,895) (100) --
Capital contributions -- -- 241,640
Proceeds from note receivable from officers 2,080 3,736 --
--------- --------- ---------
Net cash provided by (used in) financing activities 437,926 (53,631) 68,574
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 337,899 (90,422) (87,840)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 135,834 183,719 93,297
--------- --------- ---------
CASH AND CASH EQUIVALENTS, ENDING OF PERIOD $ 473,733 $ 93,297 $ 5,457
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $ 98,558 $ 7,342 $ 80,837
========= ========= =========
Income taxes $ 28,987 $ 65 $ 12,452
========= ========= =========
</Table>

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

ORION POWER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF INTERIM PRESENTATION

Included in this Quarterly Report on Form 10-Q (Form 10-Q) for Orion Power
Holdings, Inc. together with its subsidiaries (Orion Power or the Company) are
the Company's consolidated interim financial statements and notes (Interim
Financial Statements). The Interim Financial Statements are unaudited, omit
certain financial statement disclosures and should be read with the annual
report on Form 10-K of Orion Power (Orion Power Form 10-K) for the year ended
December 31, 2001 and the quarterly report on Form 10-Q of Orion Power for the
quarter ended March 31, 2002 (First Quarter 10-Q).

On February 19, 2002, Orion Power was acquired by Reliant Resources, Inc.
(Reliant Resources) in a merger (the Merger) with a wholly owned subsidiary of
Reliant Resources, Inc. As a result, Orion Power became a wholly owned
subsidiary of Reliant Resources, which is in turn a majority-owned subsidiary of
Reliant Energy, Inc. (Reliant Energy) (see Note 5).

As of June 30, 2002, Orion Power owned 83 power plants with a total net
generating capacity of approximately 6,594 megawatts (MW).

Within these financial statements, "Current Orion" and "Former Orion" refer
to Orion Power, after and before, respectively, the Merger (see Note 5).

As a result of the Merger, Orion Power is no longer required to present
earnings per share (EPS) data as its common shares (all of which are owned by
Reliant Resources) are not publicly held. EPS data for Former Orion has not been
included because the Company believes it is no longer meaningful.

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

The Company records gross revenue for energy sales and services related to
its electric power generation facilities under the accrual method, and these
revenues generally are recognized upon delivery. Energy sales and services
related to its electric power generation facilities not billed by month-end are
accrued based upon estimated energy and services delivered. Electric power and
other energy services are sold at market-based prices through existing power
exchanges or through third-party contracts.

The gains and losses related to financial instruments and contractual
commitments qualifying and designated as hedges related to the sale of electric
power and purchase of fuel are deferred in accumulated other comprehensive
income to the extent the contracts are effective, and then are recognized in the
same period as the settlement of the underlying physical transaction. Realized
gains and losses are included in operating revenues and operating expenses, as
applicable, in the Consolidated Statements of Operations. For additional
discussion, see Note 2 to the consolidated financial statements included in the
notes to the Orion Power Form 10-K (Orion Power 10-K Notes).

The Interim Financial Statements reflect all normal recurring adjustments
that are, in the opinion of management, necessary to present fairly the
financial position and results of operations of the Company for the respective
periods. Amounts reported in the Consolidated Statements of Operations are not
necessarily indicative of amounts expected for a full year period due to the
effects of, among other things, (a) seasonal fluctuation in demand for energy
and energy services, (b) changes in energy commodity prices, (c) timing of
maintenance and other expenditures, and (d) acquisitions and dispositions of
assets and other interests. In addition, certain amounts from the prior period
have been reclassified to conform to the Company's presentation of financial
statements in the current period. These reclassifications do not affect the
earnings of the Company.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141 "Business Combinations" (SFAS No. 141). SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting and broadens the criteria for recording intangible
assets separate from goodwill. Recorded goodwill and intangibles will be
evaluated against these new criteria and may result in certain intangibles being
transferred to goodwill, or alternatively, amounts initially recorded as
goodwill may be separately identified and recognized apart from goodwill. The
Company adopted the provisions of the statement, which apply to goodwill and
intangible assets acquired prior to June 30, 2001 on January 1, 2002. The
adoption of SFAS No. 141 did not have a material impact on the Company's
historical results of operations or financial position.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS No. 143). SFAS No. 143 requires the fair value of
a liability for an asset retirement legal obligation to be recognized in the
period in which it is incurred. When the liability is initially recorded,
associated costs are capitalized by increasing the carrying amount of the
related long-lived asset. Over time, the liability is accreted to its present
value each period, and the capitalized cost is depreciated over the useful life
of the related asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002, with earlier application encouraged. SFAS No. 143 requires
entities to record a cumulative effect of change in accounting principle in the
income statement in the period of adoption. The Company plans to adopt SFAS No.
143 on January 1, 2003, and is in the process of determining the effect of
adoption on its consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144
provides new guidance on the recognition of impairment losses on long-lived
assets to be held and used or to be disposed of and also broadens the definition
of what constitutes a discontinued operation and how the results of a
discontinued operation are to be measured and presented. SFAS No. 144 supersedes
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," while retaining many of the requirements of these two
statements. Under SFAS No. 144, assets held for sale that are a component of an
entity will be included in discontinued operations if the operations and cash
flows will be or have been eliminated from the ongoing operations of the entity
and the entity will not have any significant continuing involvement in the
operations prospectively. SFAS No. 144 did not materially change the methods
used by the Company to measure impairment losses on long-lived assets.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 eliminates the current requirement
that gains and losses on debt extinguishment must be classified as extraordinary
items in the income statement. Instead, such gains and losses will be classified
as extraordinary items only if they are deemed to be unusual and infrequent. The
changes related to debt extinguishment will be effective for fiscal years
beginning after May 15, 2002, and the changes related to lease accounting will
be effective for transactions occurring after May 15, 2002. The Company will
apply this guidance prospectively.

In August 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146
nullifies EITF No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)" (EITF No. 94-3). The principal difference between SFAS No.
146 and EITF No. 94-3 relates to the requirements for recognition of a liability
for cost associated with an exit or disposal activity. SFAS No. 146 requires
that a liability be recognized for a cost associated with an exit or disposal
activity when it is incurred. A liability is incurred when a transaction or
event occurs that leaves an entity, little or no discretion to avoid the future
transfer or use of assets to settle the liability. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of an entity's commitment
to an exit plan. In addition, SFAS No. 146 also requires that a liability for a
cost associated with an exit or disposal activity be recognized at its fair
value when it is incurred. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002 with early application
encouraged. The Company will apply the provisions of SFAS No. 146 to all exit or
disposal activities initiated after December 31, 2002.

See Note 3 for a discussion regarding the Company's adoption of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
(SFAS No. 133) on January 1, 2001 and adoption of subsequent cleared guidance.
See Note 6 for a discussion regarding the Company's adoption of SFAS No. 142
"Goodwill and Other Intangible Assets" (SFAS No. 142) on January 1, 2002.

3. DERIVATIVE FINANCIAL INSTRUMENTS

Derivative instruments (Derivatives) are contracts which typically derive
value from changes in interest rates, foreign exchange rates, credit spreads,
prices of securities or financial or commodity price indices. The timing of cash
receipts and payments for derivatives is generally determined by contractual
agreement. Derivatives can be either standardized contracts that are traded on
an organized exchange or privately negotiated contracts. Futures contracts are
examples of standard exchange-traded derivatives. Privately negotiated
derivative contracts include forwards, interest rate swaps and certain option
contracts. The Company enters into interest rate swap agreements and commodity
forward contracts as an end user for purposes other than trading. Derivatives
used for purposes other than trading serve to economically hedge variable cash
flows on floating rate debt and hedging the purchase and sale price of various
commodities.

The Company accounts for its derivative instruments at fair value as assets
or liabilities, unless they are designated as "normal", as discussed below. All
derivatives held by the Company either qualify as cash flow hedges or are
accounted for with no hedging designation. To qualify for cash flow hedge
accounting, the hedge relationship must be formally designated and documented at
inception and be anticipated to be highly effective. If the requirements for
hedge accounting are not met, the Company classifies the derivative as no
hedging designation, and accounts for derivative fair value changes currently
through the Consolidated Statements of Operations.

The Company reports interest rate swaps at fair value with changes in the
swap fair value reported in either other comprehensive income (OCI) or earnings
as determined by whether the contract is designated in a qualifying hedge
relationship. For interest rate swaps qualifying for hedge accounting, the
effective portion of the gains/losses on the interest rate swaps are reported as
a component of OCI. Deferred gains and losses from effective hedge relationships
will be reclassified into earnings as adjustments to interest expense over the
life of the forecasted variable interest payments being hedged. If the swap does
not qualify for hedge accounting, any change in fair value between periods is
reported currently in earnings.

The Company accounts for financial contracts for the forward purchase and
sale of various commodities as derivatives at fair value. The classification for
reporting the change in fair values depends on whether the contract qualifies
for hedge accounting. For those contracts that qualify for hedge accounting, the
effective portion of the derivative fair value change for those contracts are
reported as a component of OCI. Gains/losses on the commodity forward contracts
are reclassified from OCI to earnings in the same period(s) that the hedged
forecasted transactions involving the commodity impacts earnings. For those
commodity contracts to which hedge accounting is not applied, the Company
reports any change in fair value currently in earnings.

The Company also has certain commodity purchase contracts for the physical
delivery of goods in quantities expected to be used in the normal course of
business. These contracts meet the definition of a derivative, however, they are
considered to be exempt from the requirement to record the contract in the
financial statements under the normal purchases and sales exception, and thus
are not reflected in the balance sheet at fair value.

The adoption of SFAS No.133 resulted in a one-time pre-tax reduction of
approximately $57 million ($33 million after taxes) to OCI, a component of
Stockholder's Equity. The reduction to OCI resulted from the recognition of the
Company's contracts meeting the definition of a derivative at fair value. At
June 30, 2002, the Company had net derivative liabilities of approximately $15.3
million and net losses in OCI of approximately $8.8 million respectively, after
tax, related to fair values of the Company's derivatives. As of June 30, 2002,
the Company expects net gains of $11 million, after tax, in accumulated other
comprehensive loss to be reclassified into net income during the next twelve
months.

The application of SFAS No. 133 is still evolving as the FASB clears issues
submitted to the Derivatives Implementation Group for consideration. During the
second quarter of 2001, an issue that applies exclusively to the

electric industry and allows the normal purchases and normal sales exception for
option-type contracts if certain criteria are met was approved by the FASB with
an effective date of July 1, 2001. The adoption of this cleared guidance had no
impact on the Company's results of operations. Certain criteria of this
previously approved guidance were revised in October and December 2001 and
became effective on April 1, 2002. The effect of adoption of the revised
guidance did not have a material impact on the Company's consolidated financial
statements.

During the third quarter of 2001, the FASB cleared an issue related to
application of the normal purchases and normal sales exception to contracts that
combine forward and purchased option contracts. The effective date of this
guidance was April 1, 2002 and the effect of adoption of the revised guidance
did not have a material impact on the Company's consolidated financial
statements.

4. RELATED PARTY TRANSACTIONS

Orion Power does not rely on significant related party transactions in its
operations. During 2001, Orion Power was involved in several contracts with
current or former owners related to the operations of certain of its facilities.
Additionally, Orion Power had several notes receivable, with an aggregate amount
of $3.7 million, from officers outstanding at December 31, 2001, which were paid
off at the completion of the Merger on February 19, 2002.

The Interim Financial Statements include transactions between the Company
and Reliant Resources and its subsidiaries other than the Company. The majority
of these transactions involve the purchase or sale of capacity, energy,
ancillary services, fuel, emissions allowances or related derivatives or
services (including transportation, transmission and storage services) by
Reliant Energy Services, Inc. (RES), a wholly owned subsidiary of and the
primary trading entity for Reliant Resources, from or to the Company. These
transactions have been entered into on an arm's-length basis with pricing
derived from market indices, the actual price paid by RES to the upstream third
party for the relevant product or another price reflecting market conditions at
the time of the transaction

Purchases from Reliant Resources and its subsidiaries other than the
Company were $44 million for both the three months ended June 30, 2002 and the
period from February 20, 2002 through June 30, 2002, respectively. Sales to
Reliant Resources and its subsidiaries other than the Company were $3 million
for both the three months ended June 30, 2002 and the period from
February 20, 2002 through June 30, 2002, respectively.

During the six months ended June 30, 2002, Reliant Resources made equity
contributions to the Company totaling $241 million. The contributions in the six
months ended June 30, 2002, were primarily to fund the redemption of the
Convertible Senior Notes. There were no contributions for the six months ended
June 30, 2001.

5. Acquisition by Reliant Resources

On February 19, 2002, the Company was acquired by merger by a wholly owned
subsidiary of Reliant Resources, which in turn, is a majority-owned subsidiary
of Reliant Energy. The transaction resulted in the purchase by Reliant Resources
of the outstanding shares of common stock of the Company for $26.80 per share in
cash for an aggregate purchase price of approximately $2.9 billion. Reliant
Resources funded the Orion Power acquisition with a $2.9 billion credit facility
and $41 million of cash on hand.

Reliant Resources accounted for the acquisition as a purchase with assets
and liabilities of Orion Power reflected at their estimated fair values. The
Company's fair value adjustments included adjustments in property, plant and
equipment, contracts, severance liabilities, debt, unrecognized pension and
postretirement benefits liabilities and related deferred taxes. The fair value
adjustments related to the acquisition have been pushed down to Orion Power. The
Company expects to finalize these fair value adjustments no later than February
2003, based on valuations of property, plant and equipment, intangible assets
and other assets and obligations.

The following table presents selected financial information and unaudited
pro forma information for the three and six months ended June 30, 2001 and the
period from January 1, 2002 through February 19, 2002, as if the acquisition had
occurred on January 1, 2001 and 2002, as applicable.

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, JANUARY 1 THROUGH FEBRUARY 19,
2001 2001 2002
--------------------------- ------------------------- ------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
-------- --------- -------- --------- -------- ----------
(IN MILLIONS)

Revenues........................ $306 306 581 581 $ 122 $ 122
Net income (loss)............... 21 23 36 41 (52) (51)
</Table>

These unaudited pro forma results, based on assumptions deemed appropriate
by the Company's management, have been prepared for informational purposes only
and are not necessarily indicative of the amounts that would have resulted if
Orion Power had been acquired by Reliant Resources on January 1, 2001 and 2002,
as applicable. Purchase-related adjustments to the results of operations include
the effects on depreciation and amortization, interest expense and income taxes.
The unaudited pro forma condensed consolidated financial information reflects
the acquisition of Orion Power in accordance with SFAS No. 141 and SFAS No. 142.
For additional information regarding the Company's adoption of SFAS No. 141 and
SFAS No. 142, please read Notes 2 and 6.

6. GOODWILL AND INTANGIBLES

In July 2001, the FASB issued SFAS No. 142, which provides that goodwill
and certain intangibles with indefinite lives will not be amortized into results
of operations, but instead will be reviewed periodically for impairment and
written down and charged to results of operations only in the periods in which
the recorded value of goodwill and certain intangibles with indefinite lives is
more than its fair value. The Company adopted the provisions of the statement,
which apply to goodwill and intangible assets acquired prior to June 30, 2001 on
January 1, 2002.

On January 1, 2002, the Company discontinued amortizing goodwill into its
results of operations pursuant to SFAS No. 142. The Company had no goodwill
amortization for the six months ended June 30, 2001.

As of June 30, 2002, Reliant Resources had assigned no fair value to
specific intangibles on the balance sheet at December 31, 2001. The Company
expects to finalize the fair value adjustments to intangible assets no later
than February 2003 based on valuations of specific intangibles. In connection
with the Merger, the Company recorded the fair value of certain fuel and power
contracts. The Company estimated the fair value of the contracts using forward
pricing curves over the life of each contract. Those contracts that net fair
value exceeded book value at the date of acquisition were recorded to intangible
assets (Contractual Rights) and those contracts that net fair value were below
book value at the date of acquisition (Contractual Obligations) were recorded to
current and long-term liabilities on the Consolidated Balance Sheet.

The components of the Company's other intangible assets as of December 31,
2001 and June 30, 2002, consist of the following (in millions):

<Table>
<Caption>
DECEMBER 31, 2001 JUNE 30, 2002
----------------- -------------

Federal Energy Regulatory Commission Licenses $ 61 $ --
Provider Of Last Resort Contract 14 --
Contractual rights -- 91
Other 1 --
---- ----
Total 76 91
---- ----
Accumulated Amortization (10) (7)
---- ----
Total $ 66 $ 84
==== ====

</Table>

Contractual Rights and Contractual obligations are amortized to fuel
expenses and revenues, as applicable, based on the pattern in which the economic
effects are estimated to be realized. Amortization in future periods will be
disclosed as the purchase price allocation is finalized. The Company amortized
$7 million of Contractual Rights and $10 million of Contractual Obligations
during both the three months ended June 30, 2002 and the period from February
19, 2002 through June 30, 2002.

Amortization expense for other intangibles excluding Contractual Rights for
the three months ended June 30, 2001 and 2002 was $1.3 million and $0,
respectively. Amortization expense for other intangibles, excluding Contractual
Rights, for the six months ended June 30, 2001, the period from January 1, 2002
through February 19, 2002 and the period from February 20, 2002 through June 30,
2002 was $2.6 million, $610,000 and $0, respectively.

7. BORROWINGS FROM THIRD PARTIES

Credit Facilities. As of June 30, 2002, we had $1.96 billion in
committed credit facilities of which $53 million remained unused. As of June 30,
2002, letters of credit outstanding under these facilities aggregated $66
million. As of June 30, 2002, borrowings of $1.84 billion were outstanding under
these facilities.

The following table provides a summary of the amounts owed and amounts
available under our various credit facilities:

<Table>
<Caption>
TOTAL EXPIRING
COMMITTED DRAWN LETTERS OF UNUSED BY JUNE 30, EXPIRATION
CREDIT AMOUNT CREDIT AMOUNT 2003 DATE
--------- ------ ---------- ------ ----------- -------------
(IN MILLIONS)

Orion Power and Subsidiaries:
Orion Power $ 75 $ 43 $ 24 $ 8 $ 75 December 2002
Orion MidWest 1,063 1,028 15 20 1,063 October 2002
Orion NY 532 502 10 20 532 December 2002
October 2002 -
Liberty Electric 292 270 17 5 6 April 2026
------- ------- ------ ----- ---------
Total $ 1,962 $ 1,843 $ 66 $ 53 $ 1,676
======= ======= ====== ===== =========
</Table>

Liquidity Concerns. For 2002, our principal sources of liquidity will be
cash from operations as well as fundings from our existing credit facilities
including any refinancing of our Orion Power revolving credit facility and of
our Orion NY and Orion MidWest credit facilities.

We are in negotiations with the lead arrangers for a refinancing of the
facilities at Orion Power, Orion Power MidWest, LP (Orion MidWest) and Orion
Power New York, LP (Orion NY). We anticipate that the new financings will total
approximately $1.3 billion and will be completed in September 2002. The new
financings for Orion MidWest and Orion NY will likely be secured by the assets
of both Orion MidWest and Orion NY.

Depending on our performance and market conditions prevailing at the time
of the expiration of these credit facilities, Orion Power may not be able to
arrange for the necessary replacement of these facilities on terms that are
acceptable to us. If we are unable to obtain financing to replace these
facilities on terms that are acceptable to us, our financial condition and
future results of operations would be materially adversely affected.

New York Credit Agreement. As of June 30, 2002, Orion NY, a wholly-owned
subsidiary of Orion Power Holdings, Inc., had a secured credit agreement (New
York Credit Agreement), which includes a $502 million acquisition facility and a
$30 million revolving working capital facility. As of June 30, 2002, Orion NY
had $502 million of acquisition loans outstanding and there were no revolving
loans outstanding. A total of $10 million in letters of credit were also
outstanding under the New York Credit Agreement. The loans bear interest at the

borrower's option at (a) a base rate or (b) LIBOR plus a margin. The weighted
average interest rate on outstanding borrowings as of June 30, 2002, was 3.61%.
The credit agreement is secured by substantially all of the assets of Orion NY.
The credit agreement expires in December 2002.

MidWest Credit Agreement. As of June 30, 2002, Orion MidWest, a
wholly-owned subsidiary of Orion Power Holdings, Inc., had a secured credit
agreement (Midwest Credit Agreement), which includes a $988 million acquisition
facility and a $75 million revolving working capital facility. As of June 30,
2002, Orion MidWest had $988 million and $40 million of acquisition loans and
revolving loans outstanding, respectively. A total of $15 million in letters of
credit were outstanding under the MidWest Credit Agreement. The loans bear
interest at the borrower's option at (a) a base rate or (b) LIBOR plus a margin.
The weighted average interest rate on outstanding borrowings as of June 30,
2002, was 3.88%. Borrowings under the MidWest Credit Agreement are secured by
substantially all the assets of Orion MidWest. The credit agreement expires in
October 2002.

The New York Credit Agreement and the Midwest Credit Agreement
(collectively, the Orion Credit Agreements) contain restrictive covenants that
restrict the ability of Orion NY or Orion MidWest to, among other things, make
dividend distributions unless Orion NY or Orion MidWest satisfy various
conditions. As of June 30, 2002 restricted cash under the Orion Credit
Agreements totaled $346 million.

In connection with the Orion Power acquisition, the existing interest rate
swaps for the Orion Credit Agreements were bifurcated into a debt component and
a derivative component. The fair value of the debt component, approximately $31
million for the New York Credit Agreement and $59 million for the MidWest Credit
Agreement, was based on Reliant Resources' incremental borrowing rates at the
acquisition date for similar types of borrowing arrangements. The value of the
debt component will be amortized to interest expense over the life of the
interest rate swaps. For the six months ended June 30, 2002, $3 million and $7
million was amortized to interest expense for the New York Credit Agreement and
MidWest Credit Agreement, respectively. See Note 3 for information regarding the
Company's derivative financial instruments.

The Orion Credit Agreements contain various business and financial
covenants requiring Orion NY or Orion MidWest to, among other things, maintain a
debt service coverage ratio of at least 1.5 to 1.0. Because it was anticipated
that Orion MidWest would not meet this ratio for the quarter ended June 30,
2002, the MidWest Agreement was amended to provide that Orion MidWest is not
required to meet this ratio until the quarter ending September 30, 2002. Orion
MidWest may not be able to meet this debt service coverage ratio for the quarter
ending September 30, 2002. It is the Company's current intention to arrange for
the repayment, refinancing or amendment of these facilities prior to September
30, 2002. If the MidWest Credit Agreement is not repaid, refinanced or amended
prior to that date, and if a waiver is required under this credit facility, the
Company currently believes that it will be able to obtain such a waiver.
However, the Company currently has no assurance that it will be able to obtain
such a waiver or amendment from the lender group if required under the MidWest
Credit Agreement. If the debt service coverage ratio is not met, and the MidWest
Credit Agreement is not repaid, refinanced or amended or no waiver is obtained,
the MidWest Credit Agreement would be in default and the lenders could demand
payment of all outstanding amounts under the MidWest Credit Agreement.

Liberty Credit Agreement. Liberty Electric Power, LLC (LEP) and Liberty
Electric PA, LLC (Liberty), wholly owned subsidiaries of Orion Power, are
parties to a facility that provides for (a) a construction/term loan in an
amount of $105 million; (b) an institutional term loan in an amount of $165
million; (c) a revolving working capital facility for an amount of up to $5
million; and (d) a debt service reserve letter of credit facility of $17.5
million (Liberty Credit Agreements).

On May 24, 2002, the construction loan was converted from a construction
loan to a term loan. As of the conversion date, the term loan had an outstanding
principal balance of $270 million, with $105 million having a final maturity in
2012 and the balance in 2026. On the conversion date Orion Power made the
required cash equity contribution of $30 million into Liberty, which was used to
repay a like amount of equity bridge loans advanced by the lenders. A related
$41 million letter of credit furnished by Orion Power as credit support was
returned for cancellation. In addition, on the conversion date, a $17.5 million
letter of credit was issued in satisfaction of Liberty's obligation to provide a
debt service reserve fund. The project financing facility also provides for a $5
million working capital line of credit, which is now active. The debt service
reserve facility and the working capital facility expire in May 2007.

Amounts outstanding under the Liberty Credit Agreement bear interest at a
floating rate for a portion of the facility, which may be either (a) a base rate
or (b) LIBOR plus a margin, except for the institutional term loan which bears
interest at a fixed rate. At June 30, 2002, the weighted average interest rate
of outstanding borrowings was 3.12% on the floating rate component and 9.02% on
the fixed rate portion. As of June 30, 2002, Liberty had $105 million and $165
million of the floating rate and fixed rate portions of the facility
outstanding, respectively and a total of $17.5 million in letters of credit were
also outstanding under the Liberty Credit Agreement.

The lenders under the Liberty Credit Agreement have a security interest in
substantially all of the assets of Liberty. The Liberty Credit Agreement
contains restrictive covenants that restrict Liberty's ability to, among other
things, make dividend distributions unless Liberty satisfies various conditions.
As of June 30, 2002, restricted cash under the Liberty Credit Agreement totaled
$20 million.

Senior Notes. Orion Power has outstanding $400 million aggregate principal
amount of 12% senior notes, due 2010 (Senior Notes). The Senior Notes are senior
unsecured obligations of Orion Power. Orion Power is not required to make any
mandatory redemption or sinking fund payments with respect to the Senior Notes.
The Senior Notes are not guaranteed by any of Orion Power's subsidiaries. In
connection with the Orion Power acquisition, the Company recorded the Senior
Notes at estimated fair value of $479 million. The $79 million premium will be
amortized against interest expense over the life of the Senior Notes. For the
period February 20, 2002 through June 30, 2002, $2.4 million was amortized to
interest expense for the Senior Notes. The fair value of the Senior Notes is
based on Reliant Resources' current incremental borrowing rates for similar
types of borrowing arrangements. The Senior Notes indenture contains covenants
that include among others, restrictions on dividends.

Pursuant to certain change of control provisions, Orion Power commenced an
offer to repurchase the Senior Notes on March 21, 2002. The offer to repurchase
expired on April 18, 2002. There were no acceptances of the offer to repurchase
and the entire $400 million aggregate principal amount remains outstanding.

Before May 1, 2003, Orion Power may redeem up to 35 percent of the Senior
Notes issued under the indenture at a redemption price of 112% of the principal
amount of the notes redeemed, plus accrued and unpaid interest and special
interest, with the net cash proceeds of an equity offering provided that certain
provisions under the indenture are met.

Revolving Senior Credit Facility. Orion Power has an unsecured $75 million
revolving senior credit facility that matures in December 2002. Amounts
outstanding under the facility bear interest at a floating rate. As of June 30,
2002, the Company had $43 million in outstanding borrowings under this facility
and a total of $24 million in letters of credit were also outstanding. This
credit facility contains various covenants that include, among others,
restrictions on the payment of dividends by Orion Power.

The senior credit facility of Orion Power contains various business and
financial covenants that require Orion Power to, among other things, maintain a
debt service coverage ratio of at least 1.4 to 1.0. Orion Power did not meet the
debt service coverage ratio for the three months ended March 31, 2002 and June
30, 2002, as required. While the failure to meet such ratio for two consecutive
quarters is a default under the senior credit facility, the senior credit
facility was amended to provide that such failure will not be considered to be
an event of default until September 30, 2002. It is the Company's current
intention to arrange for the repayment, refinancing or amendment of this
facility prior to September 30, 2002. If this facility is not repaid, refinanced
or amended prior to that date, and if a waiver is required under this credit
facility, the Company currently believes that it will be able to obtain such a
waiver. However, the Company currently has no assurance that it will be able to
obtain such a waiver or amendment from the lender groups if required under this
credit facility. If the debt service coverage ratio is not met, and the senior
credit facility is not repaid, refinanced or amended or no waiver is obtained,
the senior credit facility would be in default and the lenders could demand
payment of all outstanding amounts under the senior credit facility.

Convertible Senior Notes. Orion Power had outstanding an aggregate
principal amount of $200 million aggregate principal amount of 4.5% convertible
senior notes, due on June 1, 2008. Pursuant to certain change of control
provisions, Orion Power commenced an offer to repurchase the $200 million 4.5%
convertible senior notes on March 1, 2002, which expired on April 10, 2002. The
Company repurchased $189 million in principal amount

under the offer to repurchase and $11 million remains outstanding. The
repurchases pursuant to the offer were funded on Orion Power's behalf with cash
provided by Reliant Resources.

8. COMPREHENSIVE INCOME AND STOCKHOLDER'S EQUITY

The following table summarizes the components of total comprehensive (loss)
income (in thousands):

<Table>
<Caption>
FORMER ORION CURRENT ORION
------------------ --------------
THREE MONTHS ENDED THREE MONTHS
JUNE 30, ENDED JUNE 30,
2001 2002
------------------ --------------

Net income ......................... $ 21,334 $ 27,558
Other comprehensive income (loss):
Cumulative effect of adoption of
SFAS No. 133 ................... (33,330) --
Net deferred gains/(losses) from
cash flow hedges ............... 13,666 (17,942)
--------- ---------
Comprehensive income ............... $ 1,670 $ 9,616
========= =========
</Table>

<Table>
<Caption>
FORMER ORION CURRENT ORION
---------------------------------------- -----------------
JANUARY 1, 2002
SIX MONTHS THROUGH FEBRUARY 20, 2002
ENDED JUNE 30, FEBRUARY 19, THROUGH JUNE 30,
2001 2002 2002
---------------- --------------- -----------------

Net income (loss) ......................... $ 36,451 $(52,174) $ 40,648
Other comprehensive income (loss):
Cumulative effect of adoption of
SFAS No. 133 .......................... (33,330) -- --
Net deferred losses from
cash flow hedges ...................... (623) (2,344) (8,786)
-------- --------- --------
Comprehensive income (loss) .............. $ 2,498 $(54,518) $ 31,862
======== ========= ========
</Table>

In conjunction with the acquisition on February 19, 2002, all outstanding
stock options and warrants of the Company were vested and exercised and
immediately purchased by Reliant Resources in cash. All outstanding common stock
of the Company was purchased by Reliant Resources and retired. The 1,000 shares
($1.00 par value), authorized and outstanding, of the merger subsidiary were
immediately converted into 1,000 shares of the surviving corporation, Orion
Power Holdings, Inc.

9. COMMITMENTS AND CONTINGENCIES

Generating Projects. As of June 30, 2002, all facilities previously under
construction have reached commercial operation. The Company has contracts to
purchase additional power generation equipment, consisting of steam and
combustion turbines and heat recovery steam generators. We are actively
attempting to market this equipment, having determined that it is in excess of
our current needs. Remaining costs to complete are $548 million or we can cancel
the contracts for a total cost of $25 million.

Tolling Agreement for Liberty Electric Generating Station. The output of
Liberty Electric Generating Station is contracted under a tolling agreement
(Tolling Agreement) for a term of approximately 14 years, with an option to
extend at the end of the term. Under this agreement, the counterparty has the
exclusive right to receive all energy, capacity and ancillary services produced
by the plant. The counterparty will pay for, and be responsible for, all fuel
used by the plant under the tolling agreement.

On May 22, 2002, the "Commencement Date" occurred under the Tolling
Agreement between LEP and PG&E Energy Trading-Power, L.P. (PGET). As a result,
LEP started to receive the fixed and variable payments that are specified in the
Tolling Agreement. Reliant Resources, on behalf of Liberty, has posted a $35
million letter of credit in favor of PGET as credit support for LEP's
performance obligations under the Tolling Agreement.

Standard & Poor's and Moody's have downgraded to below investment grade
status the senior unsecured debt of PG&E National Energy Group, Inc. (NEG),
one of the two guarantors of PGET's obligations under the Tolling Agreement. The
"Material Adverse Change" constitutes an Event of Default by PGET under the
Tolling Agreement unless PGET fails to cure the Material Adverse Change by
posting replacement security within ten (10) business days after Liberty
notifies PGET of such Material Adverse Change. On August 5, 2002, LEP notified
PGET of such Material Adverse Change. If PGET fails to post said replacement
credit support within said 10 business day period, there would be an Event of
Default and among the remedies available to LEP would be the termination of the
Tolling Agreement. There are certain limitations on LEP's ability to take
unilateral action in response to a PGET Event of Default.

Agreements and Amendments to Agreements with Duquesne Light Company. On
February 15, 2002, the Company executed with Duquesne Light Company (DLC) a
capacity agreement, amendments to the Provider of Last Resort (POLR) Contract I
and II Agreements, and an amended and restated ancillary services agreement, as
well as amendments to certain related agreements as necessary to allow such
agreements to function mechanically within the Pennsylvania, New Jersey and
Maryland (PJM West) structure. Effectiveness of all of the foregoing is
conditioned upon receipt of the consent of the Company's lenders as well as the
satisfaction of multiple other conditions precedent, including without
limitation Pennsylvania Public Utility Commission (PAPUC) approval of certain
changes to DLC's retail and supplier tariffs to allow DLC to pass on to the
applicable customers amounts payable by DLC under the capacity agreement and
additional amounts under the amended and restated ancillary services agreement.

On August 1, 2002, DLC sent a letter to the PAPUC regarding DLC's analysis
of the effect of FERC's notice of proposed rulemaking on standard market design
(issued July 31, 2002) on DLC's petition to modify its POLR II settlement.
Through that petition, DLC seeks, among other things, PAPUC approvals that are
conditions precedent to the effectiveness of the capacity agreement between
Orion Power and DLC. DLC's letter states DLC's belief that FERC's proposed
rulemaking justifies delaying its efforts to join PJM West and to secure
capacity reserves required by PJM West, and thus seeks a finding from the PAPUC
that it would be premature to approve DLC's petition at this time. This delay,
if it occurs, would cause our capacity agreement with DLC to terminate
automatically. On August 6, 2002, we sent a letter to the PAPUC providing our
contrary analysis that FERC's proposed rulemaking does not justify DLC's delay
and, therefore, urging the PAPUC to approve DLC's petition at this time.

If such conditions are not satisfied within 180 days of the execution date,
the new agreements and amendments do not become effective and will terminate
automatically.

Orion Power Environmental Contingencies. In connection with the acquisition
of 70 hydro plants in northern and central New York and four gas- or oil- fired
plants in New York City, Orion Power assumed the liability for the estimated
cost of environmental remediation at several properties. Orion Power developed
remediation plans for each of these properties and entered into Consent Orders
with the New York State Department of Environmental Conservation at two New York
City sites and one hydro site for releases of petroleum and other substances by
the prior owners. The liability assumed by the Company for all New York assets
was approximately $10 million, which the Company expects to pay out through
2006.

In connection with the acquisition of MidWest assets by Orion Power, Orion
Power became responsible for the liability associated with the closure of three
ash disposal sites in Pennsylvania. The liability assumed and recorded by the
Company for these disposal sites was approximately $12 million, with $1 million
to be paid over the next five years.

10. INCOME TAXES

The Company is included in the consolidated income tax returns of Reliant
Energy. The Company calculates its income tax provision on a separate return
basis under a tax sharing agreement with Reliant Energy. The Company uses the
liability method of accounting for deferred income taxes and measures deferred
income taxes for all significant income tax temporary differences. Prior to the
acquisition date, the Company filed a consolidated federal income tax return.
The Company's pre-acquisition consolidated federal income tax returns have been
audited and settled through the year 2000.

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

The following discussion and analysis should be read in combination with
our interim financial statements and notes contained in this Form 10-Q (Interim
Financials Statements).

Orion Power meets the conditions specified in General Instruction H(1)(a)
and (b) to Form 10-Q and is therefore permitted to use the reduced disclosure
format for wholly owned subsidiaries of reporting companies. Accordingly, Orion
Power has omitted from this report the information called for by the following
Part II items of Form 10Q: Item 2 (Changes in Securities and Use of Proceeds),
Item 3 (Defaults Upon Senior Securities) and Item 4 (Submission of Matters to a
Vote of Security Holders). The following discussion explains material changes in
the amount of revenue and expense items of Orion Power for the three months
ended June 30, 2002 compared to the three months ended June 30, 2001 and the
periods January 1, 2002 through February 19, 2002 and February 20, 2002 through
June 30, 2002, compared to the six months ended June 30, 2001.

This report contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include, among others, statements concerning the
Company's outlook for 2002 and beyond, the Company's expectations, beliefs,
future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in or
implied by the statements.

OVERVIEW

We are an electric power generating company formed in March 1998 to
acquire, develop own and operate power-generating facilities in certain
deregulated wholesale markets throughout North America. As of June 30, 2002, we
had 83 power plants with a total generating capacity of 6,594 MW.

On February 19, 2002, we were acquired by Reliant Resources, Inc., for $2.9
billion, in a merger with a wholly owned subsidiary of Reliant Resources, a
majority-owned subsidiary of Reliant Energy, Inc. As a result, we became a
wholly owned subsidiary of Reliant Resources.

Reliant Resources accounted for the Merger as a purchase with assets and
liabilities of Orion Power reflected at their estimated fair values. The fair
value adjustments related to the acquisition, which have been pushed down to
Orion Power, primarily included adjustments in property, plant and equipment,
contracts, severance liabilities, debt, unrecognized pension and postretirement
benefits liabilities and related deferred taxes. For additional information
regarding the acquisition, see Note 5 to the Interim Financial Statements.

Similar to other wholesale power generators, we typically sell three types
of products: energy, capacity, and ancillary services. Energy refers to the
actual electricity generated by our facilities and sold to intermediaries for
ultimate transmission and distribution to consumers of electricity. Capacity
refers to the physical capability of a facility to produce energy. Ancillary
services generally are support products used to ensure the safe and reliable
operation of the electric power supply system.

We typically sell our wholesale products to electric power retailers, which
are the entities that supply power to consumers. Power retailers include
independent service operators, regulated utilities, municipalities, energy
supply companies, cooperatives, and retail "load" or customer aggregators.

OUTLOOK

We expect Reliant Resources will fully integrate our assets into the
existing Reliant Resources businesses, utilizing Reliant Resources' extensive
trading, marketing and operational experience. Reliant Resources expects to
improve the performance of our assets through reduced operating and maintenance
costs as well as improved availability and reliability. Actual integration is
anticipated to begin during the third quarter of 2002 and is expected to include
the integration of all modernization, environmental, and development strategies
into Reliant Resources' regional operational strategy.

RESULTS OF OPERATIONS

Three months ended June 30, 2002 compared to the three months ended June 30,
2001

Revenue. Our revenues were $290.4 million for the three months ended June
30, 2002 compared to $305.7 million for the three months ended June 30, 2001.
The decrease primarily resulted from approximately 300,000 fewer megawatt hours
sold during the three months ended June 30,2002.

Operating Expenses. Our operating expenses consisted of fuel expense,
purchased power, operations and maintenance expenses, general and administrative
expenses, taxes other than income taxes (principally property taxes), and
depreciation and amortization expense.

Fuel and purchased power expenses were $83.3 million and $20.8 million for
the three months ended June 30, 2002, respectively, compared with $113.5 million
and $13.0 million for the three months ended June 30, 2001, respectively. The
decrease in fuel was due to reduced generation for the comparable periods and
market rate adjustments arising from unfavorable fuel contracts in the MidWest
region. Purchased power increased during the period to due to increased outages
and in some cases to take advantage of low prices in the market.

Operations and maintenance expenses were $39.9 million for the three months
ended June 30, 2002, as compared to $29.8 million for the three months ended
June 30, 2001. The increase was mainly due to scheduled outages in our Cheswick
facility during the three months ended June 30, 2002, as well as two new plants,
Ceredo and Liberty, obtaining operational status during 2002 adding
approximately $2 million to expense for the period.

General and administrative expenses were $13.4 million for the three months
ended June 30, 2002 as compared to $15.4 million for the three months ended June
30, 2001. The decrease was due to fewer management and administrative employees
as a result of the Merger.

Taxes other than income taxes amounted to $16.8 million for the three
months ended June 30, 2002, as compared to $18.1 million for the three months
ended June 30, 2001. The decrease was directly related to a concentrated effort,
in our New York facilities, to reduce property tax costs through appeals and
reassessments.

Depreciation and amortization expense was $34.1 million for the three
months ended June 30, 2002, as compared to $33.0 million for the three months
ended June 30, 2001. This increase is due to increased capital costs being
depreciated coupled with the increase in the fair value of the assets resulting
from the application of purchase accounting (see Note 5 to our Interim Financial
Statements).

Operating Income. As a result of the above factors, our operating income
was $82.2 million for the three months ended June 30, 2002, as compared to $83.0
million for the three months ended June 30, 2001.

Interest Income. Interest income was $1.8 million for the three months
ended June 30, 2002, as compared to $5.2 million for the three months ended June
30, 2001. This decrease is due to a decrease in total cash on hand to earn
interest income for the period.

Interest Expense. Our interest expense was $41.1 million for the three
months ended June 30, 2002, as compared to $51.0 million for the three months
ended June 30, 2001. This decrease is attributable to a reduction in our
effective interest rate due to adjustments in fair value of debt in connection
with our acquisition for the periods presented (see Notes 5 and 7 to our Interim
Financial Statements) and to a reduction in the amount of borrowings outstanding
due to the redemption on 4.5% bonds of $189 million.

Income Tax Provision. Our income tax provision was $15.3 million for the
three months ended June 30, 2002, as compared to $15.8 million for the three
months ended June 30, 2001. The effective income tax rates, excluding certain
state tax credits in effect for the three months ended June 30, 2002, for the
periods were comparable.

Net Income. As a result of the above factors, our net income was $27.6
million for the three months ended June 30, 2002, as compared to $21.3 million
for the three months ended June 30, 2001.

From January 1, 2002 through February 19, 2002 and February 20, 2002 through
June 30, 2002 compared to the six months ended June 30, 2001.

Revenue. Our revenues were $122.4 million and $403.5 million for the
periods from January 1, 2002 through February 19, 2002 and February 20, 2002
through June 30, 2002, respectively, as compared to $581.5 million for the six
months ended June 30, 2001. The decrease resulted from approximately 590,000
fewer megawatt hours sold during the periods.

Fuel expenses were $43.3 million and $117.7 million for the periods from
January 1, 2002 through February 19, 2002 and February 20, 2002 through June 30,
2002, respectively, as compared with $215.4 million for the six months ended
June 30, 2001. The decrease was due to reduced fuel prices, especially coal
prices, as well as reduced generation for the comparable periods as well as
factors discussed above.

Purchased power expenses were $3.2 million and $22.2 million for the
periods from January 1, 2002 through February 19, 2002 and February 20, 2002
through June 30, 2002, respectively, as compared with $22.7 million for the
six months ended June 30, 2001. Purchased power increased during the period to
due to increased outages and in some cases to take advantage of low prices in
the market.

Operations and maintenance expenses were $22.4 million and $51.4 million
for the periods from January 1, 2002 through February 19, 2002 and February 20,
2002 through June 30, 2002, respectively, as compared to $57.7 million for the
six months ended June 30, 2001. The increase was mainly due to scheduled outages
and equipment overhauls in our MidWest facilities during the periods, as well as
two new plants, Ceredo and Liberty, obtaining operational status during the 2002
adding approximately $3 million to expense for the period.

General and administrative expenses were $86.2 million and $19.3 million
for the periods from January 1, 2002 through February 19, 2002 and February 20,
2002 through June 30, 2002, respectively, as compared to $28.2 million for the
six months ended June 30, 2001. For the period January 1, 2002 through February
19, 2002, we recognized $46.0 million in severance and buyout packages paid to
former executives of Orion Power, $29.0 million in legal and consulting fees
related to the acquisition by Reliant Resources, and $1.4 million in deferred
compensation expense relating to full vesting and payout of Orion Power stock
options.

Taxes other than income taxes amounted to $8.6 million and $24.9 million
for the periods from January 1, 2002 through February 19, 2002 and February 20,
2002 through June 30, 2002, respectively, as compared to $35.9 million for the
six months ended June 30, 2001. The decrease was directly related to a
concentrated effort, in reference to our New York facilities, to reduce property
tax costs through appeals and reassessments.

Depreciation and amortization expense was $25.5 million and $53.5 million
for the periods from January 1, 2002 through February 19, 2002 and February 20,
2002 through June 30, 2002, respectively, as compared to $65.2 million for the
six months ended June 30, 2001. This increase is due to increased capital costs
being depreciated coupled with the increase in the fair value of the assets
resulting from the application of purchase accounting (see Note 5 to our Interim
Financial Statements).

Operating Income (Loss). As a result of the above factors, our operating
loss was $66.8 million for the period from January 1, 2002 through February 19,
2002 and operating income of $114.4 million for the period from February 20,
2002 through June 30, 2002, as compared to operating income of $156.4 million
for the six months ended June 30, 2001.

Interest Income. Our interest income was $1.1 million and $2.4 million for
the periods from January 1, 2002 through February 19, 2002 and February 20, 2002
through June 30, 2002, respectively, as compared to $10.9 million for the six
months ended June 30, 2001. This decrease is attributable to the reduction in
interest rates, offset by substantially lower total cash on hand to earn
interest for the comparable periods.

Interest Expense. Our interest expense was $25.1 million and $53.4 million
for the periods from January 1, 2002 through February 19, 2002 and February 20,
2002 through June 30, 2002, respectively, as compared to $103.9 million for the
six months ended June 30, 2001. This decrease is attributable to a reduction in
our effective interest rate due to adjustments in fair value of debt in
connection with our acquisition for the periods presented (see Notes 5 and 7 to
our Interim Financial Statements) and to a reduction in the amount of borrowings
outstanding due to the redemption on 4.5% bonds of $189 million.

Income Tax (Benefit)Provision. Our income tax benefit was $38.6 million for
the period from January 1, 2002 through February 19, 2002 and a provision of
$22.7 million for the period from February 20, 2002 through June 30, 2002, as
compared to a provision of $26.9 million for the six months ended June 30, 2001.

Net Income(Loss). As a result of the above factors, our net loss was $52.2
million for the period from January 1, 2002 through February 19, 2002 and net
income of $40.6 million for the period from February 20, 2002 through June 30,
2002, as compared to net income of $36.5 million for the six months ended June
30, 2001.

SEASONALITY

Our operations vary depending upon seasonal and regional weather
conditions, although the impact of seasonality can vary depending upon the
geographic location of our facilities. In many areas, the demand for electric
power peaks during the hot summer months, with energy and capacity prices
correspondingly being the highest at that time. We can earn a substantial amount
of our net income from a few days during the peak demand for electric power on
the hottest days of summer. In some areas, demand also increases during the
coldest winter months. Additionally, hydroelectric plants show seasonality
depending upon the availability of water flows, which generally will be higher
during rainy months or as a result of snowmelt in the late winter and spring.
Prices will generally fluctuate with demand, being highest at times of greatest
demand. This fluctuation is currently somewhat mitigated by the existence of the
hydro-transition power sales agreement and the provider of last resort contract,
both of which have constant prices for the entire year. Our overall future
operating results may reflect different seasonal aspects, depending upon the
location and characteristics of any additional facilities we acquire.

FINANCIAL CONDITION

The following table summarizes the net cash provided by (used in)
operating, investing and financing activities for the six months ended June 30,
2001 and the periods from January 1, 2002 through February 19, 2002 and February
20, 2002 through June 30, 2002.

<Table>
<Caption>
FORMER ORION CURRENT ORION
-------------------------------------- ------------------
JANUARY 1, 2002 FEBRUARY 20, 2002
SIX MONTHS ENDED THROUGH THROUGH
JUNE 30, 2001 FEBRUARY 19, 2002 JUNE 30, 2002
------------------- ------------------ ------------------
(IN MILLIONS)

Cash provided by (used in):
Operating activities.................................. $ 99 $ 13 $ (101)
Investing activities.................................. (199) (50) (55)
Financing activities.................................. 438 (54) 69
</Table>

Net cash provided by (used in) operating activities for the periods from
January 1, 2002 through February 19, 2002 and February 20, 2002 through June 30,
2002, provided $13 million and used $101 million of cash, respectively, compared
to $99 million in cash provided during the six months ended June 30, 2001. For
the period January 1, 2002 through February 19, 2002, cash provided resulted
from a decrease in restricted cash and increases in other non current
liabilities offset by increases in other current and non current assets. In the
period February 20, 2002 through June 30, 2002 cash used was primarily due to an
increase in restricted cash for Orion NY for the period, a decrease in
liabilities related to the purchase of services and materials, taxes withheld
for employees and costs related to the acquisition by Reliant Resources as
compared with the six months ended June 30, 2001.

Investing activities for the periods from January 1, 2002 through February
19, 2002 and February 20, 2002 through June 30, 2002, used $50 million and $55
million of cash, respectively, compared to $199 million for the six months ended
June 30, 2001. The decrease in capital spending was primarily due to the
completion of the Liberty

and Ceredo projects and the reduced spending on recently cancelled development
projects that were in process during the six months ended June 30, 2001.

Financing activities for the periods from January 1, 2002 through February
19, 2002 and February 20, 2002 through June 30, 2002, used $54 million and
provided $69 million of cash, respectively, as compared to providing $438
million for the six months ended June 30, 2001. The decrease was due to
repayments on long-term debt facilities offset by a capital contributions made
by Reliant Resources primarily for the repurchase of the 4.5% Convertible Senior
Notes, as compared to, $271 million in proceeds from the issuance of stock and
$176 million in net borrowings for the six months ended June 30, 2001.

As of June 30, 2002, we had restricted cash of $368 million that can only
be used pursuant to our credit facilities in certain circumstances to fund the
business activities of the subsidiaries that hold our hydroelectric assets, our
assets located in New York City, our assets located in Cleveland, Philadelphia,
Pittsburgh, West Pittsburgh and Youngstown. For additional discussion, see Note
7 to our Interim Financial Statements.

FUTURE SOURCES AND USES OF CASH FLOWS

For 2002, our principal sources of liquidity will be cash from operations
as well as fundings from our existing credit facilities including any
refinancing of our Orion Power revolving credit facility and of our New York and
MidWest credit facilities. Such refinancing may be provided by external sources
or via intercompany loans or equity injections provided by Reliant Resources.
The major risk to our liquidity sources for 2002 are significant increases in
interest rates as we refinance our existing facilities, or the inability to
refinance such facilities.

Depending on our performance and market conditions prevailing at the time of the
expiration of these credit facilities, Reliant Resources may not be able to
arrange for the necessary replacement of these facilities on terms that are
acceptable to us. If we are unable to obtain financing to replace these
facilities on terms that are acceptable to us, our financial condition and
future results of operations would be materially adversely affected. For
additional information regarding debt obligations, please read Note 7 to our
Interim Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS AND CRITICAL ACCOUNTING POLICIES

NEW ACCOUNTING PRONOUNCEMENTS

In August 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146
nullifies EITF No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)" (EITF No. 94-3). The principal difference between SFAS No.
146 and EITF No. 94-3 relates to the requirements for recognition of a liability
for cost associated with an exit or disposal activity. SFAS No. 146 requires
that a liability be recognized for a cost associated with an exit or disposal
activity when it is incurred. A liability is incurred when a transaction or
event occurs that leaves an entity little or no discretion to avoid the future
transfer or use of assets to settle the liability. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of an entity's commitment
to an exit plan. In addition, SFAS No. 146 also requires that a liability for a
cost associated with an exit or disposal activity be recognized at its fair
value when it is incurred. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002 with early application
encouraged. The Company will apply the provisions of SFAS No. 146 to all exit or
disposal activities initiated after December 31, 2002.

See discussions in Note 3 to our Interim Financial Statements regarding our
adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended (SFAS No. 133) on January 1, 2001 and adoption of
subsequent cleared guidance. Also see Note 6 to our Interim Financial Statements
regarding our adoption of SFAS No. 142 "Goodwill and Other Intangible Assets"
(SFAS No. 142).

CRITICAL ACCOUNTING POLICIES

A critical accounting policy is one that is both important to the portrayal
of our financial condition and results of operations and requires management to
make difficult, subjective or complex judgments. The circumstances that make
these judgments difficult, subjective and/or complex have to do with the need to
make estimates about the effect of matters that are inherently uncertain.
Estimates and assumptions about future events and their effects cannot be
perceived with certainty. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments. These
estimates may change as new events occur, as more experience is acquired, as
additional information is obtained and as our operating environment changes.

We believe the following are the most significant estimates used in the
preparation of our consolidated financial statements.

The Company records gross revenue for energy sales and services related to
its electric power generation facilities under the accrual method and these
revenues generally are recognized upon delivery. Energy sales and services
related to its electric power generation facilities not billed by month-end are
accrued based upon estimated energy and services delivered. Electric power and
other energy services are sold at market-based prices through existing power
exchanges or through third-party contracts. The only portion of our revenue that
contains certain assumptions in its determination and measurement is the revenue
recognized from the Provider of Last Resort contract with Duquesne Light
Company. The revenue, per the contract, is based on the amount of charges billed
to Duquesne Light Company's customer base for the services provided. Since the
amount of the actual revenue is not known until it is remitted by Duquesne Light
Company subsequent to when they have read a customer's meter, we have
established a reasonable number of assumptions regarding multiple factors to
match the megawatts we produce to the revenue we record. These assumptions are
continuously reviewed and revised, as necessary. We have been and continue to
work with Duquesne Light Company's to obtain the most accurate and timely data
available to minimize any volatility within our assumptions. Through June 30,
2002, there have been no significant revisions or changes to our revenue
recognition assumptions related to this contract.

The determination of fair value of non-trading derivative assets and
liabilities required significant estimates (see Note 3 to our Interim Financial
Statements).

The analysis of impairment of long-lived assets and intangibles required
significant estimates (see Note 6 to our Interim Financial Statements and Note 2
to the Orion Power 10-K Notes).

For a description of all significant accounting policies, please read Note
2 to the Orion Power 10-K Notes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company has financial instruments that involve various market risks and
uncertainties. For information regarding the Company's exposure to risks
associated with interest rates, equity market prices, and energy commodity
prices, see Item 7A of the Orion Power Form 10-K, which is incorporated herein
by reference. These risks have not materially changed from the market risks
disclosed in the Orion Power Form 10-K.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDING

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

None

(b) Reports on Form 8-K

Current report on Form 8-K dated February 19, 2002, as filed with
the SEC on May 20, 2002 (Items 4 and 7)

SIGNATURES

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

ORION POWER HOLDINGS, INC.

By: Curtis A. Morgan
-----------------------------------
President

Dated: August 14, 2002