<PAGE>

                                                                EXHIBIT 10.16(a)

                      ASSIGNMENT AND ASSUMPTION AGREEMENT

     THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment Agreement") dated
                                                    --------------------
as of December 19, 2000 by and among SOUTHERN ENERGY MID-ATLANTIC, LLC, a
Delaware limited liability company ("SEMA"), and DICKERSON OL1 LLC, DICKERSON
                                     ----
OL2 LLC, DICKERSON OL3 LLC, and DICKERSON OL4 LLC, each a Delaware limited
liability company (each an "Owner Lessor" and collectively the "Owner Lessors").
                            ------------                        -------------

                              W I T N E S S E T H:

     WHEREAS, Southern Energy, Inc. ("SEI") and Potomac Electric Power Company
                                      ---
("Pepco") entered into an Asset Purchase and Sale Agreement on June 7, 2000, as
  -----
amended (the "Sale Agreement");
              --------------

     WHEREAS, SEI AND SEMA entered into an Assignment and Assumption Agreement
dated December 11, 2000 (the "First Assignment Agreement"), whereby SEI assigned
                              --------------------------
certain of its rights and obligations under the Sale Agreement to SEMA;

     WHEREAS, SEMA is a party to, among other agreements, those certain four (4)
Participation Agreements of even date herewith (the "Participation Agreements")
                                                     ------------------------
between SEMA, the Owner Lessors and other parties pursuant to which SEMA will
lease, among other assets, the Dickerson base load units 1, 2 and 3; and

     WHEREAS, SEMA desires to assign certain of its rights under the Sale
Agreement to the Owner Lessors as described in greater detail herein, and the
Owner Lessors desire to assume such rights from SEMA.

     NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, SEMA and the Owner Lessors hereby agree as follows:

     1.  Capitalized terms not otherwise defined in this Assignment Agreement
shall have the meanings ascribed to such terms in the Participation Agreements.

     2.  SEMA hereby assigns, conveys, transfers and delivers to the Owner
Lessors all of SEMA's rights under the Sale Agreement related to units 1, 2 and
3 at the Dickerson station and other related facilities on Exhibit A (the

"Dickerson Base Load Units"), in each case to the extent of the undivided
--------------------------
interest in the Dickerson Base Load Units set forth in the Participation
Agreement to which such Owner Lessor is a party.

     3.  SEMA hereby acknowledges that it has assumed all of the Assumed
Obligations, as defined in the Sale Agreement, with respect to the Dickerson
Base Load Units.
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     4.  The Owner Lessors shall not have any liability under the Sale
Agreement, except as provided in the Participation Agreements.

     5.  Notwithstanding anything to the contrary above, SEMA hereby retains
during the term of the Facility Lease, unless and until an Event of Default
occurs, all rights against Pepco under the Sale Agreement; provided, that if an
Event of Default shall have occurred arising from a breach of SEMA's
representation in Section 3.1(f) of the Participation Agreements, and SEMA shall
have paid all amounts payable to the parties to the Operative Documents
thereunder, SEMA shall be entitled to exercise all rights against Pepco for any
breach of Section 5.5 of the Sale Agreement with respect to the Dickerson
Station.

     6.  This Assignment Agreement shall become effective immediately after the
effectiveness of the First Assignment Agreement.

     7.  This Assignment Agreement shall bind and inure to the benefit of the
respective parties and their respective successors and permitted assigns;
provided, however, that this Assignment Agreement may not be assigned by the
Owner Lessors except as permitted in the Participation Agreements.

     8.  Except as otherwise provided hereunder, nothing in this Assignment
Agreement is intended to confer upon any other person except SEMA and the Owner
Lessors any rights or remedies hereunder or shall create any third party
beneficiary rights in any person.

     9.  This Assignment Agreement shall be governed by and construed in
accordance with the laws of the State of New York (regardless of the laws that
might otherwise govern under applicable principles of conflicts of law).

     10.  This Assignment Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

                                       2
<PAGE>

     IN WITNESS WHEREOF, this Assignment Agreement has been duly executed and
delivered by the parties as of the date first written above.

DICKERSON OL1 LLC                            SOUTHERN ENERGY
                                             MID-ATLANTIC, LLC
By: Wilmington Trust Company
    not in its individual capacity           By: /s/ Jennifer A. Cohen
    but solely as Owner Manager                  -------------------------
                                             Name: Jennifer A. Cohen
                                                  ------------------------
                                             Title: Vice President
                                                   -----------------------
By: /s/ W. Chris Sponenberg
   ----------------------------
Name: W. Chris Sponenberg
     --------------------------
Title: Assistant Vice President
      -------------------------


DICKERSON OL2 LLC

By:   Wilmington Trust Company
      not in its individual capacity
      but solely as Owner Manager

By: /s/ W. Chris Sponenberg
   ----------------------------
Name: W. Chris Sponenberg
     --------------------------
Title: Assistant Vice President
      -------------------------

DICKERSON OL3 LLC

By:   Wilmington Trust Company
      not in its individual capacity
      but solely as Owner Manager

By: /s/ W. Chris Sponenberg
   ----------------------------
Name: W. Chris Sponenberg
     --------------------------
Title: Assistant Vice President
      -------------------------

DICKERSON OL4 LLC

By:   Wilmington Trust Company
      not in its individual capacity
      but solely as Owner Manager

By: /s/ W. Chris Sponenberg
   ----------------------------
Name: W. Chris Sponenberg
     --------------------------
Title: Assistant Vice President
      -------------------------


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