**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe Quarterly Period Ended March 31, 2006**

**Or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe Transition Period from                  to                  **

**Mirant Americas Generation, LLC**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                      |   | **N/A**      |   | **51-0390520**       |
|-------------------------------------------------------------------|--------|--------------|--------|----------------------|
| (State or other  jurisdiction of                                  |   | (Commission  |   | (I.R.S. Employer     |
| Incorporation or  Organization)                                   |   | File Number) |   | Identification  No.) |
| **1155 Perimeter Center West,  Suite 100, Atlanta, Georgia** |   |         |   | **30338**            |
| (Address of  Principal Executive Offices)                         |   |         |   | (Zip Code)           |

 

**(678) 579-5000**

(Registrant’s TelephoneNumber, Including Area Code)

Securities registered pursuant to Section 12(b) ofthe Act:

**None**

Securities registered pursuant to Section 12(g) ofthe Act:

**None**

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. o  Yes  x  No

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

o  LargeAccelerated Filer      o  AcceleratedFiler      x  Non-acceleratedFiler

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Act).  o  Yes    x  No

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

Allof our outstanding membership interests are held by our parent, Mirant Americas, Inc.,so we have no membership interests held by nonaffiliates.

 

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**TABLE OF CONTENTS**
|                                            | ** **                                                                                   | **Page** |
|--------------------------------------------|----------------------------------------------------------------------------------------------|----------|
|                                       | Cautionary Statement  Regarding Forward-Looking Information                                  | 3        |   |
| **PART I—FINANCIAL INFORMATION** |                                                                                         |     |
| Item 1.                               | Interim Financial  Statements (unaudited):                                                   |     |   |
|                                       | Condensed Consolidated and  Combined Statements of Operations                                | 5        |   |
|                                       | Condensed Consolidated  Balance Sheets                                                       | 6        |   |
|                                       | Condensed Consolidated  Statements of Member’s Equity                                   | 7        |   |
|                                       | Condensed Consolidated and  Combined Statements of Cash Flows                                | 8        |   |
|                                       | Notes to the Condensed  Consolidated and Combined Financial Statements                       | 9        |   |
| Item 2.                               | Management’s Discussion and  Analysis of Results of Operations and  Financial Condition | 34       |   |
| Item 3.                               | Quantitative and Qualitative  Disclosures about Market Risk                                  | 47       |   |
| Item 4.                               | Controls and Procedures                                                                      | 47       |   |
| **PART II—OTHER  INFORMATION**   |                                                                                         |     |
| Item 1.                               | Legal Proceedings                                                                            | 49       |   |
| Item 1A.                                   | Risk Factors                                                                                 | 51       |   |
| Item 6.                               | Exhibits                                                                                     | 51       |   |

 

2

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**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING INFORMATION**

The information presented in this Form 10-Qincludes forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934 in addition to historical information. These statements involveknown and unknown risks and uncertainties and relate to future events, ourfuture financial performance or our projected business results. In some cases,you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expect,” “plan,” “anticipate,” “estimate,” “predict,” “target,”“potential” or “continue” or the negative of these terms or other comparableterminology.

Forward-looking statements are only predictions.Actual events or results may differ materially from any forward-lookingstatement as a result of various factors, which include:

·       legislativeand regulatory initiatives regarding deregulation, regulation or restructuringof the electric utility industry; changes in state, federal and otherregulations (including rate and other regulations); changes in, or changes inthe application of, environmental and other laws and regulations to which weand our subsidiaries and affiliates are or could become subject;

·       failureof our assets to perform as expected, including outages for unscheduledmaintenance or repair;

·       ourimplementation of business strategies, including the acquisition of additionalassets or the disposition or alternative utilization of existing assets;

·       changesin market conditions, including developments in energy and commodity supply,demand, volume and pricing, or the extent and timing of the entry of additionalcompetition in our markets or those of our subsidiaries and affiliates;

·       increasedmargin requirements, market volatility or other market conditions that couldincrease our obligations to post collateral beyond amounts which are expected;

·       ourinability to access effectively the over-the-counter and exchange-basedcommodity markets or changes in commodity market liquidity or other commoditymarket conditions, which may affect our ability to engage in asset managementand proprietary trading activities as expected;

·       ourability to borrow additional funds and access capital markets;

·       strikes,union activity or labor unrest;

·       weatherand other natural phenomena, including hurricanes and earthquakes;

·       thecost and availability of emissions allowances;

·       ourability to obtain adequate fuel supply and delivery for our facilities;

·       curtailmentof operations due to transmission constraints;

·       environmentalregulations that restrict our ability to operate our business;

·       war,terrorist activities or the occurrence of a catastrophic loss;

·       deteriorationin the financial condition of our counterparties and the resulting failure topay amounts owed to us or to perform obligations or services due to us;

·       hazardscustomary to the power generation industry and the possibility that we may nothave adequate insurance to cover losses as a result of such hazards;

3

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·       pricemitigation strategies employed by independent system operators (“ISOs”) orregional transmission organizations (“RTOs”) that result in a failure tocompensate our generation units adequately for all of their costs;

·       volatilityin our gross margin as a result of our accounting for derivative financialinstruments used in our asset management activities and volatility in our cashflow from operations resulting from working capital requirements, includingcollateral, to support our asset management and proprietary trading activities;

·       ourinability to enter into intermediate and long-term contracts to sell power andprocure fuel, including its transportation, on terms and prices acceptable tous;

·       theinability of our operating subsidiaries to generate sufficient cash flow andour inability to access that cash flow to enable us to make debt service andother payments;

·       thefact that our New York subsidiaries remain in bankruptcy;

·       oursubstantial consolidated indebtedness and the possibility that we or oursubsidiaries may incur additional indebtedness in the future;

·       restrictionson the ability of our subsidiaries to pay dividends, make distributions orotherwise transfer funds to us, including restrictions on Mirant Mid-Atlantic,LLC (“Mirant Mid-Atlantic”) contained in its leveraged lease financingagreements;

·       theresolution of claims and obligations that were not resolved during the Chapter11 process that may have a material adverse effect on our results ofoperations;

·       ourability to negotiate favorable terms from suppliers, counterparties and othersand to retain customers because we were previously subject to bankruptcyprotection; and

·       thedisposition of the pending litigation described in this Form 10-Q aswell as in our Annual Report on Form 10-K for the year ended December 31,2005.

We undertake no obligationto publicly update or revise any forward-looking statements to reflect eventsor circumstances that may arise after the date of this report.

**Factors that CouldAffect Future Performance**

In addition to thediscussion of certain risks in Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and the accompanying Notes toMirant Americas Generation, LLC’s unaudited condensed consolidated and combinedfinancial statements, other factors that could affect the Company’s futureperformance (business, financial condition or results of operations and cashflows) are set forth in our 2005 Annual Report on Form 10-K.

**Certain Terms**

As used in this report, “we,” “us,” “our,” the “Company”and “Mirant Americas Generation” refer to Mirant Americas Generation, LLC andits subsidiaries, unless the context requires otherwise.

4

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**MIRANTAMERICAS GENERATION, LLC AND SUBSIDIARIES(Wholly-Owned Indirect Subsidiary of Mirant Corporation)**

**MARCH 31, 2006, CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS (UNAUDITED)andMARCH 31, 2005, CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)**

| ** **                                                                                          | ** ** | **For the Three Months  Ended March 31,**   | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                                                          | ** ** | **     2006     ** | ** ** | **     2005     ** | ** ** |
| ** **                                                                                          | ** ** | **(in millions)**                                               | ** ** |
| Operating  revenues—affiliate                                                                  | ** ** |                                                                 | **$**      | **3** |   |   |   | $ | 35 |   |   |
| Operating  revenues—nonaffiliate                                                               | ** ** |                                                                 | **973**    |   |   |   | 556 |   |   |
| Total operating revenues                                                                            | ** ** |                                                                 | **976**    |   |   |   | 591 |   |   |
| Cost of fuel, electricity and other  products—affiliate                                        | ** ** |                                                                 | **16**     |   |   |   | 30 |   |   |
| Cost of fuel,  electricity and other products—nonaffiliate                                     | ** ** |                                                                 | **307**    |   |   |   | 366 |   |   |
| Total cost of fuel, electricity and other products                                                  | ** ** |                                                                 | **323**    |   |   |   | 396 |   |   |
| **Gross Margin**                                                                                    | ** ** |                                                                 | **653**    |   |   |   | 195 |   |   |
| **Operating  Expenses:**                                                                            |       |                                                                 | ** ** |   |   |   |   |   |   |
| Operations and  maintenance—affiliate, including restructuring charges of $2 in 2005 | ** ** |                                                                 | **70**     |   |   |   | 78 |   |   |
| Operations and  maintenance—nonaffiliate                                                       | ** ** |                                                                 | **73**     |   |   |   | 61 |   |   |
| Depreciation and  amortization                                                                      | ** ** |                                                                 | **32**     |   |   |   | 33 |   |   |
| Generation  facilities rent                                                                         | ** ** |                                                                 | **24**     |   |   |   | 25 |   |   |
| Gain on sales of  assets, net                                                                       | ** ** |                                                                 | **—** |   |   |   | (1 | ) |   |
| Total operating expenses                                                                            | ** ** |                                                                 | **199**    |   |   |   | 196 |   |   |
| **Operating Income (Loss)**                                                                         | ** ** |                                                                 | **454**    |   |   |   | (1 | ) |   |
| **Other  Expense (Income), net:**                                                                   |       |                                                                 | ** ** |   |   |   |   |   |   |
| Interest  expense—affiliate                                                                    | ** ** |                                                                 | **—** |   |   |   | 3 |   |   |
| Interest  expense—nonaffiliate                                                                 | ** ** |                                                                 | **75**     |   |   |   | 1 |   |   |
| Interest  income—nonaffiliate                                                                  | ** ** |                                                                 | **(7**     | **)** |   |   | (1 | ) |   |
| Other, net                                                                                          | ** ** |                                                                 | **(3**     | **)** |   |   | (1 | ) |   |
| Total other expense (income), net                                                                   | ** ** |                                                                 | **65**     |   |   |   | 2 |   |   |
| **Income (Loss) before Reorganization Items and  Income Taxes**                                     | ** ** |                                                                 | **389**    |   |   |   | (3 | ) |   |
| Reorganization items, net                                                                           | ** ** |                                                                 | **—** |   |   |   | 30 |   |   |
| Provision for  income taxes                                                                         | ** ** |                                                                 | **—** |   |   |   | 6 |   |   |
| **Net Income  (Loss)**                                                                              | ** ** |                                                                 | **$**      | **389** |   |   |   | $ | (39 | ) |   |

 

See accompanying notes to unaudited condensed consolidated and combined financial statements.

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**MIRANTAMERICAS GENERATION, LLC AND SUBSIDIARIES(Wholly-Owned Indirect Subsidiary of Mirant Corporation)**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

| ** **                                                                                  | ** ** | **  March 31,  ** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2006**                                   | ** ** | **2005 **        | ** ** |
| ** **                                                                                  | ** ** | **(Unaudited)**                            | ** ** | ** **            | ** ** |
| ** **                                                                                  | ** ** | **(in millions)**                     | ** ** |
| **ASSETS**                                                                                  | ** ** |                                       | ** ** | ** **            |       |   | ** ** |   |   |
| **Current Assets:**                                                                         |       |                                       |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                                                   | ** ** |                                       | **$**      | **335**               |       |   |   | $ | 424 |   |   |
| Funds on deposit                                                                            | ** ** |                                       | **512**    |                  |       |   | 1,540 |   |   |
| Receivables:                                                                                |       |                                       |       |                  |       |   |   |   |   |
| Affiliate                                                                                   | ** ** |                                       | **27**     |                  |       |   | 21 |   |   |
| Customer accounts, less allowance for uncollectibles  of $3 for 2006 and 2005, respectively | ** ** |                                       | **341**    |                  |       |   | 577 |   |   |
| Price risk management assets—affiliate                                                 | ** ** |                                       | **17**     |                  |       |   | — |   |   |
| Price risk management assets—nonaffiliate                                              | ** ** |                                       | **608**    |                  |       |   | 604 |   |   |
| Prepaid rent and other payments                                                             | ** ** |                                       | **127**    |                  |       |   | 147 |   |   |
| Inventory                                                                                   | ** ** |                                       | **314**    |                  |       |   | 278 |   |   |
| Assets held for sale                                                                        | ** ** |                                       | **7**      |                  |       |   | 7 |   |   |
| Investment in securities available for sale                                                 | ** ** |                                       | **55**     |                  |       |   | 30 |   |   |
| Other current assets                                                                        | ** ** |                                       | **2**      |                  |       |   | 6 |   |   |
| Total Current Assets                                                                        | ** ** |                                       | **2,345**  |                  |       |   | 3,634 |   |   |
| **Property, Plant and Equipment, net**                                                      | ** ** |                                       | **2,807**  |                  |       |   | 2,808 |   |   |
| **Noncurrent Assets:**                                                                      |       |                                       |       |                  |       |   |   |   |   |
| Other intangible assets, net                                                                | ** ** |                                       | **219**    |                  |       |   | 221 |   |   |
| Price risk management assets—affiliate                                                 | ** ** |                                       | **4**      |                  |       |   | — |   |   |
| Price risk management assets—nonaffiliate                                              | ** ** |                                       | **127**    |                  |       |   | 105 |   |   |
| Prepaid rent                                                                                | ** ** |                                       | **184**    |                  |       |   | 208 |   |   |
| Funds on deposit                                                                            | ** ** |                                       | **5**      |                  |       |   | 5 |   |   |
| Accounts receivable, less allowance for  uncollectibles of $3 for 2006 and 2005             | ** ** |                                       | **6**      |                  |       |   | 2 |   |   |
| Debt issuance costs, net                                                                    | ** ** |                                       | **66**     |                  |       |   | 37 |   |   |
| Deferred income taxes                                                                       | ** ** |                                       | **5**      |                  |       |   | — |   |   |
| Total Noncurrent Assets                                                                     | ** ** |                                       | **616**    |                  |       |   | 578 |   |   |
| **Total Assets**                                                                            | ** ** |                                       | **$**      | **5,768**             |       |   |   | $ | 7,020 |   |   |
| **LIABILITIES AND EQUITY**                                                                  |       |                                       |       |                  |       |   |   |   |   |
| **Current Liabilities:**                                                                    |       |                                       |       |                  |       |   |   |   |   |
| Note payable—affiliate                                                                 | ** ** |                                       | **$**      | **5**                 |       |   |   | $ | 21 |   |   |
| Current portion of long-term debt                                                           | ** ** |                                       | **10**     |                  |       |   | 3 |   |   |
| Claims payable and estimated claims accrual                                                 | ** ** |                                       | **102**    |                  |       |   | 1,831 |   |   |
| Accounts payable and accrued liabilities                                                    | ** ** |                                       | **320**    |                  |       |   | 486 |   |   |
| Payable to affiliate                                                                        | ** ** |                                       | **65**     |                  |       |   | 305 |   |   |
| Price risk management liabilities—affiliate                                            | ** ** |                                       | **4**      |                  |       |   | 5 |   |   |
| Price risk management liabilities—nonaffiliate                                         | ** ** |                                       | **557**    |                  |       |   | 791 |   |   |
| Accrued property taxes                                                                      | ** ** |                                       | **200**    |                  |       |   | 186 |   |   |
| Deferred income taxes                                                                       | ** ** |                                       | **5**      |                  |       |   | — |   |   |
| Total Current Liabilities                                                                   | ** ** |                                       | **1,268**  |                  |       |   | 3,628 |   |   |
| **Noncurrent Liabilities:**                                                                 |       |                                       |       |                  |       |   |   |   |   |
| Long-term debt                                                                              | ** ** |                                       | **3,281**  |                  |       |   | 2,590 |   |   |
| Price risk management liabilities—nonaffiliate                                         | ** ** |                                       | **28**     |                  |       |   | 27 |   |   |
| Asset retirement obligations                                                                | ** ** |                                       | **34**     |                  |       |   | 33 |   |   |
| Other noncurrent liabilities                                                                | ** ** |                                       | **4**      |                  |       |   | 5 |   |   |
| Total Noncurrent Liabilities                                                                | ** ** |                                       | **3,347**  |                  |       |   | 2,655 |   |   |
| **Liabilities Subject to Compromise**                                                       | ** ** |                                       | **34**     |                  |       |   | 34 |   |   |
| **Commitments and Contingencies Equity:**                                                   |       |                                       |       |                  |       |   |   |   |   |
| Member’s interest                                                                      | ** ** |                                       | **1,390**  |                  |       |   | 995 |   |   |
| Preferred stock in affiliate                                                                | ** ** |                                       | **(324**   | **)**                 |       |   | (319 | ) |   |
| Accumulated other comprehensive income                                                      | ** ** |                                       | **53**     |                  |       |   | 27 |   |   |
| Total Equity                                                                                | ** ** |                                       | **1,119**  |                  |       |   | 703 |   |   |
| **Total  Liabilities and Equity**                                                           | ** ** |                                       | **$**      | **5,768**             |       |   |   | $ | 7,020 |   |   |

 

See accompanying notes to unaudited condensed consolidated and combined financial statements.

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**MIRANTAMERICAS GENERATION, LLC AND SUBSIDIARIES(Wholly-Owned Indirect Subsidiary of Mirant Corporation)**

**CONDENSEDCONSOLIDATED STATEMENTS OF MEMBER’S EQUITY ANDCOMPREHENSIVE INCOME (UNAUDITED)**

**(in millions)**

| ** **                                                   | ** ** | ** **        | ** ** | ** **        | ** ** | **Accumulated**   | ** ** | ** **        | ** ** |
|--------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                   | ** ** | ** **        | ** ** | **Preferred**     | ** ** | **Other**         | ** ** | ** **        | ** ** |
| ** **                                                   | ** ** | **Member’s** | ** ** | **Stock in** | ** ** | **Comprehensive** | ** ** | **Comprehensive** | ** ** |
| ** **                                                   | ** ** | **Interest**      | ** ** | **Affiliate**     | ** ** | **Income**        | ** ** | **Income**        | ** ** |
| Balance,  December 31, 2005                             |       |              | $          | 995               |       |              |       | $                 | (319       | ) |   |   | $ | 27 |   |   |   |   |   |   |
| Net Income                                                   | ** ** | ** **        | **389**    |              | ** ** | ** **        | **—** | ** **        | ** ** | ** ** | **—** |   | ** ** | ** ** | **$** | **389** |   |   |
| Amortization of discount on preferred stock in  affiliate    | ** ** | ** **        | **5**      |              | ** ** | ** **        | **(5**     | **)**             | ** ** | ** ** | **—** |   |   |   | **—** |   |   |
| Capital contribution pursuant to the Plan of  Reorganization | ** ** | ** **        | **1**      |              | ** ** | ** **        | **—** | ** **        | ** ** | ** ** | **—** |   | ** ** | ** ** | **—** |   |   |
| Other comprehensive income                                   | ** ** | ** **        | **—** |              | ** ** | ** **        | **—** | ** **        | ** ** | ** ** | **26** |   | ** ** | ** ** | **26** |   |   |
| Comprehensive Income                                         | ** ** | ** **        | ** ** |              | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |   | ** ** | ** ** | **$** | **415** |   |   |
| **Balance, March 31, 2006**                             | ** ** | ** **        | **$**      | **1,390**         |       | ** **        | ** ** | **$**             | **(324**   | **)** | ** ** | ** ** | **$** | **53** |   | ** ** | ** ** | ** ** |   |   |

 

See accompanying notes to unaudited condensed consolidated and combined financial statements.

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**MIRANT AMERICASGENERATION, LLC AND SUBSIDIARIES(Wholly-Owned Indirect Subsidiary of Mirant Corporation)**

**MARCH 31,2006, CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

**and**

**MARCH 31, 2005, CONDENSED COMBINED STATEMENTS OFCASH FLOWS (UNAUDITED)**

| ** **                                                                            | ** ** | **For the Three  Months  Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2006**                                                       | ** ** | **2005** | ** ** |
| ** **                                                                            | ** ** | **(in millions)**                                         | ** ** |
| **Cash flows from operating  activities:**                                            | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Net income (loss)                                                                     | ** ** | **$**                                                          | **389**    |   | $ | (39 | ) |
| Adjustments to reconcile  net income (loss) to net cash used in operating activities: |       |                                                           |       |   |   |
| Depreciation  and amortization                                                        |       | **34**                                                         |       | 33 |   |
| Unrealized  losses (gains) on price risk management assets and liabilities            |       | **(281**                                                       | **)**      | 57 |   |
| Deferred  income taxes                                                                |       | **—**                                                     |       | 1 |   |
| Non-cash  charges for reorganization items                                            |       | **—**                                                     |       | 19 |   |
| Gain  on sales of assets and investments                                              |       | **—**                                                     |       | (1 | ) |
| Changes in certain assets  and liabilities:                                           |       |                                                           |       |   |   |
| Affiliate  accounts receivable                                                        |       | **(6**                                                         | **)**      | (53 | ) |
| Customer  accounts receivable                                                         |       | **237**                                                        |       | 70 |   |
| Prepaid  rent                                                                         |       | **24**                                                         |       | 25 |   |
| Inventory                                                                             |       | **(36**                                                        | **)**      | 7 |   |
| Other  assets                                                                         |       | **198**                                                        |       | (85 | ) |
| Accounts  payable and accrued liabilities                                             |       | **(171**                                                       | **)**      | 4 |   |
| Claims  payable and estimated claims                                                  |       | **(739**                                                       | **)**      | — |   |
| Payable  to affiliate                                                                 |       | **9**                                                          |       | (20 | ) |
| Accrued  taxes, affiliate                                                             |       | **—**                                                     |       | 21 |   |
| Accrued  taxes, nonaffiliate                                                          |       | **14**                                                         |       | (17 | ) |
| Accrued  property taxes, nonaffiliate                                                 |       | **—**                                                     |       | 12 |   |
| Other  liabilities                                                                    |       | **18**                                                         |       | 1 |   |
| Total  adjustments                                                                    |       | **(699**                                                       | **)**      | 74 |   |
| Net  cash provided by (used in) operating activities                                  |       | **(310**                                                       | **)**      | 35 |   |
| **Cash flows from investing  activities:**                                            | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Capital expenditures                                                                  | ** ** | **(21**                                                        | **)**      | (23 | ) |
| Repayments on notes receivable from affiliate                                         | ** ** | **—**                                                     |       | 8 |   |
| Proceeds received from the sales of assets, net                                       | ** ** | **2**                                                          |       | 4 |   |
| Net  cash used in investing activities                                                |       | **(19**                                                        | **)**      | (11 | ) |
| **Cash flows from financing  activities:**                                            | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Proceeds from issuance of debt-nonaffiliate                                           | ** ** | **2,015**                                                      |       | — |   |
| Repayment of debt-affiliate                                                           | ** ** | **(16**                                                        | **)**      | (1 | ) |
| Repayment of debt-nonaffiliate                                                        | ** ** | **(468**                                                       | **)**      | — |   |
| Settlement of debt under the Plan                                                     | ** ** | **(990**                                                       | **)**      | — |   |
| Payment to affiliate under the Plan                                                   | ** ** | **(250**                                                       | **)**      | — |   |
| Debt issuance cost                                                                    | ** ** | **(51**                                                        | **)**      | — |   |
| Net  cash provided by (used in) financing activities                                  |       | **240**                                                        |       | (1 | ) |
| Net  increase (decrease) in cash and cash equivalents                                 |       | **(89**                                                        | **)**      | 23 |   |
| **Cash and cash equivalents, beginning of the period**                                | ** ** | **424**                                                        |       | 636 |   |
| **Cash and cash equivalents, end of the period**                                      | ** ** | **$**                                                          | **335**    |   | $ | 659 |   |
| **Supplemental cash flow  disclosures:**                                              | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Cash paid for interest, net of amounts capitalized                                    | ** ** | **$**                                                          | **19**     |   | $ | 4 |   |
| Cash paid for reorganization items                                                    | ** ** | **$**                                                          | **1,737**  |   | $ | 16 |   |
| **Financing Activity:**                                                               | ** ** | ** **                                                     | ** ** | ** ** | ** ** |
| Capital contribution—non-cash                                                    | ** ** | **$**                                                          | **1**      | ** ** | $ | — | ** ** |

 

See accompanying notes to unaudited condensed consolidated and combined financial statements.

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**MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS**

**A.   Descriptionof Business**

***Overview***

Mirant Americas Generation, LLC, including itssubsidiaries (collectively, the “Company” or “Mirant Americas Generation”), isa national independent power provider and an indirect wholly-owned subsidiaryof Mirant Corporation (“Mirant”). Mirant was incorporated in Delaware on September 23,2005, and is the successor to a corporation of the same name that was formed inDelaware on April 3, 1993. This succession occurred by virtue of thetransfer of substantially all of old Mirant’s assets to new Mirant inconjunction with old Mirant’s emergence from bankruptcy protection on January 3,2006. Old Mirant was then renamed and transferred to a trust which is notaffiliated with new Mirant. As used in this report “Mirant” refers to oldMirant prior to January 3, 2006, and to new Mirant on or after January 3,2006.

The Company produces and sells substantially all of theoutput from its generating facilities in the forward and spot markets and theremainder under contracts with third parties. The Company uses derivativefinancial instruments, such as commodity forwards, futures, options and swapsto manage its exposure to fluctuations in electric energy and fuel prices. TheCompany is a Delaware limited liability company and owns or leasesapproximately 12,035 megawatts (“MW”) of electric generation capacity in theUnited States. The Company operates 72 generating units at 21 plantsserving customers located near major metropolitan load centers in Maryland,California, New York, Massachusetts and Texas.

Pursuant to the Plan of Reorganization (the “Plan”),that was approved in conjunction with Mirant’s emergence from bankruptcy, in December 2005,Mirant contributed its interest in Mirant Potomac River, LLC (“Mirant PotomacRiver”) and Mirant Peaker, LLC (“Mirant Peaker”) to our indirect wholly- ownedsubsidiary Mirant Mid-Atlantic, LLC (“Mirant Mid-Atlantic”) and its interest inMirant Zeeland, LLC (“Mirant Zeeland”) and Mirant Americas Energy Marketing, LP(“Mirant Americas Energy Marketing”), Mirant Americas Development, Inc.,Mirant Americas Production Company, Mirant Americas Energy Capital, LLC, MirantAmericas Energy Capital Assets, LLC, Mirant Americas Development Capital,LLC, Mirant Americas Retail Energy Marketing, LP, and Mirant Americas GasMarketing, LLC (collectively, the “Trading Debtors”) to Mirant North America,LLC (“Mirant North America”), a newly organized holding company subsidiary. Allof the contributed subsidiaries were under the common control of Mirant and arecollectively referred to as the “Contributed Subsidiaries.” Mirant’scontribution of the Contributed Subsidiaries resulted in a change in the MirantAmericas Generation reporting entity under Accounting Principles Board Opinion No. 20,*“Accounting Changes,”* andaccordingly the Company has restated the financial statements for all priorperiods to reflect the financial information of the new reporting entity. On January 31,2006, the trading and marketing business of the Trading Debtors was transferredto Mirant Energy Trading, LLC (“Mirant Energy Trading”), a wholly-ownedsubsidiary of Mirant North America. After these transfers took place, the TradingDebtors were transferred to a trust created under the Plan that is notaffiliated with the Company. As a result, the company now executes theaffiliate transactions previously executed with the Trading Debtors with MirantEnergy Trading.

The Company has a numberof service agreements for labor and administrative services with MirantServices, LLC (“Mirant Services”). In addition, Mirant Energy Trading, andpreviously Mirant Americas Energy Marketing, provides services to other Mirantaffiliates related to the sale of electric power and the procurement of fueland emissions allowances.

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***Basis of Presentation***

The accompanying unaudited condensed consolidated andcombined financial statements of Mirant Americas Generation and itswholly-owned subsidiaries have been prepared in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”) for interim financial information and with theinstructions for Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the informationand footnotes required by GAAP for complete financial statements. In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included. Forfurther information, refer to the combined and consolidated financialstatements and footnotes thereto included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005.

The accompanying unauditedcondensed consolidated and combined financial statements include the accountsof Mirant Americas Generation and its wholly-owned subsidiaries and theContributed Subsidiaries as discussed above and have been prepared from recordsmaintained by Mirant Americas Generation, its subsidiaries and the ContributedSubsidiaries. All significant intercompany accounts and transactions have beeneliminated in preparing the consolidated and combined financial statements.

***New Accounting Standards Not Yet Adopted***

In September 2005, the Financial Accounting StandardsBoard (“FASB”) ratified Emerging Issues Task Force (“EITF”) Issue 04-13, *“Accounting for Purchases and Sales of Inventory with the SameCounterparty”*(“EITF 04-13”), which requires companies toaccount for exchanges of inventory with the same counterparty as onetransaction. EITF 04-13 will be applied to new arrangements, andmodifications or renewals of existing arrangements, beginning in the firstinterim or annual reporting period after March 15, 2006. The Company willadopt EITF 04-13 on April 1, 2006. EITF 04-13 will impact theCompany’s accounting for emissions allowances classified as inventory to theextent the allowances are exchanged in a transaction with the samecounterparty.

In February 2006, the FASB issued Statement ofFinancial Accounting Standards Board (“SFAS”) No. 155, *“Accounting for Certain Hybrid Financial Instruments”* (“SFASNo. 155”), which allows fair value measurement for any hybrid financialinstrument that contains an embedded derivative that otherwise would requirebifurcation. SFAS No. 155 is effective for all financial instrumentsacquired, issued or subject to a re-measurement event beginning in the firstfiscal year after September 15, 2006. At the date of adoption, anydifference between the total carrying amount of the existing bifurcated hybridfinancial instrument and the fair value of the combined hybrid financialinstrument will be recognized as a cumulative effect adjustment to beginningretained earnings. The Company will adopt SFAS No. 155 on January 1,2007. The adoption of SFAS No. 155 is not expected to have a materialimpact on the Company’s statements of operations, financial position or cashflows.

In March 2006, the FASB issued SFAS No. 156,*“Accounting for Servicing of Financial Assets*”(“SFAS No. 156”), which requires all separately recognized servicingassets and servicing liabilities to be measured initially at fair value andpermits, but does not require, an entity to subsequently measure thoseservicing assets or liabilities at fair value. SFAS No. 156 is effectiveat the beginning of the first fiscal year after September 15, 2006. Allrequirements for recognition and initial measurement of servicing assets andservicing liabilities will be applied prospectively to all transactionsoccurring after the adoption of this statement. The Company will adopt SFAS No. 156on January 1, 2007. The adoption of SFAS No. 156 is not expected tohave a material impact on the Company’s statements of operations, financialposition or cash flows.

In April 2006, the FASB issued FASB StaffPosition (“FSP”) FASB Interpretation (“FIN”) 46R-6, *“Determiningthe Variability to Be Considered in Applying FASB Interpretation No. 46R”*(“FSPFIN 46R-6”). The variability that is considered in applying FIN 46Raffects the determination of whether an entity is a 

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variableinterest entity (“VIE”), which interests are variable interests in the entity,and which party, if any, is the primary beneficiary of the VIE. According toFSP FIN 46R-6, the variability to be considered should be based on thenature of the risks of the entity and the purpose for which the entity wascreated. The guidance in FSP FIN 46R-6 is applicable prospectively to anentity at the time a company first becomes involved with such entity and isapplicable to all entities previously required to be analyzed under FIN 46Rwhen a reconsideration event has occurred beginning the first reporting periodafter June 15, 2006. Retrospective application to the date of the initialapplication of FIN 46R is permitted but not required. The Company will adoptFSP FIN 46R-6 on July 1, 2006, on a prospective basis.

**B.**   Bankruptcy Related Disclosures

Mirant’s Plan was confirmed by the United StatesBankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”) onDecember 9, 2005, and Mirant and the Company emerged from bankruptcy on January 3,2006. For financial statement presentation purposes, Mirant and the Companyrecorded the effects of the Plan at December 31, 2005.

At March 31, 2006,and December 31, 2005, amounts related to allowed claims, estimatedunresolved claims and professional fees associated with the bankruptcy that areto be settled in cash are $102 million and $1,831 million, respectively, andthese amounts are recorded in claims payable and estimated claims accrual onthe accompanying unaudited condensed consolidated balance sheets. These amountsdo not include the portion of unresolved claims that will be settled in Mirantcommon stock. During the three months ended March 31, 2006, the Companypaid approximately $1,729 million in cash related to bankruptcy claims. Of thisamount approximately $990 million is reflected in cash flows from financingactivities and represents the principal amount of debt claims. The remaining$739 million is reflected in cash flows from operating activities andrepresents other bankruptcy claims and interest.

***Financial Statements of Subsidiaries in Bankruptcy***

Mirant Americas Generation’sNew York subsidiaries remain in bankruptcy and include the following entities:Mirant Lovett, LLC (“Mirant Lovett”), Mirant Bowline, LLC (“Mirant Bowline”),Mirant NY-Gen, LLC (“Mirant NY-Gen”), Mirant New York, Inc. (“MirantNew York”) and Hudson Valley Gas Corporation. Unaudited condensed consolidatedfinancial statements of Mirant Americas Generation’s New York subsidiaries areset forth below.

**NewYork Subsidiaries**

**UnauditedCondensed Consolidated Statements of Operations**

| ** **                                          | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **    2006    **           | ** ** | **    2005    ** | ** ** |
| ** **                                          | ** ** | **(in millions)**                                             | ** ** |
| Operating  Revenues                                 |       |                                                               | $          | 118 |   |   |   | $ | 65 |   |   |
| Total cost of  fuel, electricity and other products |       |                                                               | 43         |   |   |   | 49 |   |   |
| Operating  Expenses                                 |       |                                                               | 42         |   |   |   | 38 |   |   |
| Operating Income  (Loss)                            |       |                                                               | 33         |   |   |   | (22 | ) |   |
| Other expense,  net                                 |       |                                                               | 2          |   |   |   | — |   |   |
| Reorganization  items, net                          |       |                                                               | (1         | ) |   |   | — |   |   |
| Provision for  income taxes                         |       |                                                               | —     |   |   |   | 1 |   |   |
| Net Income (Loss)                                   |       |                                                               | $          | 32 |   |   |   | $ | (23 | ) |   |

 

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**NewYork Subsidiaries**

**UnauditedCondensed Consolidated Balance Sheet Data**

| ** **                                      | ** ** | **March 31,**     | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| ** **                                      | ** ** | **(in millions)** | ** ** |
| Current Assets                                  |       |                   | $          | 103                   |       |   |   | $ | 31 |   |   |
| Intercompany  receivables                       |       |                   | 97         |                  |       |   | 149 |   |   |
| Property, plant  and equipment, net             |       |                   | 498        |                  |       |   | 502 |   |   |
| Other                                           |       |                   | 8          |                  |       |   | 4 |   |   |
| Total Assets                                    |       |                   | $          | 706                   |       |   |   | $ | 686 |   |   |
| Liabilities not  subject to compromise          |       |                   |       |                  |       |   |   |   |   |
| Current liabilities                             |       |                   | $          | 173                   |       |   |   | $ | 168 |   |   |
| Intercompany  payables                          |       |                   | 19         |                  |       |   | 36 |   |   |
| Noncurrent  liabilities                         |       |                   | 9          |                  |       |   | 9 |   |   |
| Liabilities  subject to compromise-affiliate    |       |                   | 62         |                  |       |   | 62 |   |   |
| Liabilities  subject to compromise-nonaffiliate |       |                   | 18         |                  |       |   | 18 |   |   |
| Member’s equity                            |       |                   | 425        |                  |       |   | 393 |   |   |
| Total Liabilities and  Member’s Equity     |       |                   | $          | 706                   |       |   |   | $ | 686 |   |   |

 

**NewYork Subsidiaries**

**UnauditedCondensed Consolidated Statements of Cash Flows**

| ** **                                      | ** ** | **For the Three Months  ended March 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **    2006    **           | ** ** | **    2005    ** | ** ** |
| ** **                                      | ** ** | **(in millions)**                                             | ** ** |
| Net cash provided  by (used in):                |       |                                                               |       |   |   |   |   |   |   |
| Operating activities                            |       |                                                               | $          | (2 | ) |   |   | $ | 5 |   |   |
| Investing activities                            |       |                                                               | 74         |   |   |   | (6 | ) |   |
| Financing activities                            |       |                                                               | 2          |   |   |   | 1 |   |   |
| Net increase in  cash and cash equivalents      |       |                                                               | 74         |   |   |   | — |   |   |
| Cash and cash  equivalents, beginning of period |       |                                                               | 1          |   |   |   | — |   |   |
| Cash and cash  equivalents, end of period       |       |                                                               | $          | 75 |   |   |   | $ | — |   |   |

 

***Liabilities Subject to Compromise***

The Company’s liabilities subject to compromise are$34 million and $34 million at March 31, 2006, and December 31, 2005,respectively, and relate to its New York subsidiaries that remain inbankruptcy.

Theamounts subject to compromise at March 31, 2006, and December 31,2005, consisted of the following items (in millions):

| ** **                                                                      | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Items, absent the  bankruptcy filings, that would have been considered current: |       |                     |       |                        |       |   |   |   |   |
| Accounts payable  and accrued liabilities—affiliate                        |       |                     | $          | 16                          |       |   |   | $ | 16 |   |   |
| Accounts payable  and accrued liabilities—nonaffiliate                     |       |                     | 18         |                        |       |   | 18 |   |   |
|                                                                            |       |                     | $          | 34                          |       |   |   | $ | 34 |   |   |

 

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***ReorganizationItems, Net***

For the three months ended March 31, 2006,reorganization items, net were less than $1 million and relate to the New Yorksubsidiaries. For the three months ended March 31, 2005, reorganizationitems, net represents amounts that were recorded in the financial statements asa result of the bankruptcy proceedings.

Thefollowing were the significant items within this category (in millions):

| ** **                                                     | ** ** | **Three Months  Ended March 31,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                     | ** ** | **2005**                                         | ** ** |
| Estimated claims  and losses on rejected and amended contracts |       |                                             | $          | 19 |   |   |
| Professional fees  and administrative expenses                 |       |                                             | 16         |   |   |
| Interest income,  net                                          |       |                                             | (5         | ) |   |
| Total                                                          |       |                                             | $          | 30 |   |   |

 

**C.   Change inReporting Entity**

As discussed in Note A, pursuant to the Plan, Mirantcontributed its interest in the Contributed Subsidiaries to the Companyresulting in a change in the Mirant Americas Generation reporting entity atDecember 31, 2005.

Thefollowing table and discussion summarize the effects of the ContributedSubsidiaries on the previously reported Mirant Americas Generation’s unauditedcondensed consolidated statements of operations for the three months endedMarch 31, 2005:

| ** **                                                             | ** ** | **For the Three Months March 31, 2005** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **As Previously**                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                             | ** ** | **Reported**                                                          | ** ** | **Adjustments** | ** ** | **Combined** | ** ** |
| ** **                                                             | ** ** | **(in millions)**                                                | ** ** |
| Operating  Revenues:                                                   |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Affiliate                                                              |       |                                                                  | $          | 381 |   |   |   | $ | (346 | ) |   |   | $ | 35 |   |   |
| Nonaffiliate                                                           |       |                                                                  | 50         |   |   |   | 506 |   |   |   | 556 |   |   |
| Total operating revenues                                               |       |                                                                  | 431        |   |   |   | 160 |   |   |   | 591 |   |   |
| Cost of fuel, electricity and other  products—affiliate           |       |                                                                  | 210        |   |   |   | (180 | ) |   |   | 30 |   |   |
| Cost of fuel, electricity and other products—nonaffiliate         |       |                                                                  | 54         |   |   |   | 312 |   |   |   | 366 |   |   |
| Total cost of fuel, electricity and other products                     |       |                                                                  | 264        |   |   |   | 132 |   |   |   | 396 |   |   |
| Gross Margin                                                           |       |                                                                  | 167        |   |   |   | 28 |   |   |   | 195 |   |   |
| Operating  Expenses:                                                   |       |                                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Operations and maintenance—affiliate, including   restructuring   |       |                                                                  | 62         |   |   |   | 16 |   |   |   | 78 |   |   |
| Operations and maintenance—nonaffiliate, including  restructuring |       |                                                                  | 57         |   |   |   | 4 |   |   |   | 61 |   |   |
| Depreciation and amortization                                          |       |                                                                  | 23         |   |   |   | 10 |   |   |   | 33 |   |   |
| Generation facilities rent                                             |       |                                                                  | 25         |   |   |   | — |   |   |   | 25 |   |   |
| Gain on sales of assets, net                                           |       |                                                                  | (1         | ) |   |   | — |   |   |   | (1 | ) |   |
| Total operating expenses                                               |       |                                                                  | 166        |   |   |   | 30 |   |   |   | 196 |   |   |
| Operating Income (loss)                                                |       |                                                                  | 1          |   |   |   | (2 | ) |   |   | (1 | ) |   |
| Other Expense, net                                                     |       |                                                                  | 1          |   |   |   | 1 |   |   |   | 2 |   |   |
| Loss before Reorganization Items and Income Taxes                      |       |                                                                  | —     |   |   |   | (3 | ) |   |   | (3 | ) |   |
| Reorganization items, net                                              |       |                                                                  | 15         |   |   |   | 15 |   |   |   | 30 |   |   |
| Provision for income taxes                                             |       |                                                                  | 6          |   |   |   | — |   |   |   | 6 |   |   |
| Net loss                                                               |       |                                                                  | $          | (21 | ) |   |   | $ | (18 | ) |   |   | $ | (39 | ) |   |

 

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Historically, the Company’s operating subsidiarieswere party to services agreements with Mirant Americas Energy Marketing. MirantAmericas Energy Marketing was responsible for marketing the output of theCompany’s facilities and procurement of fuel for the Company’s facilities, aswell as for executing contracts, including economic hedges, to reduce pricerisk. Transactions between the operating subsidiaries and Mirant AmericasEnergy Marketing were included in operating revenues—affiliate and cost of fuel,electricity and other products—affiliate, in the previously reported MirantAmericas Generation statements of operations. Because Mirant Americas EnergyMarketing is part of the combined Mirant Americas Generation financialstatements, these affiliate transactions are now eliminated. In addition,Mirant Americas Energy Marketing’s sales and purchase transactions withnonaffiliates are now reflected in Mirant Americas Generation unauditedcondensed combined statements of operations.

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Thefollowing table summarizes the effects of the Contributed Subsidiaries on thepreviously reported Mirant Americas Generation’s unaudited condensedconsolidated statements of cash flows for the three months ended March 31,2005:

| ** **                                                                       | ** ** | **For the Year ended March 31, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **As Previously**                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                       | ** ** | **Reported**                                                   | ** ** | **Adjustments** | ** ** | **Combined** | ** ** |
| ** **                                                                       | ** ** | **(in millions)**                                         | ** ** |
| **Cash Flows from Operating  Activities:**                                       | ** ** |                                                           | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net loss                                                                         |       |                                                           | $          | (21 | ) |   |   | $ | (18 | ) |   |   | $ | (39 | ) |   |
| Adjustments to reconcile  net loss to net cash provided by operating activities: |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                    |       |                                                           | 23         |   |   |   | 10 |   |   |   | 33 |   |   |
| Unrealized losses on price risk management assets and  liabilities               |       |                                                           | 45         |   |   |   | 12 |   |   |   | 57 |   |   |
| Deferred income taxes                                                            |       |                                                           | 1          |   |   |   | — |   |   |   | 1 |   |   |
| Noncash charges for reorganization items                                         |       |                                                           | 3          |   |   |   | 16 |   |   |   | 19 |   |   |
| Gain on sales of assets and investments                                          |       |                                                           | (1         | ) |   |   | — |   |   |   | (1 | ) |   |
| Changes in  certain assets and liabilities:                                      |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Affiliate accounts receivable                                                    |       |                                                           | (4         | ) |   |   | (49 | ) |   |   | (53 | ) |   |
| Customer accounts receivable                                                     |       |                                                           | 13         |   |   |   | 57 |   |   |   | 70 |   |   |
| Prepaid rent                                                                     |       |                                                           | 25         |   |   |   | — |   |   |   | 25 |   |   |
| Inventory                                                                        |       |                                                           | 7          |   |   |   | — |   |   |   | 7 |   |   |
| Other assets                                                                     |       |                                                           | 10         |   |   |   | (95 | ) |   |   | (85 | ) |   |
| Accounts payable and accrued liabilities                                         |       |                                                           | —     |   |   |   | 4 |   |   |   | 4 |   |   |
| Payable to affiliate                                                             |       |                                                           | (18        | ) |   |   | (2 | ) |   |   | (20 | ) |   |
| Accrued taxes, affiliate                                                         |       |                                                           | 31         |   |   |   | (10 | ) |   |   | 21 |   |   |
| Accrued taxes, nonaffiliate                                                      |       |                                                           | (15        | ) |   |   | (2 | ) |   |   | (17 | ) |   |
| Accrued property taxes, nonaffiliate                                             |       |                                                           | —     |   |   |   | 12 |   |   |   | 12 |   |   |
| Other liabilities                                                                |       |                                                           | —     |   |   |   | 1 |   |   |   | 1 |   |   |
| Total adjustments                                                                |       |                                                           | 120        |   |   |   | (46 | ) |   |   | 74 |   |   |
| Net cash provided by operating activities                                        |       |                                                           | 99         |   |   |   | (64 | ) |   |   | 35 |   |   |
| **Cash Flows from Investing  Activities:**                                       | ** ** |                                                           | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Capital  expenditures                                                            |       |                                                           | (18        | ) |   |   | (5 | ) |   |   | (23 | ) |   |
| Repayments on  notes receivable from affiliate                                   |       |                                                           | —     |   |   |   | 8 |   |   |   | 8 |   |   |
| Proceeds from the  sale of assets, net                                           |       |                                                           | 4          |   |   |   | — |   |   |   | 4 |   |   |
| Net cash used in investing activities                                            |       |                                                           | (14        | ) |   |   | 3 |   |   |   | (11 | ) |   |
| **Cash Flows from Financing  Activities:**                                       | ** ** |                                                           | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Repayment of debt—affiliate                                                 |       |                                                           | —     |   |   |   | (1 | ) |   |   | (1 | ) |   |
| Net cash provided by (used in) financing activities                              |       |                                                           | —     |   |   |   | (1 | ) |   |   | (1 | ) |   |
| **Net  Increase (Decrease) in Cash and Cash Equivalents**                        |       |                                                           | 85         |   |   |   | (62 | ) |   |   | 23 |   |   |
| **Cash  and Cash Equivalents, beginning of the period**                          |       |                                                           | 414        |   |   |   | 222 |   |   |   | 636 |   |   |
| **Cash and Cash Equivalents, end  of the period**                                |       |                                                           | $          | 499 |   |   |   | $ | 160 |   |   |   | $ | 659 |   |   |

 

**D.   RelatedParty Arrangements and Transactions**

***Management, Personnel and Services Agreement withMirant Services***

Mirant Services provides the Company with variousmanagement, personnel and other services. The Company reimburses MirantServices for amounts equal to Mirant Services’ direct costs of providing suchservices.

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Thetotal costs incurred under the Management, Personnel and Services Agreementwith Mirant Services have been included in the accompanying unaudited condensedconsolidated and combined statements of operations for the three months ended March 31,2006 and 2005 as follows (in millions):

| ** **                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cost of fuel, electricity and other products—affiliate |       |     | $          | 2        |       |   |   | $ | 3 |   |   |
| Operations and maintenance expense—affiliate           |       |     | 38         |     |       |   | 42 |   |   |
| Total                                                       |       |     | $          | 40       |       |   |   | $ | 45 |   |   |

 

***Services and Risk Management Agreements withAffiliates***

For the three months endedMarch 31, 2006, the Company provided energy marketing and fuel procurementservices through Mirant Energy Trading to the following affiliates: Mirant LasVegas, LLC, Mirant Sugar Creek, LLC, Mirant Shady Hills, LLC, Mirant WestGeorgia, LLC and Mirant Wichita Falls, LP. For the three months ended March 31,2005, these services were provided by Mirant Americas Energy Marketing. Amountsdue from each affiliate under their respective services agreements are recordedas a net accounts payable-affiliate or accounts receivable-affiliate because ofeach subsidiary’s legal right to offset. For the three months ended March 31,2006 and 2005, the Company earned approximately $1 million and $2 million,respectively, under these agreements with affiliates which are included in operatingrevenue—affiliate in Mirant Americas Generation’s unaudited condensedconsolidated and combined statements of operations.

***Administration Arrangements with Mirant Services***

Substantially all ofMirant’s corporate overhead costs are allocated to Mirant’s operatingsubsidiaries. For the three months ended March 31, 2006 and 2005, theCompany incurred approximately $32 million and $36 million,respectively, in costs under these arrangements, which are included inoperations and maintenance—affiliate in the accompanying unaudited condensedconsolidated and combined statements of operations.

***Notes Payable to Affiliate***

During the pendency of theChapter 11 proceedings, Mirant and certain of its subsidiariesparticipated in an intercompany cash management program approved by theBankruptcy Court, pursuant to which cash balances at Mirant and theparticipating subsidiaries were transferred to central concentration accountsand, if necessary, lent to Mirant or any participating subsidiary to fund workingcapital and other needs, subject to the intercompany borrowing limits approvedby the Bankruptcy Court. At March 31, 2006, and December 31, 2005,the Company had current notes payable to affiliate of $5 million and $21 million,respectively. For the three months ended March 31, 2006 and 2005, theCompany incurred less than $1 million and $3 million, respectively,of interest expense under this arrangement, which are recorded in interestexpense—affiliate in the accompanying unaudited consolidated and combinedfinancial statements.

***Payable to Mirant Americas Pursuant to the Plan***

Pursuant to the Plan, theCompany was required to pay $250 million to Mirant Americas, Inc. (“MirantAmericas”) within five days of the effective date of the Plan in return forMirant’s contribution of the Trading Debtors. This amount is included inpayable to affiliate at December 31, 2005, in the consolidated balancesheet and was paid in January 2006.

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***Mirant Guarantees***

Mirant posted pre-petition letters of credit and aguarantee on behalf of Mirant Mid-Atlantic to provide for the rent paymentreserve required in connection with Mirant Mid-Atlantic’s lease obligations inthe event that it was unable to pay its lease payment obligations. On January 3,2006, as part of the settlement and the Company’s emergence from bankruptcy,Mirant North America posted a $75 million letter of credit for the benefitof Mirant Mid-Atlantic to cover debt service reserve obligations on Mirant Mid-Atlantic’sleases. Upon the posting of the letter of credit, the trustee returned $56 millionof cash collateral to Mirant Mid-Atlantic.

Mirant posted a post-petition letter of credit in theamount of $5 million on behalf of Mirant Texas, LP (“Mirant Texas”), as ofDecember 31, 2004, related to a tolling agreement. This post-petitionletter of credit was set to expire in January 2006. Upon emergence frombankruptcy, Mirant North America replaced this post-petition letter of creditwith a letter of credit issued under its senior secured credit facilities. Theletter of credit expires in June 2006.

Prior to 2005, Mirantentered into pre-petition letters of credit to support the Company’s assetmanagement activities. In September 2005, several of these letters ofcredit were drawn in the amount of $39 million. In January 2006, theremaining pre-petition letter of credit of $7 million was drawn in full. Inaddition, Mirant entered into post-petition letters of credit to support itsasset hedging activities. In January 2006, letters of credit from theMirant North America senior secured credit facilities replaced the elevenpost-petition letters of credit outstanding at December 31, 2005.

***Preferred Stock in Mirant Americas***

For the three months endedMarch 31, 2006, the Company recorded $5 million in Preferred Stock inaffiliate and Member’s Interest in the unaudited condensed consolidated balancesheet related to the amortization of the discount on the preferred stock inMirant Americas.

***Debtor in Possession Financing for New YorkSubsidiaries***

Mirant North America and Mirant Americas EnergyMarketing, (the “Primary DIP Lenders”) entered into an agreement (the ‘‘PrimaryNew York DIP Agreement’’) to make secured debtor-in-possessionfinancing in an amount of (i) $20 million, plus (ii) an amountequal to the amount of credit support provided on behalf of Mirant New York,Mirant Bowline, Mirant Lovett, and Hudson Valley Gas Corporation (collectively,the ‘‘New York DIP Borrowers’’), to the extent such amounts are collateralizedwith cash or cash equivalents by the New York DIP Borrowers. The facility isavailable on a joint and several basis to the New York DIP Borrowers. On January 31,2006, all the assets of Mirant Americas Energy Marketing were transferred toMirant Energy Trading, with Mirant Energy Trading to succeed to all rights andassume all obligations of Mirant Americas Energy Marketing under the PrimaryNew York DIP Agreement. The New York DIP Borrowers have posted $21.6 millioncash collateral with Mirant Energy Trading in accordance with the March 31,2006, collateral allocation performed in good faith by Mirant Energy Trading.To the extent that the required level of credit support provided to the NewYork DIP Borrowers is reduced, the amount of such reduction is required to bereturned to the New York DIP Borrowers.

Contemporaneous with their entry into the Primary NewYork DIP Agreement, the New York DIP Borrowers also entered into an agreementfor secured financing with Mirant (the “Secondary New York DIP Agreement”). TheSecondary New York DIP Agreement permits Mirant to make secured debtor-in-possessionfinancing in the maximum amount of $50 million to the New York DIP Borrowers,and the borrowings are available solely for cash collateral postings by any oneor more of the New York DIP Borrowers.

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The Bankruptcy Court hasapproved a debtor-in-possession loan to Mirant NY-Gen from Mirant Americasunder which Mirant Americas, subject to certain conditions, would lend up to$4.5 million to Mirant NY-Gen to provide funding for the repairs on theSwinging Bridge dam.

For further discussion see“Item 2. Management Discussion and Analysis—Financial Condition.”

**E.   Price RiskManagement Assets and Liabilities**

Thefair values of Mirant Americas Generation’s price risk management assets andliabilities, net of credit reserves, at March 31, 2006, are included inthe following table (in millions):

| ** **     | ** ** | **Assets**  | ** ** | **Assets**     | ** ** | **Liabilities** | ** ** | **Liabilities** | ** ** | ** **                   | ** ** |
|----------------|------------|-------------|------------|----------------|------------|-----------------|------------|-----------------|------------|------------------------------|------------|
| ** **     | ** ** | **Current** | ** ** | **Noncurrent** | ** ** | **Current**     | ** ** | **Noncurrent**  | ** ** | **Net Fair Value** | ** ** |
| Electricity    |       |        | $          | 547            |       |            |       | $               | 108        |                         |       |   | $ | (512 | ) |   |   | $ | (14 | ) |   |   | $ | 129 |   |   |
| Natural gas    |       |        | 52         |           |       |            | 11         |            |       |                         | (44        | ) |   |   | (13 | ) |   |   | 6 |   |   |
| Oil            |       |        | 13         |           |       |            | —     |            |       |                         | —     |   |   |   | — |   |   |   | 13 |   |   |
| Residual/other |       |        | 13         |           |       |            | 12         |            |       |                         | (5         | ) |   |   | (1 | ) |   |   | 19 |   |   |
| Total          |       |        | $          | 625            |       |            |       | $               | 131        |                         |       |   | $ | (561 | ) |   |   | $ | (28 | ) |   |   | $ | 167 |   |   |

 

Of the $167 million net fair value asset at March 31,2006, a $63 million net price risk management asset relates to the remainder of2006, a net price risk management asset of $46 million relates to 2007 and anet price risk management asset of $58 million relates to periods thereafter.The volumetric weighted average maturity, or weighted average tenor, of theprice risk management portfolio at March 31, 2006, was approximately 14months. The net notional amount of the price risk management assets andliabilities at March 31, 2006, was a net short position of approximately25** **million equivalent megawatt-hours(“MWh”).

In January 2006, the Company entered intofinancial swap transactions with a counterparty, the effect of which was tohedge its Mid-Atlantic expected on-peak coal fired generation by approximately80%, 50% and 50% for 2007, 2008 and 2009, respectively.

Thefollowing table provides a summary of the factors impacting the change in netfair value of the price risk management asset and liability accounts in thefirst quarter of 2006 (in millions):

| ** **                                             | ** ** | **Proprietary  Trading** | ** ** | **Asset  Management** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|-----------|------------|
| Net fair value of  portfolio at December 31, 2005 |       |                     | $          | 40                    |       |      |       | $ | (154 | ) |   | $ | (114 | ) |
| Gains (losses)  recognized in the period, net          |       |                     | 17         |                  |       |      | 211        |   |   | 228 |   |
| Contracts settled  during the period, net              |       |                     | (5         | )                     |       |      | 58         |   |   | 53 |   |
| Net fair value of portfolio  at March 31, 2006    |       |                     | $          | 52                    |       |      |       | $ | 115 |   |   | 167 |   |
|                                                        |            |                          |            |                       |            |           |            |  |  |  |  |  |  |  |

 

**F.   AssetsHeld for Sale**

Current assets held forsale as of March 31, 2006 and December 31, 2005, include $7 millionrelated to the Mirant service center building and accompanying land. TheCompany expects to close the sale on or before December 31, 2006.

**G.**   Debt

Pursuant to the Plan, theCompany reinstated $1.7 billion of senior notes maturing in 2011, 2021 and 2031.

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***Senior Secured Credit Facilities***

Mirant North America, a wholly-owned subsidiary of theCompany entered into senior secured credit facilities in January 2006,which are comprised of an $800 million six-year senior secured revolvingcredit facility and a $700 million seven-year senior secured term loan.The full amount of the senior secured revolving credit facility is available ascash or for the issuance of letters of credit. On January 3, 2006, MirantNorth America drew $465 million under its senior secured revolving creditfacility. All amounts were repaid during the quarter. The senior secured termloan was fully drawn at closing and will amortize in nominal quarterlyinstallments aggregating 0.25% of the original principal of the term loan perquarter for the first 27 quarters, with the remainder payable on the finalmaturity date. At the closing, $200 million drawn under the senior securedterm loan was deposited into a cash collateral account to support the issuanceof up to $200 million of letters of credit.

Loans under the senior secured credit facilities areavailable at either of the following rates: (i) a fluctuating rate ofinterest per annum equal to, on any given day, the greater of (a) theinterest rate per annum publicly announced by JPMorgan Chase Bank, N.A. asits prime rate in effect at its principal office in New York City on that day,and (b) the federal funds rate in effect on that day plus 0.50%, plus theapplicable margin described below (the “base rate”), or (ii) a fixed ratedetermined for selected interest periods of one, two, three or six months equalto U.S. dollar London InterBank Offered Rate (“LIBOR”), plus the applicablemargin described below (the “Eurodollar rate”).

The applicable margin withrespect to loans under the senior secured revolving credit facility is 1.25% inthe case of base rate loans or 2.25% in the case of Eurodollar rate loans. Theapplicable margin is subject to a reduction of up to 0.50% based on theachievement and maintenance of certain leverage ratios by Mirant North America.The applicable margin with respect to the senior secured term loan is 0.75% inthe case of base rate loans or 1.75% in the case of Eurodollar rate loans.

***Senior Notes***

In December 2005, Mirant North America issuedsenior notes in an aggregate principal amount of $850 million that bearinterest at 7.375% and mature on December 31, 2013. Interest on the notesis payable on each June 30 and December 31, commencing June 30,2006.

The proceeds of the notesoffering initially were placed in escrow pending the emergence of Mirant frombankruptcy. The proceeds were released from escrow in connection with Mirant’semergence from bankruptcy and the closing of the senior secured creditfacilities.

**H.**   Litigationand Other Contingencies 

The Company is involved ina number of significant legal proceedings. In certain cases plaintiffs seek torecover large and sometimes unspecified damages, and some matters may beunresolved for several years. The Company cannot currently determine theoutcome of the proceedings described below or the ultimate amount of potentiallosses and therefore has not made any provision for such matters unlessspecifically noted below. Pursuant to SFAS No. 5, “*Accountingfor Contingencies*,” management provides for estimated losses to theextent information becomes available indicating that losses are probable andthat the amounts are reasonably estimable. Additional losses could have amaterial adverse effect on the Company’s consolidated and combined financialposition, results of operations or cash flows.

***Chapter 11 Proceedings***

On July 14, 2003, and various dates thereafter,Mirant Corporation and certain of its subsidiaries (collectively, the “MirantDebtors”), including the Company and its subsidiaries, filed voluntarypetitions for relief under Chapter 11 ofthe Bankruptcy Code in the Bankruptcy Court. On August 21, 2003,and 

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September 8, 2003,the Bankruptcy Court entered orders establishing a December 16, 2003, bardate (the “Bar Date”) for filing proofs of claim against the Mirant Debtors’estates.

Most of the material claims filed against the MirantDebtors’ estates were disallowed or were resolved and became “allowed” claimsbefore confirmation of the Plan that became effective for Mirant, the Company,and most of the Mirant Debtors on January 3, 2006. For example, the claimsfiled by the California Attorney General, Pacific Gas & ElectricCompany (“PG&E”), various other California parties, plaintiffs in certainrate payer class action lawsuits, the plaintiffs in certain bondholderlitigation, and Utility Choice, L.P., which are described in the Company’s 2004Annual Report on Form 10-K, are among the claims that were resolvedprior to confirmation of the Plan. A number of claims, however, remainunresolved.

Except for claims and other obligations not subject todischarge under the Plan and unless otherwise provided below, all claimsagainst the Mirant Debtors’ estates representing obligations that arose priorto July 14, 2003, are subject to compromise under the Plan. This meansthat the claimant will receive a distribution of Mirant common stock, cash orboth Mirant common stock and cash in accordance with the terms of the Plan insatisfaction of the claim. As a result, the exact amount of the claim may stillbe litigated, but the Company will not be required to make any payment inrespect of such litigation until a resolution is obtained, through settlement,judgment or otherwise.

As of March 31, 2006, approximately 21.4 millionof the shares of Mirant common stock to be distributed under the Plan have notyet been distributed and have been reserved for distribution with respect toclaims that are disputed by the Mirant Debtors and have not been resolved,including any claims resulting from the rejection of certain contracts withPotomac Electric Power Company (“PEPCO”), as described below in PEPCOLitigation. Under the terms of the Plan, to the extent such claims are resolvednow that the Company has emerged from bankruptcy, the claimants will be paidfrom the reserve of 21.4 million shares on the same basis as if they hadbeen paid out when the Plan became effective. That means that their allowedclaims will receive the same pro rata distributions of Mirant common stock,cash, or both common stock and cash as previously allowed claims in accordancewith the terms of the Plan. To the extent the aggregate amount of the payoutsdetermined to be due with respect to such disputed claims ultimately exceedsthe amount of the funded claim reserve, Mirant would have to issue additional sharesof common stock to address the shortfall, which would dilute existing Mirantshareholders, and the Company would have to pay additional cash amounts asnecessary under the terms of the Plan to satisfy such pre-petition claims. TheCompany will continue to monitor its obligations as the disputed claims areresolved.

The Company’s Lovett andBowline generation facilities in New York are subject to disputes with localtax authorities regarding property tax assessments and with the New York StateDepartment of Environmental Conservation (“NYSDEC”) regarding environmentalcontrols. Mirant Lovett is also in discussions with the State of New York andother parties regarding an agreement that would compensate Mirant Lovett forthe contribution of the Lovett facility to the reliability of the New Yorkelectric power system. The facilities are forecasted to have negative operatingcash flows at their current property taxation levels. Until a settlement isreached on property taxes, environmental controls and reliability that wouldpermit economically feasible operation, the Company’s subsidiaries that own thefacilities, Mirant Lovett and Mirant Bowline, will remain in Chapter 11. MirantLovett and Mirant Bowline are currently in settlement discussions on all of theseissues. Although negotiations are continuing, settlements may not be reached inthe near future, or at all. Until such settlements are reached and thecompanies emerge from bankruptcy, the Company will not have access to the cashfrom operations generated from these subsidiaries. Mirant NY-Gen, which ownshydroelectric facilities at Swinging Bridge, Rio and Mongaup, and smallcombustion turbine facilities at Hillburn and Shoemaker, is insolvent. Itsexpenses are being funded under a debtor-in-possession facility made by MirantAmericas with the approval of, and under the supervision of, the BankruptcyCourt. Mirant NY-Gen is currently discussing with the Federal Energy RegulatoryCommission (“FERC”) appropriate remediation for a sinkhole discovered in May 2005in the 

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dam atthe Swinging Bridge facility. Mirant NY-Gen conducted a flood study todetermine downstream consequences if the maximum capacities of the reservoirswere exceeded at its New York Swinging Bridge, Rio and Mongaup generationfacilities, and Mirant NY-Gen could be requested by the FERC to remediate thosedams as well. Mirant NY-Gen has initiated discussions with the FERC forsurrendering its permits to operate all the hydroelectric facilities atSwinging Bridge, Rio and Mongaup, and expects to begin that formal processsoon. It is not possible at this point to determine the cost of remediation ofthe dam at Swinging Bridge and surrendering the permits, but such costs may besubstantial.

***PEPCO Litigation***

In 2000, Mirant purchased power generating facilitiesand other assets from PEPCO, including certain power purchase agreements (“PPAs”)between PEPCO and third parties. Under the terms of the Asset Purchase and SaleAgreement (“APSA”), Mirant and PEPCO enteredinto a contractual agreement (the “Back-to-Back Agreement”) with respect to certain PPAs, including PEPCO’slong-term PPAs with Ohio Edison Company (“Ohio Edison”) and Panda-BrandywineL.P. (“Panda”), under which (1) PEPCO agreed to resell to Mirant allcapacity, energy, ancillary services and other benefits to which it is entitledunder those agreements; and (2) Mirant agreed to pay PEPCO each month allamounts due from PEPCO to the sellers under those agreements for theimmediately preceding month associated with such capacity, energy, ancillaryservices and other benefits. The Ohio Edison PPA terminated in December 2005and the Panda PPA runs until 2021. Under the Back-to-Back Agreement, Mirant isobligated to purchase power from PEPCO at prices that typically are higher thanthe market prices for power.

Mirant assigned its rightsand obligations under the Back-to-Back Agreement to Mirant Americas EnergyMarketing. In the Chapter 11 cases of the Mirant Debtors, PEPCO asserted thatan Assignment and Assumption Agreement dated December 19, 2000, thatincludes as parties PEPCO and various subsidiaries of ours causes oursubsidiaries that are parties to the agreement to be jointly and severallyliable to PEPCO for various obligations, including the obligations under theBack-to-Back Agreement. The Mirant Debtors have sought to reject the APSA, theBack-to-Back Agreement, and the Assignment and Assumption Agreement, and therejection motions have not been resolved. Under the Plan, the obligations ofthe Mirant Debtors under the APSA (including any other agreements executedpursuant to the terms of the APSA and found by a final court order to be partof the APSA), the Back-to-Back Agreement, and the Assignment and AssumptionAgreement are to be performed by Mirant Power Purchase, LLC (“Mirant PowerPurchase”), whose performance is guaranteed by Mirant. If any of the agreementsis successfully rejected, the obligations of Mirant Power Purchase and Mirant’sguarantee obligations terminate with respect to that agreement, and PEPCO wouldbe entitled to a claim in the Chapter 11 proceedings for any resulting damages.That claim would then be addressed under the terms of the Plan. If theBankruptcy Court were to conclude that the Assignment and Assumption Agreementimposed liability upon the Company’s subsidiaries for the obligations under theBack-to-Back Agreement and the Back-to-Back Agreement were to be rejected, theresulting rejection damages claim could result in a claim in the Chapter 11proceedings against the Company’s subsidiaries but any such claim would bereduced by the amount recovered by PEPCO on its comparable claim againstMirant.

***Californiaand Western Power Markets***

*CaliforniaRate Payer Litigation.**  *Certainof our subsidiaries are subject to litigation related to their activities inCalifornia and the western power markets and the high prices for wholesaleelectricity experienced in the western markets during 2000 and 2001. Variouslawsuits were filed in 2000 through 2003 that asserted claims under Californialaw based on allegations that certain owners of electricity generationfacilities in California and energy marketers, including the Company, MirantAmericas Energy Marketing and our subsidiaries owning generating facilities inCalifornia, engaged in various unlawful and anti-competitive acts that servedto manipulate wholesale power markets and inflate wholesale electricity 

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prices in California. Allof these suits have been dismissed by final orders except for six such suitsthat were filed between November 27, 2000, and May 2, 2001, invarious California Superior Courts and consolidated before the Superior Courtfor the County of San Diego for pretrial purposes. Although the plaintiffsdismissed Mirant from those suits, they have not filed to dismiss certain ofour subsidiaries that are also defendants. On October 3, 2005, theCalifornia state court dismissed those six consolidated suits on the groundsthat the plaintiffs’ claims were barred by federal preemption as a result ofthe Federal Power Act. On December 5, 2005, the plaintiffs filed an appealof the dismissal. On April 14, 2006, the California Court of Appealdismissed the appeal as to the remaining Mirant defendants pursuant to astipulation and remanded the suit to the superior court. The plaintiffs havefiled a request for voluntary dismissal of the remaining Mirant defendantsbefore the superior court, which remains pending. The plaintiffs in the sixconsolidated suits did not file claims in the Chapter 11 proceedings, and it isthe Company’s view that their claims are in any event barred by the Plan nowthat it has become effective.

*FERCRefund Proceedings.*   On July 25, 2001, theFERC issued an order requiring proceedings (the “FERC Refund Proceedings”) todetermine the amount of any refunds and amounts owed for sales made by marketparticipants, including Mirant Americas Energy Marketing, to the CaliforniaIndependent System Operator (“CAISO”) or the California Power Exchange (“Cal PX”)from October 2, 2000, through June 20, 2001 (the “Refund Period”).Various parties have appealed these FERC orders to the United States Court ofAppeals for the Ninth Circuit (the “Ninth Circuit”) seeking review of a numberof issues, including changing the Refund Period to include periods prior to October 2,2000, and expanding the sales of electricity subject to potential refund toinclude bilateral sales made to the California Department of Water Resources(the “DWR”) and other parties. Any such expansion of the Refund Period or thetypes of sales of electricity potentially subject to refund could significantlyincrease the refund exposure of Mirant Americas Energy Marketing in thisproceeding. Although Mirant Americas Energy Marketing is the Mirant entity thatengaged in transactions with the CAISO and the Cal PX, the orders issued by theFERC in the refund proceedings, and the filings made by other parties in thoseproceedings, generally refer to the Mirant entity involved as Mirant withoutbeing more specific. It is the Company’s view that the Mirant entity that wouldactually be liable to third parties for any refunds determined by the FERC tobe owed, or that would be due any receivables found to be owed to Mirant, isMirant Americas Energy Marketing.

In the July 25, 2001, order, the FERC alsoordered that a preliminary evidentiary proceeding be held to develop a factualrecord on whether there had been unjust and unreasonable charges for spotmarket bilateral sales in the Pacific Northwest from December 25, 2000,through June 20, 2001. In that proceeding, the California AttorneyGeneral, the California Public Utility Commission (the “CPUC”) and theCalifornia Electricity Oversight Board (the “EOB”) filed to recover certainrefunds from parties, including Mirant Americas Energy Marketing, for bilateralsales of electricity to the DWR at the California/Oregon border, claiming thatsuch sales took place in the Pacific Northwest. In an order issued June 25,2003, the FERC ruled that no refunds were owed and terminated the proceeding.On November 10, 2003, the FERC denied requests for rehearing filed byvarious parties. Various parties have appealed the FERC’s decision to the NinthCircuit.

On September 9, 2004, the Ninth Circuit reversedthe FERC’s dismissal of a complaint filed in 2002 by the California AttorneyGeneral that sought refunds for transactions conducted in markets administeredby the CAISO and the Cal PX outside the Refund Period set by the FERC and fortransactions between the DWR and various owners of generation and powermarketers, including Mirant Americas Energy Marketing and subsidiaries ofthe Company. The Ninth Circuit remanded the proceeding to the FERC for it todetermine what remedies, including potential refunds, are appropriate where entities,including Mirant Americas Energy Marketing, purportedly did not comply withcertain filing requirements for transactions conducted under market-based ratetariffs. Mirant Americas Energy 

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Marketing and otherparties have filed a petition for rehearing with the Ninth Circuit that remainspending.

On January 14, 2005,**Mirantand certain of its subsidiaries, including the Company, entered into aSettlement and Release of Claims Agreement (the “California Settlement”) withPG&E, Southern California Edison Company (“SCE”), San Diego Gas andElectric Company, the CPUC, the DWR, the EOB and the Attorney General of theState of California (collectively, the “California Parties”) and with theOffice of Market Oversight and Investigations of the FERC. The CaliforniaSettlement settled a number of disputed lawsuits and regulatory proceedingsthat were pursued originally in state and federal courts and before the FERC.The Mirant entities that are parties to the California Settlement(collectively, the “Mirant Settling Parties”) include Mirant Corporation,Mirant Americas Energy Marketing, the Company, and Mirant North America (as thesuccessor to Mirant California Investments, Inc.). The CaliforniaSettlement was approved by the FERC on April 13, 2005, and becameeffective April 15, 2005, upon its approval by the Bankruptcy Court. TheCalifornia Settlement resulted in the release of most of Mirant Americas EnergyMarketing’s potential liability (1) in the FERC Refund Proceedings forsales made in the CAISO or the Cal PX markets, (2) in the proceeding alsoinitiated by the FERC in July 2001 to determine whether there had beenunjust and unreasonable charges for spot market bilateral sales in the PacificNorthwest from December 25, 2000, through June 20, 2001, and (3) inany proceedings at the FERC resulting from the Ninth Circuit’s reversal of theFERC’s dismissal of the complaint filed in 2002 by the California AttorneyGeneral. Under the California Settlement, the California Parties and thoseother market participants who have opted into the settlement have released theMirant Settling Parties from any liability for refunds related to sales ofelectricity and natural gas in the western markets from January 1, 1998,through July 14, 2003. Also, the California Parties have assumed theobligation of Mirant Americas Energy Marketing to pay any refunds determined bythe FERC to be owed by Mirant Americas Energy Marketing to other parties thatdo not opt into the settlement for transactions in the CAISO and Cal PX marketsduring the Refund Period, with the liability of the California Parties for suchrefund obligation limited to the amount of certain receivables assigned byMirant Americas Energy Marketing to the California Parties under the CaliforniaSettlement. Subject to applicable bankruptcy law, however, Mirant AmericasEnergy Marketing will continue to be liable for any refunds that the FERCdetermines it to owe (1) to participants in the Cal PX and CAISO marketsthat are not California Parties (or that did not elect to opt into thesettlement) for periods outside of the Refund Period and (2) toparticipants in bilateral transactions with Mirant Americas Energy Marketingthat are not California Parties (or that did not elect to opt into thesettlement).

It is the Company’s view that the bulk of anyobligations of Mirant Americas Energy Marketing to make refunds as a result ofsales completed prior to July 14, 2003, in the CAISO or Cal PX markets orin bilateral transactions either have been addressed by the California Settlementor have been resolved as part of Mirant Americas Energy Marketing’s bankruptcyproceedings. To the extent that Mirant Americas Energy Marketing’s potentialrefund liability arises from contracts that were transferred to Mirant EnergyTrading as part of the transfer of the trading and marketing business under thePlan, Mirant Energy Trading may have exposure to any refund liability relatedto transactions under those contracts.

*FERCShow Cause Proceeding Relating to Trading Practices.**  *On June 25, 2003, the FERC issued a show causeorder (the “Trading Practices Order”) to more than 50 parties, including MirantAmericas Energy Marketing and subsidiaries of Mirant Americas Generation, thata FERC staff report issued on March 26, 2003, identified as havingpotentially engaged in one or more trading strategies of the type employed byEnron Corporation and its affiliates (“Enron”), as described in Enron memosreleased by the FERC in May 2002. The Trading Practices Order identifiedcertain specific trading practices that the FERC indicated could constitutegaming or anomalous market behavior in violation of the CAISO and Cal PXtariffs. The Trading Practices Order requires the CAISO to identifytransactions between January 1, 2000, and June 20, 2001, that mayinvolve the identified trading strategies, and then requires the 

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applicable sellersinvolved in those transactions to demonstrate why such transactions were notviolations of the CAISO and Cal PX tariffs. On September 30, 2003,the Mirant entities filed with the FERC for approval of a settlement agreement(the “Trading Settlement Agreement”) entered into between certain Mirantentities and the FERC Trial Staff, under which Mirant Americas Energy Marketingwould pay $332,411 to settle the show cause proceeding, except for an issuerelated to sales of ancillary services, which is discussed below. In a November 14,2003, order in a different proceeding, the FERC ruled that certain allegationsof improper trading conduct with respect to the selling of ancillary servicesduring 2000 should be resolved in the show cause proceeding. On December 19,2003, the Mirant entities filed with the FERC for approval of an amendment tothe Trading Settlement Agreement reached with the FERC Trial Staff with respectto the sale of ancillary services. Under that amendment, the FERC would have anallowed unsecured claim in Mirant Americas Energy Marketing’s bankruptcyproceeding for $3.67 million in settlement of the allegations with respectto the sale of ancillary services. The FERC approved the Trading SettlementAgreement, as amended, on June 27, 2005, and the Bankruptcy Court approvedit on August 24, 2005. Certain parties have filed motions for rehearingwith the FERC, which motions remain pending.

*MirantAmericas Energy Marketing Contract Dispute With Nevada Power.**  *On December 5, 2001, Nevada Power Co. filed acomplaint at the FERC seeking reformation of the purchase price of energy undera contract it had entered with Mirant Americas Energy Marketing, claiming thatthe prices under that contract were unjust and unreasonable because, when itentered into the contract, Western power markets were dysfunctional andnon-competitive markets. On June 25, 2003, the FERC dismissed thiscomplaint. Nevada Power has appealed that dismissal to the United States Courtof Appeals for the Ninth Circuit. The sales made under the contract with NevadaPower have been completed, and we expect that any refund claim related to thatcontract, if not now barred, will be addressed in the Chapter 11 proceedings.

*Mirant Americas EnergyMarketing Contract Dispute With Southern California Water.**  *On December 21, 2001, Southern California WaterCo. filed a complaint at the FERC seeking reformation of the purchase price ofenergy under a long-term contract it had entered with Mirant Americas EnergyMarketing, claiming that the prices under that contract were unjust andunreasonable because, when it entered the contract, Western power markets weredysfunctional and non-competitive markets. On June 25, 2003, the FERCdismissed this proceeding. Southern California Water has appealed thatdismissal to the United States Court of Appeals for the Ninth Circuit. Thecontract with Southern California Water Company continues through 2006. Uponthe transfer of the assets of the trading and marketing business to MirantEnergy Trading under the Plan, Mirant Energy Trading assumed Mirant AmericasEnergy Marketing’s contract obligations to Southern California Water Co.,including any potential refund obligations.

***BondholderLitigation***

*Mirant Americas GenerationBondholder Suit.*   On June 10, 2003, certainholders of senior notes of Mirant Americas Generation maturing after 2006 fileda complaint in the Court of Chancery of the State of Delaware*, California Public Employees’ Retirement System, et al. v. MirantCorporation, et al.,* that named as defendants Mirant, MirantAmericas, Mirant Americas Generation, certain past and present Mirantdirectors, and certain past and present Mirant Americas Generation managers.Among other claims, the plaintiffs assert that a restructuring plan pursued bythe Company prior to its filing a petition for reorganization under Chapter 11of the Bankruptcy Code was in breach of fiduciary duties allegedly owed to themby Mirant, Mirant Americas and Mirant Americas Generation’s managers. Inaddition, the plaintiffs challenge certain dividends and distributions made byMirant Americas Generation prior to the Petition Date. The plaintiffs seekdamages in excess of $1 billion. Mirant has removed this suit to the UnitedStates District Court for the District of Delaware. This action was stayed withrespect to the Mirant 

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entities that aredefendants by the filing of the Chapter 11 proceedings of these entities. Theorder entered by the Bankruptcy Court confirming the Plan enjoins theprosecution of this action and requires that it be dismissed. On March 8,2006, the Bankruptcy Court entered an order compelling the plaintiffs in thisaction to dismiss their complaint in accordance with the terms of the Plan. On March 17,2006, the parties filed a stipulation of dismissal dismissing the suit.

***U.S. Government Inquiries***

*Department of JusticeInquiries.*   In November 2002, Mirantreceived a subpoena from the Department of Justice (“DOJ”), acting through theUnited States Attorney’s office for the Northern District of California,requesting information about its activities and those of its subsidiaries for theperiod since January 1, 1998. The subpoena requested information relatedto the California energy markets and other topics, including the reporting ofinaccurate information to the trade press that publish natural gas orelectricity spot price data. The subpoena was issued as part of a grand juryinvestigation. The DOJ’s investigation of the reporting of inaccurate naturalgas price information is continuing, and Mirant has held preliminarydiscussions with DOJ regarding the disposition of this matter. The DOJ’sinvestigation is based upon the same circumstances that were the subject of aninvestigation by the Commodity Futures Trading Commission (“CFTC”) that wassettled in December 2004. As described****in Mirant’sAnnual Report on Form 10-K for the year ended December 31,2004, in*Legal Proceedings—Other Governmental Proceedings—CFTCInquiry*, Mirant and Mirant Americas Energy Marketing pursuant to thesettlement consented to the entry of an order by the CFTC in which it madefindings, which are neither admitted nor denied by Mirant and Mirant AmericasEnergy Marketing, that (1) from January 2000 through December 2001,certain Mirant Americas Energy Marketing natural gas traders (a) knowinglyreported inaccurate price, volume, and/or counterparty information regardingnatural gas cash transactions to publishers of natural gas indices and (b) inaccuratelyreported to index publishers transactions observed in the market as MirantAmericas Energy Marketing transactions and (2) from January to October 2000,certain Mirant Americas Energy Marketing west region traders knowinglydelivered the false reports in an attempt to manipulate the price of naturalgas. Under the settlement, the CFTC received a subordinated allowed, unsecuredclaim against Mirant Americas Energy Marketing of $12.5 million in the Chapter11 proceedings. The DOJ could decide that further action against Mirant andMirant Americas Energy Marketing is not appropriate or could seek indictmentsagainst one or more Mirant entities, or the DOJ and Mirant could agree to adisposition that might involve undertakings or fines, the amount of whichcannot be reasonably estimated at this time but which could be material. Miranthas cooperated fully with the DOJ and intends to continue to do so. At thistime, it is the Company’s view that any action taken by the DOJ against Mirantor its subsidiaries related to the reporting of natural gas price informationwould not involve the Company or its subsidiaries except to the extent that anydisposition of this matter results in ongoing undertakings by Mirant EnergyTrading as the recipient of the assets of Mirant Americas Energy Marketingunder the Plan.

***Environmental Matters***

*EPAInformation Request.**  *InJanuary 2001, the EnvironmentalProtection Agency (the “EPA”) issued a request for information to Mirantconcerning the air permitting and air emissions control implications under theEPA’s new source review (“NSR”) regulations promulgated under the Federal CleanAir Act (“Clean Air Act”) of past repair and maintenance activities at thePotomac River plant in Virginia and the Chalk Point, Dickerson and Morgantownplants in Maryland. The requested information concerns the period of operationsthat predates the Company subsidiaries’ ownership and lease of those plants. Miranthas responded fully to this request. Under the APSA, PEPCO is responsible forfines and penalties arising from any violation associated with historicaloperations prior to the Company subsidiaries’ acquisition or lease of theplants. If the Mirant Debtors succeed in rejecting the APSA as described abovein *PEPCO Litigation*, PEPCO may assert thatit has no obligation to reimburse Mirant for any fines or 

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penalties imposed uponMirant for periods prior to the Company subsidiaries’ acquisition or lease of theplants. If a violation is determined to have occurred at any of the plants, theCompany subsidiary owning or leasing the plant may be responsible for the costof purchasing and installing emissions control equipment, the cost of which maybe material. If such violation is determined to have occurred after the Company’ssubsidiaries acquired or leased the plants or, if occurring prior to theacquisition or lease, is determined to constitute a continuing violation, theCompany subsidiary owning or leasing the plant at issue would also be subjectto fines and penalties by the state or federal government for the periodsubsequent to its acquisition or lease of the plant, the cost of which may bematerial.

*MirantPotomac River Notice of Violation.**  *OnSeptember 10, 2003, the Virginia Department of Environmental Quality (“VirginiaDEQ”) issued a Notice of Violation (“NOV”) to Mirant Potomac River allegingthat it violated its Virginia Stationary Source Permit to Operate by emittingnitrogen oxide (“NOx”) in excess of the “cap” established by the permit for the2003 summer ozone season. Mirant Potomac River responded to the NOV, assertingthat the cap is unenforceable, noting that it can comply through the purchaseof emissions allowances and raising other equitable defenses. Virginia’s civilenforcement statute provides for injunctive relief and penalties. On January 22,2004, the EPA issued an NOV to Mirant Potomac River alleging the same violationof its Virginia Stationary Source Permit to Operate as set out in the NOVissued by the Virginia DEQ.

On September 27, 2004, Mirant Potomac River,Mirant Mid-Atlantic, the Virginia DEQ, the Maryland Department of theEnvironment (the “MDE”), the DOJ and the EPA entered into, and filed forapproval with the United States District Court for the Eastern District ofVirginia, a proposed consent decree (the “Original Consent Decree”) that, ifapproved, would resolve Mirant Potomac River’s potential liability for mattersaddressed in the NOVs previously issued by the Virginia DEQ and the EPA. TheOriginal Consent Decree requires Mirant Potomac River and Mirant Mid-Atlanticto (1) install pollution control equipment at the Potomac River plant andat the Morgantown plant leased by Mirant Mid-Atlantic in Maryland, (2) complywith declining system-wide ozone season NOx emissions caps from 2004 through2010, (3) comply with system-wide annual NOx emissions caps starting in2004, (4) meet seasonal system average emissions rate targets in 2008 and (5) paycivil penalties and perform supplemental environmental projects in and aroundthe Potomac River plant expected to achieve additional environmental benefits.Except for the installation of the controls planned for the Potomac River unitsand the installation of selective catalytic reduction (“SCR”) or equivalenttechnology at Mirant Mid-Atlantic’s Morgantown Units 1 and 2 in 2007 and2008, the Original Consent Decree does not obligate the Company’s subsidiariesto install specifically designated technology, but rather to reduce emissionssufficiently to meet the various NOx caps. Moreover, as to the requiredinstallations of SCRs at Morgantown, Mirant Mid-Atlantic may choose not toinstall the technology by the applicable deadlines and leave the units offeither permanently or until such time as the SCRs are installed. The OriginalConsent Decree is subject to the approval of the district court and theBankruptcy Court. As described below, the Original Consent Decree has not yetbeen approved and the parties have filed an amended proposed consent decree.

The owners/lessors under the lease-financingtransactions covering the Morgantown and Dickerson plants (the “Owners/Lessors”)objected to the Original Consent Decree in the Bankruptcy Court and filed amotion to intervene in the district court action. As part of a resolution ofdisputed matters in the Chapter 11 proceedings, the Owners/Lessors agreednot to object to the Original Consent Decree, subject to certain terms setforth in the Plan and Confirmation Order.

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On July 22, 2005, the district court granted amotion filed by the City of Alexandria seeking to intervene in the districtcourt action, although the district court imposed certain limitations on theCity of Alexandria’s participation in the proceedings. On September 23,2005, the City of Alexandria filed a motion seeking authority to file anamended complaint in the action seeking injunctive relief and civil penaltiesunder the Clean Air Act for alleged violations by Mirant Potomac River of itsVirginia Stationary Source Permit To Operate and the State of Virginia’s StateImplementation Plan. Based upon a computer modeling, the City of Alexandriaasserted that emissions from the Potomac River plant cause or contribute toexceedances of national ambient air quality standards (“NAAQS”) for sulfurdioxide (“SO2”), nitrogen dioxide (“NO2”) and particulate matter. The City ofAlexandria also contended based on its modeling analysis that the plant’semissions of hydrogen chloride and hydrogen fluoride exceed Virginia statestandards. Mirant Potomac River disputes the City of Alexandria’s allegationsthat it has violated the Clean Air Act and Virginia law. On December 2,2005, the district court denied the City of Alexandria’s motion seeking to filean amended complaint.

In early May 2006, theparties to the Original Consent Decree and Mirant Chalk Point, LLC entered intoan amended consent decree (the “Amended Consent Decree”) to be filed forapproval with the United States District Court for the Eastern District ofVirginia that, if approved, will resolve Mirant Potomac River’s potentialliability for matters addressed in the NOVs previously issued by the VirginiaDEQ and the EPA. The district court and the Bankruptcy Court must approve theAmended Consent Decree for it to become effective. The Amended Consent Decreeincludes the requirements that were to be imposed under the terms of theOriginal Consent Decree as described above. It also defines the rights andremedies of the parties in the event of a rejection in bankruptcy or othertermination of any of the long-term leases under which Mirant Mid-Atlanticleases the coal units at the Dickerson and Morgantown plants. TheAmended Consent Decree provides that if Mirant Mid-Atlantic rejects orotherwise loses one or more of its leasehold interests in the Morgantown andDickerson plants and ceases to operate one or both of the plants, MirantMid-Atlantic, Mirant Chalk Point and/or Mirant Potomac will (i) providethe EPA, Virginia DEQ and the MDE with the written agreement of the new owneror operator of the affected plant or plants to be bound by the obligations ofthe Amended Consent Decree and (ii) where the affected plant is theMorgantown plant, offer to any and all prospective owners and/or operators ofthe Morgantown plant to pay for completion of engineering, construction andinstallation of the SCRs required by the Amended Consent Decree. If the newowner or operator of the affected plant or plants does not agree to be bound bythe obligations of the Amended Consent Decree, it requires Mirant Mid-Atlantic,Mirant Chalk Point and/or Mirant Potomac to install an alternative suite ofenvironmental controls at the plants they continue to own.

On April 26, 2006, Mirant Mid-Atlantic and theMDE entered into an agreement to allow Mirant Mid-Atlantic to implement theconsent decree with respect to the Morgantown plant, if the consent decreereceives the necessary approvals. Under the agreement, Mirant Mid-Atlanticagreed to certain ammonia and particulate matter emissions limits and to submittesting results to the MDE.

*MirantPotomac River Downwash Study.**  *OnSeptember 23, 2004, the Virginia DEQ and Mirant Potomac River entered intoan order by consent with respect to the Potomac River plant under which MirantPotomac River agreed to perform a modeling analysis to assess the potentialeffect of “downwash” from the plant (1) on ambient concentrations of SO2,NO2, carbon monoxide (“CO”) and particulate matter less than or equal to 10micrometers (“PM10”) for comparison to the applicable NAAQS and (2) onambient concentrations of mercury for comparison to Virginia Standards ofPerformance for Toxic Pollutants. Downwash is the effect that occurs whenaerodynamic turbulence induced by nearby structures causes emissions from anelevated source, such as a smokestack, to be mixed rapidly toward the groundresulting in higher ground level concentrations of emissions. If the modelinganalysis indicates that emissions from the facility may cause exceedances ofthe NAAQS for SO2, NO2, CO or PM10, or exceedances of mercury compared toVirginia Standards of Performance for Toxic Pollutants, the consent 

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order requires MirantPotomac River to submit to the Virginia DEQ a plan and schedule to eliminateand prevent such exceedances on a timely basis. Upon approval by the VirginiaDEQ of the plan and schedule, the approved plan and schedule is to beincorporated by reference into the consent order. The results of the computermodeling analysis showed that emissions from the Potomac River plant have thepotential to contribute to localized, modeled instances of exceedances of theNAAQS for SO2, NO2 and PM10 under certain conditions.

On August 24, 2005, power production at all fiveunits of the Potomac River generating facility was temporarily halted inresponse to a directive from the Virginia DEQ. The decision to temporarily shutdown the facility arose from findings of a study commissioned under the orderby consent referred to above. The Virginia DEQ’s directive was based on resultsfrom the study’s computer modeling showing that air emissions from the facilityhave the potential to contribute to localized, modeled exceedances of thehealth-based NAAQS under certain conditions. On August 25, 2005, theDistrict of Columbia Public Service Commission filed an emergency petition andcomplaint with the FERC and the Department of Energy (“DOE”) to prevent theshutdown of the Potomac River facility. The matter remains pending before theFERC and the DOE. On September 21, 2005, Mirant Potomac River commencedpartial operation of one unit of the plant. OnDecember 20, 2005, due to a determination by the DOE that an emergencysituation exists with respect to a shortage of electric energy, the DOE orderedMirant Potomac River to generate electricity at the Potomac River generationfacility, as requested by Pennsylvania-New Jersey-MarylandInterconnection, LLC (“PJM”), during any period in which one or both of thetransmission lines serving the central Washington, D.C. area are out of servicedue to a planned or unplanned outage. In addition, the DOE ordered MirantPotomac River, at all other times, for electric reliability purposes, to keepas many units in operation as possible and to reduce the start-up time of unitsnot in operation without contributing to any NAAQS exceedances.. The DOErequired Mirant Potomac River to submit a plan, on or before December 30,2005, that met these requirements. The DOE advised that it would considerMirant Potomac River’s plan in consultation with the EPA. The order furtherprovides that Mirant Potomac River and its customers should agree to mutuallysatisfactory terms for any costs incurred by it under this order or just andreasonable terms shall be established by a supplemental order. Certain partiesfiled for rehearing of the DOE order, and on February 17, 2006, the DOEissued an order granting rehearing solely for purposes of considering therehearing requests further. Mirant Potomac River submitted an operating plan inaccordance with the order. On January 4, 2006, the DOE issued an interimresponse to Mirant Potomac River’s operating plan authorizing operation of theunits of the Potomac River facility on a reduced basis, but making it possibleto bring the entire plant into service within approximately 28 hours whennecessary for reliability purposes. The DOE’s order expires after September 30,2006, but Mirant Potomac River expects it will be able to continue to operatethese units after that expiration. In a letter received December 30, 2005,the EPA invited Mirant Potomac River and the Virginia DEQ to work with the EPAto ensure that Mirant Potomac River’s operating plan submitted to the DOEadequately addresses NAAQS issues. The EPA also asserts in its letter thatMirant Potomac River did not immediately undertake action as directed by theVirginia DEQ’s August 19, 2005, letter and failed to comply with therequirements of the Virginia State Implementation Plan established by thatletter. Mirant Potomac River received a second letter from the EPA on December 30,2005, requiring Mirant to provide certain requested information as part of anEPA investigation to determine the Clean Air Act compliance status of thePotomac River facility. The facility, in accordance with the operating plansubmitted to the DOE, is currently operating at reduced capacity except whenone or both of the transmission lines serving the central Washington, D.C. areaare out of service. The facility will not resume normal operations until it cansatisfy the requirements of the Virginia DEQ and the EPA with respect to NAAQS,unless, for reliability purposes, it is required to return to operation by agovernmental agency having jurisdiction to order its operation. On January 9,2006, the FERC issued an order directing PJM and PEPCO to file a long-term planto maintain adequate reliability in the Washington D.C. area and surroundingregion and a plan to provide adequate reliability pending implementation ofthis long-term 

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plan.On February 8, 2006, PJM and PEPCO filed their proposed reliability plans.The Company is working with the relevant state and federal agencies with thegoal of restoring all five units of the facility to normal operation in 2007. Thefinancial and operational implications of the discontinued or limited operationof the Potomac River plant are not known at this time, but could be materialdepending on the length of time that operations are discontinued or limited.

*Cityof Alexandria Nuisance Suit.*   On October 7,2005, the City of Alexandria filed a suit against Mirant Potomac River and MirantMid-Atlantic in the Circuit Court for the City of Alexandria. The suit assertsnuisance claims, alleging that the Potomac River plant’s emissions of coaldust, flyash, NOx, SO2, particulate matter, hydrogen chloride, hydrogenfluoride, mercury and oil pose a health risk to the surrounding community andharm property owned by the City. The City seeks injunctive relief, damages andattorneys’ fees. On February 17, 2006, the City amended its complaint toadd additional allegations in support of its nuisance claims relating to noiseand lighting, interruption of traffic flow by trains delivering coal to thePotomac River plant, particulate matter from the transport and storage of coaland flyash, and potential coal leachate into the soil and groundwater from thecoal pile.

*NewYork State Administrative Claim.*   On January 24,2006, the State of New York and the NYSDEC filed a notice of administrativeclaims in the Company’s Chapter 11 proceedings asserting a claim seeking torequire the Company to provide funding to its subsidiaries owning generatingfacilities in New York to satisfy certain specified environmental complianceobligations. The State of New York alleges that during the pendency of theChapter 11 proceedings the Company and its subsidiaries that have emerged frombankruptcy made decisions on behalf of the Company’s subsidiaries owninggenerating facilities in New York and did not appropriately maintain thecorporate separateness between itself and those subsidiaries. The Companydisputes those allegations. The State of New York cites various existingoutstanding matters between the State and the Company’s subsidiaries owninggenerating facilities in New York related to compliance with environmentallaws and regulations, most of which are not material. The most significantcompliance obligation identified by the State of New York in its notice ofadministrative claim relates to a consent decree entered into on June 11,2003 (the “2003 Consent Decree”), by Mirant New York and Mirant Lovett with theState of New York to resolve issues related to NSR requirements under the CleanAir Act related to the Lovett plant. Under the 2003 Consent Decree, MirantLovett is required to make an election to install certain environmentalcontrols on units 4 and 5 of the Lovett facility or shut down those units by2007 to 2008. The State of New York notes in its notice of administrative claimthat the cost of implementing such environmental controls could exceed $200million. The State of New York and the NYSDEC have executed a stipulated orderwith the Company and its New York subsidiaries to stay resolution of thisadministrative claim. That stipulated order was approved by the BankruptcyCourt on February 23, 2006.

*Riverkeeper Suit AgainstMirant Lovett.**  *On March 11,2005, Riverkeeper, Inc. filed suit against Mirant Lovett in the UnitedStates District Court for the Southern District of New York under the FederalWater Pollution Control Act (the “Clean Water Act”). The suit alleges thatMirant Lovett’s failure to implement a marine life exclusion system at itsLovett generating plant and to perform monitoring for the exclusion of certainaquatic organisms from the plant’s cooling water intake structures violatesMirant Lovett’s water discharge permit issued by the State of New York. Theplaintiff requests the court to enjoin Mirant Lovett from continuing to operatethe Lovett generating plant in a manner that allegedly violates the Clean WaterAct, to impose civil penalties of $32,500 per day of violation, and to awardthe plaintiff attorney’s fees. On April 20, 2005, the district courtapproved a stipulation agreed to by the plaintiff and Mirant Lovett that staysthe suit until 60 days after entry of an order by the Bankruptcy Courtconfirming a plan of reorganization for Mirant Lovett becomes final andnon-appealable.

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***City of Alexandria Zoning Action***

On December 18, 2004, the City Council for the City ofAlexandria, Virginia (the “City Council”) adopted certain zoning ordinanceamendments recommended by the City Planning Commission that resulted in thezoning status of Mirant Potomac River’s generating plant being changed from“noncomplying use” to “nonconforming use subject to abatement.” Under thenonconforming use status, unless Mirant Potomac River applies for and isgranted a special use permit for the plant during the seven-year abatementperiod, the operation of the plant must be terminated within a seven-yearperiod, and no alterations that directly prolong the life of the plant will bepermitted during the seven-year period. If Mirant Potomac River were to applyfor and receive a special use permit for the plant, the City Council wouldlikely impose various conditions and stipulations as to the permitted use ofthe plant and seek to limit the period for which it could continue to operate.

At its December 18, 2004, meeting, the CityCouncil also approved revocation of two special use permits issued in 1989 (the“1989 SUPs”), one applicable to the administrative office space at MirantPotomac River’s plant and the other for the plant’s transportation managementplan. Under the terms of the approved action, the revocation of the 1989 SUPswas to take effect 120 days after the City Council’s action, provided, however,that if Mirant Potomac River within such 120-day period filed anapplication for the necessary special use permits to bring the plant intocompliance with the zoning ordinance provisions then in effect, the effectivedate of the revocation of the 1989 SUPs would be stayed until final decision bythe City Council on such application. The approved action further provides thatif such special use permit application is approved by the City Council,revocation of the 1989 SUPs will be dismissed as moot, and if the City Councildoes not approve the application, the revocation of the 1989 SUPs will becomeeffective and the plant will be considered a nonconforming use subject toabatement.

On January 18, 2005,Mirant Potomac River and Mirant Mid-Atlantic filed a complaint against the Cityof Alexandria and the City Council in the Circuit Court for the City ofAlexandria. The complaint seeks to overturn the actions taken by the CityCouncil on December 18, 2004, changing the zoning status of Mirant PotomacRiver’s generating plant and approving revocation of the 1989 SUPs, on thegrounds that those actions violated federal, state and city laws. The complaintasserts, among other things, that the actions taken by the City Councilconstituted unlawful spot zoning, were arbitrary and capricious, constituted anunlawful attempt by the City Council to regulate emissions from the plant, andviolated Mirant Potomac River’s due process rights. Mirant Potomac River andMirant Mid-Atlantic request the court to enjoin the City of Alexandria and theCity Council from taking any enforcement action against Mirant Potomac River orfrom requiring it to obtain a special use permit for the continued operation ofits generating plant. On January 18, 2006, the court issued an oral rulingfollowing a trial that the City of Alexandria acted unreasonably andarbitrarily in changing the zoning status of Mirant Potomac River’s generatingplant and in revoking the 1989 SUPs. On February 24, 2006, the court enteredjudgment in favor of Mirant Potomac River and Mirant Mid-Atlantic declaring thechange in the zoning status of Mirant Potomac River’s generating plant adoptedDecember 18, 2004, to be invalid and vacating the City Council’s revocation ofthe 1989 SUPs. The City of Alexandria has filed notice seeking to appeal thisjudgment.

***PEPCO Assertion of Breach of Local Area SupportAgreement***

Following the shutdown ofthe Potomac River plant on August 24, 2005, Mirant Potomac River notifiedPEPCO on August 30, 2005, that it considered the circumstances resultingin the shutdown of the plant to constitute a force majeure event under theLocal Area Support Agreement dated December 19, 2000, between PEPCO andMirant Potomac River. That agreement imposes obligations upon Mirant PotomacRiver to dispatch the Potomac River plant under certain conditions, to givePEPCO several years advance notice of any indefinite or permanent shutdown ofthe plant, and to pay all or a portion of certain costs incurred by PEPCO fortransmission additions or upgrades when an indefinite or permanent 

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shutdownof the plant occurs prior to December 19, 2010. On September 13,2005, PEPCO notified Mirant Potomac River that it considers Mirant PotomacRiver’s shutdown of the plant to be a material breach of the Local Area SupportAgreement that is not excused under the force majeure provisions of theagreement. PEPCO contends that Mirant Potomac River’s actions entitle PEPCO torecover as damages the cost of constructing additional transmission facilities.PEPCO, on January 24, 2006, filed a notice of administrative claimsasserting that Mirant Potomac River’s shutdown of the Potomac River plantcauses Mirant Potomac River to be liable for the cost of such transmissionfacilities, which cost it estimates to be in excess of $70 million. MirantPotomac River disputes PEPCO’s interpretation of the agreement. The outcome ofthis matter cannot be determined at this time.

***Asbestos Cases***

As part of the PEPCOpurchase, Mirant agreed to indemnify PEPCO for certain liabilities arising inlawsuits filed after December 19, 2000, even if they relate to incidentsoccurring prior to that date, with certain qualifications. Since theacquisition, PEPCO has notified Mirant of more than 100 asbestos cases,distributed among three Maryland jurisdictions (Prince George’s County,Baltimore City and Baltimore County), as to which it claims a right ofindemnity. Based on information and relevant circumstances known at this time,the Company does not anticipate that these suits will have a material adverseeffect on its financial position, results of operations or cash flows. Underthe Plan these indemnity obligations arising under the APSA with PEPCO becamethe obligations of Mirant Power Purchase. As a result, the Company recognized anon-cash capital contribution of $1 million in the first quarter of 2006.

***New York Tax Proceedings***

The Company’s subsidiaries that own the Bowline andLovett generating plants in New York are the petitioners in various proceedings(“Tax Certiorari Proceedings”) initially brought in the New York state courtschallenging the assessed value of those generating plants determined by theirrespective local taxing authorities. Mirant Bowline has challenged the assessedvalue of the Bowline generating facility and the resulting local taxassessments paid for tax years 1995 through 2005. Mirant Bowline succeeded torights held by Orange & Rockland Utilities, Inc. (“Orange &Rockland”) for the tax years prior to its acquisition of the Bowline Plant in1999 under its agreement with Orange & Rockland for the purchase ofthat plant. Mirant Lovett has initiated proceedings challenging the assessedvalue of the Lovett facility for each of the years 2000 through 2005. If theTax Certiorari Proceedings result in a reduction of the assessed value of thegenerating facility at issue in each proceeding, the New York Debtor owning thefacility would be entitled to a refund with interest of any excess taxes paidfor those tax years.

On September 30, 2003, the Mirant Debtors filed amotion (the “Tax Determination Motion”) with the Bankruptcy Court requestingthat it determine what the property tax liability should have been for theBowline generating facility in each of the years 1995 through 2003 and for theLovett generating facility in each of the years 2000 through 2003. The basesfor the relief requested in the Tax Determination Motion on behalf of MirantBowline and Mirant Lovett were that the assessed values of the generatingfacilities made by the relevant taxing authorities had no justifiable basis andwere far in excess of their actual value. The local taxing authorities haveopposed the Tax Determination Motion, arguing that the Bankruptcy Court eitherlacks jurisdiction over the matters addressed by the Tax Determination Motionor should abstain from addressing those issues so that they can be addressed bythe state courts in which the Tax Certiorari Proceedings described in thepreceding paragraph were originally filed.

Collectively, MirantBowline and Mirant Lovett have not paid approximately $62 million assessed bylocal taxing authorities on the Bowline and Lovett generating facilities for2003, which fell due on September 30, 2003, and January 30, 2004,approximately $53 million assessed by local taxing authorities on thegenerating facilities for 2004 that fell due on September 30, 2004, and January 30,2005, and approximately $59 million assessed by local taxing authorities on thegenerating facilities for 2005 that fell 

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due on September 30,2005, and January 30, 2006, in order to preserve their respective rightsto offset the overpayments of taxes made in earlier years against the sumspayable on account of current taxes. The failure to pay the taxes due on September 30,2003, January 30, 2004, September 30, 2004, January 30, 2005, September 30,2005, and January 30, 2006, could subject Mirant Bowline and Mirant Lovettto additional penalties and interest.

***Other Legal Matters***

The Company is involved invarious other claims and legal actions arising in the ordinary course ofbusiness. In the opinion of management, the ultimate disposition of thesematters will not have a material adverse effect on the Company’s financialposition, results of operations or cash flows.

***Other Contingencies***

On May 5, 2005, Mirant NY-Gen discovered a sinkhole at its SwingingBridge dam, located in Sullivan County, New York. In response, Mirant NY-Genfilled this sinkhole, inspected the dam’s penstock and slopes for damage, drewdown the lake level, and cleaned the diversion tunnel. Mirant NY-Gen’s analysisindicates that the most probable cause of the sinkhole was erosion of soilcomprising the dam through a hole in the penstock. The dam is currentlystabilized, but is in need of additional repairs. Mirant NY-Gen currentlyexpects to incur additional costs to repair the dam that could be material andto recover insurance proceeds for a portion of these repair costs. As a resultof the sinkhole, Mirant NY-Gen was required to perform and provide to the FERCa flood study relating to the Swinging Bridge, Rio and Mongaup reservoirs todetermine the maximum capacity of the reservoirs and the down streamconsequences of a rain event resulting in a “greater than the maximum capacity”event. The flood study found that under the very extreme weather conditionsassumed for the study (which included rainfall over a short period in amountswell in excess of the highest rainfall amounts recorded for such a periodhistorically), the water flowing into the reservoirs could cause the level ofthe reservoirs to exceed the height of the dams at Mirant NY-Gen’s hydrofacilities, leading to downstream flooding. Mirant NY-Gen is evaluating theresults of the flood study and determining what modifications may be warrantedto its hydro facilities based on those results. The costs of suchmodifications, if any are necessary, are unknown at this time, but could besignificant. Mirant NY-Gen currently remains in Chapter 11. The BankruptcyCourt has approved a debtor-in-possession loan to Mirant NY-Gen from MirantAmericas under which Mirant Americas, subject to certain conditions, would lendup to $4.5 million to Mirant NY-Gen to provide funding for the repairs on theSwinging Bridge dam.

**I.**   IncomeTaxes

The Company is a limited liability company treated asa branch of Mirant Americas for income tax purposes. As a result, MirantAmericas and Mirant have direct liability for the majority of the federal andstate income taxes relating to the Company’s operations. Through December 31,2005, the Company has allocated current and deferred income taxes to eachregarded corporate member entity of our consolidated group as if each regardedcorporate entity member were a single taxpayer utilizing the asset andliability method to account for income taxes except with respect to recognizingcertain current period tax benefits. Specifically, the Company did not recordcurrent period tax benefits on each regarded corporate entity’s ability tocarry back its separate company current year net operating loss as realizationof such losses were dependent on reimbursements from Mirant, which were atMirant’s discretion under the tax sharing agreement.

Several significant changes to the Company’s taxposture occurred as a result of the Plan including the conversion of certain ofthe Company’s regarded corporate entities to limited liability companiescoupled with the liquidation and/or merger of these regarded corporate entitiesinto other disregarded corporate entities for income tax purposes, and certainpartnerships owned by the regarded corporate entities were 

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also liquidated and nowform part of these disregarded entities for income tax purposes. The resulteliminates the Company’s recording of tax expense and benefit beginning January1, 2006, with respect to the liquidated regarded corporate entities.Furthermore, with respect to those liquidated regarded corporate entities, allpreviously existing deferred tax assets and liabilities were eliminated as ofDecember 31, 2005.

Certain of the Company’s other subsidiaries continueto exist as regarded corporate entities for income tax purposes. For thosecorporate regarded entities, the Company allocates current and deferred incometaxes to each regarded corporate entity as if such entity were a singletaxpayer utilizing the asset and liability method to account for income taxes.To the extent the Company provides tax expense or benefit, any related taxpayable or receivable to Mirant is reclassified to equity in the same period.

If the Company were to be allocated income taxesattributable to all its operations, there would be no pro forma income taxexpense attributable to income before tax for the period ended March 31, 2006.The pro forma income tax expense attributable to income before tax would be $1million for the three months ended March 31, 2005. The pro forma balance of theCompany’s deferred income taxes is zero as of March 31, 2006.

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**Item 2.**   *Management’s Discussion and Analysis of Results of Operations andFinancial Condition*

The following discussionshould be read in conjunction with the Company’s accompanying unauditedcondensed consolidated and combined financial statements and the notes thereto,which are included elsewhere in this report*.*

***Overview***

We are a national independentpower provider whose revenues and gross margin primarily are generated throughthe production of electricity in the United States. We emerged from Chapter 11on January 3, 2006. As of March 31, 2006, we have total cash, cashequivalents and credit facility availability of approximately $1.1 billion.

Our gross margin for the threemonths ended March 31, 2006, was $653 million, including $281 millionof unrealized gains from hedging activities primarily due to declining forwardpower prices. The primary factors impacting the realized gross marginand cash flows of our operations are the prices for power, coal, oil andnatural gas, which are driven largely by supply and demand. Demand for power varies regionally andseasonally due to, among other things, weather and general economic conditions.Weather in the first quarter of 2006 was milder than normal and power andnatural gas prices declined from December 31, 2005 levels. Therefore, ourintermediate and peaking generation volumes generally were lower in the firstquarter of 2006 than in the first quarter of 2005. However, prior to the firstquarter of 2006, we hedged a substantial portion of our Mid-Atlantic baseloadcoal fired generation and our New England intermediate oil fired generationthrough over-the-counter transactions. As a result, we achieved a significantincrease in our realized gross margin for the three months ended March 31,2006, as compared to the same period in 2005 because our generation was hedgedat higher gross margins for this quarter than for the same period in 2005.

In January 2006, our Mirant Mid-Atlanticsubsidiary entered into financial swap transactions with a counterpartypursuant to which Mirant Mid-Atlantic economically hedged approximately 80%,50% and 50% of its expected on-peak coal fired baseload generation for 2007,2008 and 2009, respectively. The financial swap transactions are seniorunsecured obligations of Mirant Mid-Atlantic and do not require the posting ofcash collateral either for initial margin or for securing exposure due tochanges in power prices.

Our cash flows fromoperations for the first quarter of 2006, were a net use of $310 millionprimarily due to $739 million paid for bankruptcy claims and interest. Our cashflows from financing activities reflect our exit financing as part of ourbankruptcy emergence and the payment of approximately $990 million ofbankruptcy claims related to outstanding indebtedness.

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**Results ofOperations**

Ouroperating revenues and expenses from affiliates and non-affiliates aggregatedby classification are as follows (in millions):

| ** **                     | ** ** | **For the Three Months Ended March 31,** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **    2006   **                     | ** ** | **   2005   ** | ** ** | **Increase/     (Decrease)    ** | ** ** |
| Gross Margin                   |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Affiliate                      |       |                                                                   | $          | (13 | ) |   |   | $ | 5 |   |   |   | $ | (18 | ) |   |
| Nonaffiliate                   |       |                                                                   | 666        |   |   |   | 190 |   |   |   | 476 |   |   |
| Total gross  margin            |       |                                                                   | 653        |   |   |   | 195 |   |   |   | 458 |   |   |
| Operating Expenses:            |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Operations and  maintenance    |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Affiliate                      |       |                                                                   | 70         |   |   |   | 78 |   |   |   | (8 | ) |   |
| Nonaffiliate                   |       |                                                                   | 73         |   |   |   | 61 |   |   |   | 12 |   |   |
| Depreciation and  amortization |       |                                                                   | 32         |   |   |   | 33 |   |   |   | (1 | ) |   |
| Generation  facilities rent    |       |                                                                   | 24         |   |   |   | 25 |   |   |   | (1 | ) |   |
| Gain on sales of  assets, net  |       |                                                                   | —     |   |   |   | (1 | ) |   |   | 1 |   |   |
| Total operating  expenses      |       |                                                                   | 199        |   |   |   | 196 |   |   |   | 3 |   |   |
| Operating income  (loss)       |       |                                                                   | 454        |   |   |   | (1 | ) |   |   | 455 |   |   |
| Other expense  (income), net   |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Affiliate                      |       |                                                                   | —     |   |   |   | 3 |   |   |   | (3 | ) |   |
| Nonaffiliate                   |       |                                                                   | 65         |   |   |   | (1 | ) |   |   | 66 |   |   |
| Reorganization  items, net     |       |                                                                   | —     |   |   |   | 30 |   |   |   | (30 | ) |   |
| Provision for  income taxes    |       |                                                                   | —     |   |   |   | 6 |   |   |   | (6 | ) |   |
| Net Income (Loss)              |       |                                                                   | $          | 389 |   |   |   | $ | (39 | ) |   |   | $ | 428 |   |   |

 

In the tables below, theMid-Atlantic region includes our Chalk Point, Morgantown, Dickerson and PotomacRiver facilities. The Northeast region includes our Lovett, Bowline,Grahamsville, Hillburn, Mongaup, Rio, Shoemaker, Swinging Bridge, Canal, Kendall,Martha’s Vineyard and Wyman facilities. The West and Mid-Continent regionincludes our Contra Costa, Pittsburg, Potrero, Bosque and Zeeland facilities.Energy Trading includes proprietary trading and Eliminations include theelimination of intercompany transactions between Mirant Americas Generationsubsidiaries.

***OperatingStatistics***

Thefollowing table summarizes capacity factor (average percentage of full capacityused over a specific period) by region for the three months ended March 31,2006 and 2005:

| ** **             | ** ** | **March 31,** | ** ** | ** ** | ** ** |
|------------------------|------------|--------------------|------------|------------|------------|
| ** **             | ** ** | **2006**           | ** ** | **2005**   | ** ** | **Decrease** | ** ** |
| Mid-Atlantic           |       |               | 35         | %          |       |   | 38 | % |   |   | (3 | )% |   |
| Northeast              |       |               | 15         | %          |       |   | 40 | % |   |   | (25 | )% |   |
| West and Mid-Continent |       |               | 7          | %          |       |   | 9 | % |   |   | (2 | )% |   |

 

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Thefollowing table summarizes power generation volumes by region for the threemonths ended March 31, 2006 and 2005 (in gigawatt hours):

| ** **              | ** ** | **March 31,** | ** ** | ** ** | ** ** |
|-------------------------|------------|--------------------|------------|------------|------------|
| ** **              | ** ** | **2006**           | ** ** | **2005**   | ** ** | **Decrease** | ** ** |
| Mid-Atlantic            |       | 4,081              |       | 4,439      |       |   | (358 | ) |   |
| Northeast               |       | 977                |       | 2,607      |       |   | (1,630 | ) |   |
| West and  Mid-Continent |       | 564                |       | 748        |       |   | (184 | ) |   |
| Total                   |       | 5,622              |       | 7,794      |       |   | (2,172 | ) |   |

 

***GrossMargin.***

Ourgross margin increased by $458 million for the three months ended March 31,2006, compared to the same period for 2005. The following table details grossmargin by realized and unrealized margin for the three months ended March 31,2006 and 2005 (in millions):

| ** **              | ** ** | **2006**     | ** ** | **2005**       | ** ** |
|-------------------------|------------|--------------|------------|----------------|------------|
| ** **              | ** ** | **Realized** | ** ** | **Unrealized** | ** ** | **Total** | ** ** | **Realized** | ** ** | **Unrealized** | ** ** | **Total** | ** ** |
| Mid-Atlantic            |       |         | $          | 191            |       |   |   | $ | 226 |   |   | $ | 417 |   |   | $ | 140 |   |   |   | $ | (56 | ) |   | $ | 84 |   |
| Northeast               |       |         | 146        |           |       |   | 34 |   |   | 180 |   |   | 60 |   |   |   | 9 |   |   | 69 |   |
| West and  Mid-Continent |       |         | 35         |           |       |   | — |   |   | 35 |   |   | 28 |   |   |   | 4 |   |   | 32 |   |
| Energy Trading          |       |         | 18         |           |       |   | 21 |   |   | 39 |   |   | 21 |   |   |   | (15 | ) |   | 6 |   |
| Eliminations            |       |         | (18        | )              |       |   | — |   |   | (18 | ) |   | 3 |   |   |   | 1 |   |   | 4 |   |
| Total                   |       |         | $          | 372            |       |   |   | $ | 281 |   |   | $ | 653 |   |   | $ | 252 |   |   |   | $ | (57 | ) |   | $ | 195 |   |

 

The$458 million increase in gross margin is detailed as follows (in millions):

| ** **                               | ** ** | **For the Three Months Ended March 31, 2006** | ** ** |
|------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                               | ** ** | **Mid-  Atlantic**                                                               | ** ** | **Northeast** | ** ** | **West and  Mid-  Continent** | ** ** | **Energy  Trading** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Energy(1)                                |       |                                                                             | $          | 137 |   |   |   | $ | 55 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | (18 | ) |   | $ | 174 |   |
| Contracted and  capacity(2)              |       |                                                                             | 3          |   |   |   | 4 |   |   |   | 35 |   |   |   | — |   |   |   | — |   |   | 42 |   |
| Incremental realized  value of hedges(3) |       |                                                                             | 40         |   |   |   | 79 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 119 |   |
| Unrealized  gains/losses(4)              |       |                                                                             | 226        |   |   |   | 34 |   |   |   | — |   |   |   | 21 |   |   |   | — |   |   | 281 |   |
| Other(5)                                 |       |                                                                             | 11         |   |   |   | 8 |   |   |   | — |   |   |   | 18 |   |   |   | — |   |   | 37 |   |
| Total                                    |       |                                                                             | $          | 417 |   |   |   | $ | 180 |   |   |   | $ | 35 |   |   |   | $ | 39 |   |   |   | $ | (18 | ) |   | $ | 653 |   |

 

| ** **                            | ** ** | **For the Three Months Ended March 31, 2005** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Mid-  Atlantic**                                                               | ** ** | **Northeast** | ** ** | **West and  Mid-  Continent** | ** ** | **Energy  Trading** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Energy                                |       |                                                                             | $          | 145 |   |   |   | $ | 48 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 193 |   |
| Contracted and  capacity              |       |                                                                             | 6          |   |   |   | 8 |   |   |   | 31 |   |   |   | — |   |   |   | — |   |   | 45 |   |
| Incremental  realized value of hedges |       |                                                                             | (30        | ) |   |   | 4 |   |   |   | (3 | ) |   |   | — |   |   |   | — |   |   | (29 | ) |
| Unrealized  gains/losses              |       |                                                                             | (56        | ) |   |   | 9 |   |   |   | 4 |   |   |   | (15 | ) |   |   | 1 |   |   | (57 | ) |
| Other                                 |       |                                                                             | 19         |   |   |   | — |   |   |   | — |   |   |   | 21 |   |   |   | 3 |   |   | 43 |   |
| Total                                 |       |                                                                             | $          | 84 |   |   |   | $ | 69 |   |   |   | $ | 32 |   |   |   | $ | 6 |   |   |   | $ | 4 |   |   | $ | 195 |   |

 

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| ** **                            | ** ** | **For the Three Months Ended March 31, 2006 vs. 2005** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Mid-  Atlantic**                                                                                  | ** ** | **Northeast** | ** ** | **West and  Mid-  Continent** | ** ** | **Energy  Trading** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Energy                                |       |                                                                                                | $          | (8 | ) |   |   | $ | 7 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | (18 | ) |   | $ | (19 | ) |
| Contracted and  capacity              |       |                                                                                                | (3         | ) |   |   | (4 | ) |   |   | 4 |   |   |   | — |   |   |   | — |   |   | (3 | ) |
| Incremental  realized value of hedges |       |                                                                                                | 70         |   |   |   | 75 |   |   |   | 3 |   |   |   | — |   |   |   | — |   |   | 148 |   |
| Unrealized  gains/losses              |       |                                                                                                | 282        |   |   |   | 25 |   |   |   | (4 | ) |   |   | 36 |   |   |   | (1 | ) |   | 338 |   |
| Other                                 |       |                                                                                                | (8         | ) |   |   | 8 |   |   |   | — |   |   |   | (3 | ) |   |   | (3 | ) |   | (6 | ) |
| Total                                 |       |                                                                                                | $          | 333 |   |   |   | $ | 111 |   |   |   | $ | 3 |   |   |   | $ | 33 |   |   |   | $ | (22 | ) |   | $ | 458 |   |

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(1)          Energy includes grossmargin from the generation of electricity, emissions allowances sales andpurchases, fuel sales and steam sales.

(2)          Contracted and capacityrelates to revenue received through reliability must run contracts (“RMR”) andother installed capacity mechanisms.

(3)          Incremental realizedvalue of hedges reflects the actual margin upon the settlement of our power andfuel hedging contracts.

(4)          Unrealized gains/lossesreflect the unrealized portion of our derivative hedging contracts.

(5)          Other includes revenuesfrom ancillary services.

Mid-Atlanticoperations gross margin increased by $333 million primarily due to thefollowing:

·       anincrease of $70 million in incremental realized value of hedges primarilyrelated to the settlement of power hedging contracts at higher than marketprices; and

·       anincrease of $282 million related to unrealized gains from hedging activities of$226 million for the three month period ending March 31, 2006, primarilydue to declining forward prices. Unrealized losses from hedging activities were$56 million for the same period in 2005 primarily due to increasing powerprices.

Northeastoperations gross margin increased by $111 million primarily due to thefollowing:

·       anincrease of $75 million in incremental realized value of hedges primarilyrelated to the settlement of power hedging contracts at higher than market,prices; and

·       anincrease of $25 million related to unrealized gains from hedging activities of$34 million for the three month period ending March 31, 2006, compared to$9 million for the same period in 2005.

West and Mid-Continent operations gross marginincreased by $3 million primarily due to an increase of $3 million in RMRcapacity margin primarily due to an outage at one of our California generatingunits in 2005.

Energy Trading gross margin increased $33 millionprimarily due to an increase in unrealized gains from derivative tradinginstruments of $36 million.

Eliminations gross margindecreased by $22 million due primarily to a decrease of $18 million related tothe elimination of intercompany emissions allowances transactions.

***OperatingExpenses.***

Our operating expensesincreased by $3 million for the three months ended March 31, 2006,compared to the same period in 2005 primarily due to an increase ofapproximately $4 million related to higher maintenance on one of our generatingfacilities.

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***Otherexpense, net.***

Our other expense, netincreased by $63 million for the three months ended March 31, 2006,compared to the same period in 2005 primarily due to interest expense on thedebt at Mirant North America, LLC (“Mirant North America”) and Mirant AmericasGeneration.

***Reorganizationitems, net.***

Our reorganization items,net decreased by $30 million due to our emergence from Chapter 11.

**Financial Condition**

***Emergence from Bankruptcy***

On December 23, 2005,our subsidiary Mirant North America issued $850 million of 7.375% seniorunsecured notes due 2013. The funds from this issuance initially were placed inescrow and were released from escrow on January 3, 2006. OnJanuary 3, 2006, Mirant North America also entered into an $800 millionsenior secured revolving credit facility and a $700 million senior secured termloan. At the closing, $200 million drawn under the senior secured term loan wasdeposited into a cash collateral account to support the issuance of up to $200million of letters of credit.

***Debtor-in-Possession Financing for New YorkSubsidiaries***

Mirant North America and Mirant Americas EnergyMarketing, LP (“Mirant Americas Energy Marketing”) (the “Primary DIP Lenders”)entered into an agreement (the ‘‘Primary New York DIP Agreement’’) to make secureddebtor-in-possession financing in an amount of (i) $20 million, plus (ii) anamount equal to the amount of credit support provided on behalf of Mirant NewYork, Inc. (“Mirant New York”), Mirant Bowline, LLC (“Mirant Bowline”),Mirant Lovett, LLC (“Mirant Lovett”) and Hudson Valley Gas Corporation(collectively, the ‘‘New York DIP Borrowers’’), to the extent such amounts arecollateralized with cash or cash equivalents by the New York DIP Borrowers. Thefacility is available on a joint and several basis to the New York DIPBorrowers. On January 31, 2006, all the assets of Mirant Americas EnergyMarketing were transferred to Mirant Energy Trading, with Mirant Energy Tradingto succeed to all rights and assume all obligations of Mirant Americas Energy Marketingunder the Primary New York DIP Agreement. The financing under the Primary NewYork DIP Agreement can be utilized through borrowings by the New York DIPBorrowers, the issuance of letters of credit for the account of any of the NewYork DIP Borrowers or in support of commercial transactions entered into byMirant Energy Trading for the benefit of the New York DIP Borrowers, theposting of cash in respect of obligations incurred for the benefit of any ofthe New York DIP Borrowers, including the making of prepayments for fuel andother commodities for the benefit of any of the New York DIP Borrowers. Underthe Primary New York DIP Agreement, the amount which represents the excess onthe effective date of the Plan of (x) credit support posted for the benefitof the New York DIP Borrowers by the lenders in respect of transactions enteredinto on their behalf over (y) the amount of cash collateral posted by theNew York DIP Borrowers to the lenders is deemed to be a loan made to the NewYork DIP Borrowers on such date. The New York DIP Borrowers have posted $21.6million cash collateral with Mirant Energy Trading in accordance with the March 31,2006, collateral allocation performed in good faith by Mirant Energy Trading.To the extent that the required level of credit support provided to the NewYork DIP Borrowers is reduced, the amount of such reduction is required to bereturned to the New York DIP Borrowers. The financing under the Primary NewYork DIP Agreement has a stated maturity of 180 days, subject to renewal orextension, and is available until the earlier of (x) the expiration ofsuch period or (y) with respect to each of the New York DIP Borrowers, theeffective date of a confirmed plan of reorganization for such New York DIPBorrower in its Chapter 11 case. Subject to the authorization of theUnited States Bankruptcy Court for the Northern District of Texas (the “BankruptcyCourt”), the 

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obligations of the NewYork DIP Borrowers under the Primary New York DIP Agreement, pursuant to Section 364(c) ofthe Chapter 11 of Title 11 of the UnitedStates Bankruptcy Code (as amended, the “Bankruptcy Code”), (i) constitutesa claim having priority over any or all administrative expenses of the kindspecified in sections 503(b) or 507(b) of Bankruptcy Code, (ii) issecured by a lien on property of the estates of the New York DIP Borrowers thatis not otherwise subject to a lien and (iii) is secured by a junior lienon property of the estates of the New York DIP Borrowers that is subject to alien. The financing bears interest at a rate of London Interbank Offered Rate (“LIBOR”)plus 2.25%. The Primary New York DIP Agreement contains certain events ofdefault, and the ability of the New York DIP Borrowers to borrow thereunder issubject to certain conditions precedent. In addition, the Primary New York DIPAgreement contains covenants that, among other things, restrict the ability ofthe New York DIP Borrowers to engage in mergers, acquisitions and asset sales,to make investments and to incur indebtedness.

Contemporaneous with their entry into the Primary NewYork DIP Agreement, the New York DIP Borrowers also entered into an agreementfor secured financing with Mirant (the “Secondary New York DIP Agreement”). TheSecondary New York DIP Agreement permits Mirant to make secureddebtor-in-possession financing in the maximum amount of $50 million to the NewYork DIP Borrowers, and the borrowings are available solely for cash collateralpostings by any one or more of the New York DIP Borrowers. The terms of the SecondaryNew York DIP Agreement are substantially similar to the terms of the PrimaryNew York DIP Agreement. However, (i) the rights of the Primary DIP Lendersto payment out of cash collateral posted by the New York DIP Borrowers pursuantto the Primary New York DIP Agreement as may be repaid shall at all times ranksenior to the rights of Mirant under the Secondary New York DIP Agreementand (ii) certain claims and liens granted under the Primary New York DIPAgreement in respect of cash collateral posted by the New York DIP Borrowersshall at all times be senior to similar claims and liens granted under theSecondary New York DIP Agreement.

TheBankruptcy Court has approved a debtor-in-possession loan to Mirant NY-Gen fromMirant Americas under which Mirant Americas, subject to certain conditions,would lend up to $4.5 million to Mirant NY-Gen to provide funding for therepairs on the Swinging Bridge dam.

***Cash Flows***

*Operating Activities.**  *Cash used by operating activities decreased by $345million for the three months ended March 31, 2006, compared to the sameperiod in 2005. Our cash provided by operating activities is volatile as aresult of seasonality, changes in energy prices and fluctuations in our workingcapital requirements. The change for the three months ended March 31,2006, and 2005 is detailed as follows (in millions):

| ** **                                                                                         | ** ** | **March 31,** | ** ** | **Increase** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                                                                                         | ** ** | **2006**           | ** ** | **2005**     | ** ** | **(Decrease)** | ** ** |
| Cash provided by  operating activities excluding working capital and other assets and  liabilities |       | $                  | 142        |         | $          | 70 |   |   | $ | 72 |   |   |
| Cash used in  working capital and other assets and liabilities                                     |       | (452               | )          | (35          | )          |   | (417 | ) |   |
| Net cash provided  by (used in) operating activities                                               |       | $                  | (310       | )            | $          | 35 |   |   | $ | (345 | ) |   |

 

Net cash providedby operating activities excluding the effects of working capital increased $72million for the three months ended March 31, 2006, compared to the sameperiod in 2005 primarily due to:

·       anincrease of $120 million in gross margin excluding unrealized gains and losseson derivative financial instruments;

·       adecrease of $15 million related to increased interest payments; and

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·       adecrease of $4 million related to increased operations and maintenance expense.

During the three months ended March 31, 2006,changes in operating assets and liabilities required $452 million in cash. Ourlargest uses of working capital are related to the payment of $739 million ofbankruptcy claims and interest included in cash from operating activities forthe period and the $200 million drawn under the senior secured term loanthat was deposited into a cash collateral account to support the issuance ofletters of credit. Payments of bankruptcy claims related to financingarrangements are included in financing activities below. The largest sources ofworking capital for the period are the $381 million decrease in the amountof cash collateral posted to support energy trading and marketing activitiesand the return of $56 million posted with the Mirant Mid-Atlantic leasetrustee. The decrease in cash collateral is a result of lower power prices andthe settlement of contracts during the period. All other changes in operatingassets and liabilities provided net cash of $50 million for the three monthsended March 31, 2006.

During the three months ended March 31, 2005,changes in operating assets and liabilities required $35 million in cash. Weposted additional net cash collateral of $36 million due to changes incommodity prices. All other changes in operating assets and liabilitiesprovided net cash of $1 million for the three months ended March 31, 2005.

*Investing Activities.**  *Net cash used by investing activities was $19 millionfor the three months ended March 31, 2006, compared to $11 million for thesame period in 2005. This difference was primarily due to the following:

·       In2006, we had capital expenditures of $21 million compared to capitalexpenditures of $23 million in 2005. We received proceeds of $2 million fromthe sale of assets.

·       In2005, we received proceeds of $4 million from the 2004 sale of the Bowline gasturbines and $8 million from the repayment of notes receivable from affiliate.

*Financing Activities.**  *Net cash provided by financing activities was $240million for the three months ended March 31, 2006, compared to cash usedin financing activities of $1 million for the same period in 2005.Thisdifference was primarily due to the following:

·       In2006, proceeds from the issuance of debt were approximately $2 billion. Thedebt proceeds in 2006 included $850 million from the Mirant North America debtoffering that was released from escrow on January 3, 2006, $700 millionfrom the Mirant North America senior secured loan and $465 million drawn on theMirant North America senior secured revolving credit facility. We also incurred$51 million in debt issuance costs associated with these debt facilities.

·       In2006, we repaid debt of $1.5 billion, which included the $465 million drawn onthe Mirant North America senior secured revolving credit facility andapproximately $990 million of principal payments for debt settled under theplan. We also made a payment of $250 million to Mirant Americas, Inc. (“MirantAmericas”) under the Plan.

·       In 2005, we repaid debt of$1 million.

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***Total Cash, Cash Equivalents and Credit FacilityAvailability***

Thetable below sets forth total cash, cash equivalents and availability of creditfacilities of Mirant Americas Generation and its subsidiaries as ofMarch 31, 2006 and December 31, 2005 (in millions):

| ** **                                                                                                                     | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Cash and Cash  Equivalents:                                                                                                    |       |                     |       |                        |       |   |   |   |   |
| Mirant Americas  Generation                                                                                                    |       |                     | $          | 14                          |       |   |   | $ | 129 |   |   |
| Mirant  Mid-Atlantic                                                                                                           |       |                     | 77         |                        |       |   | 276 |   |   |
| Mirant North  America                                                                                                          |       |                     | 244        |                        |       |   | 19 |   |   |
| Total cash and  cash equivalents                                                                                               |       |                     | 335        |                        |       |   | 424 |   |   |
| Less: Cash  required for operating, working capital or other purposes  or restricted by the subsidiaries’ debt agreements |       |                     | 75         |                        |       |   | 1 |   |   |
| Total available  cash and cash equivalents                                                                                     |       |                     | 260        |                        |       |   | 423 |   |   |
| Available under  credit facilities                                                                                             |       |                     | 854        |                        |       |   | — |   |   |
| Available under  the DIP Facility                                                                                              |       |                     | —     |                        |       |   | 249 |   |   |
| Total cash, cash  equivalents and credit facilities availability                                                               |       |                     | $          | 1,114                       |       |   |   | $ | 672 |   |   |

 

We expect to incur capitalexpenditures of approximately $300 million in 2006. Approximately $200 millionof this amount relates to capital expenditures for environmental compliance.

***Cash Collateral and Letters of Credit***

In order to sell power and purchase fuel in theforward markets and perform other energy trading and marketing activities, weoften are required to provide trade credit support to our counterparties ormake deposits with brokers. In addition, we often are required to provide tradecredit support for access to the transmission grid, to participate in powerpools, to fund debt service reserves and for other operating activities. Tradecredit support includes cash collateral, letters of credit and financialguarantees. In the event that we default, the counterparty can draw on a letterof credit or apply cash collateral held to satisfy the existing amountsoutstanding under an open contract. As of March 31, 2006, our outstandingissued letters of credit totaled $147 million.

Thefollowing table summarizes cash collateral posted with counterparties andbrokers and letters of credit issued as of March 31, 2006, and December 31,2005 (in millions):

| ** **                                                   | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Cash collateral  posted—energy trading and marketing(1) |       |                     | $          | 238                         |       |   |   | $ | 619 |   |   |
| Cash collateral  posted—debt service and rent reserves  |       |                     | —     |                        |       |   | 56 |   |   |
| Cash collateral  posted—other operating activities      |       |                     | 7          |                        |       |   | 10 |   |   |
| Letters of credit—energy  trading and marketing         |       |                     | 64         |                        |       |   | 51 |   |   |
| Letters of credit—debt  service and rent reserves       |       |                     | 75         |                        |       |   | — |   |   |
| Letters of credit—other  operating activities           |       |                     | 8          |                        |       |   | 5 |   |   |
| Total                                                        |       |                     | $          | 392                         |       |   |   | $ | 741 |   |   |

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(1)          Theamount includes approximately $198 million deposited with J.P. Morgan Futures, Inc.as clearing broker as of March 31, 2006.

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**Other Developments**

***Locational Installed Capacity Proposal***

Our New England plantsparticipate in a market administered by the Independent System Operator-NewEngland (“ISO-NE”). Mirant Energy Trading is a member of the New England PowerPool (“NEPOOL”), which is a voluntary association of electric utilities andother market participants in Connecticut, Maine, Massachusetts, New Hampshire,Rhode Island and Vermont, and which functions as an advisory organization toISO-NE. The Federal Energy Regulatory Commission (“FERC”) approved ISO-NE asthe Regional Transmission Organization (“RTO”) for the New England regioneffective on February 1, 2005, making ISO-NE responsible for market rule filingsat the FERC. In addition, ISO-NE is responsible for the operation oftransmission systems and administration and settlement of the wholesaleelectric energy, capacity and ancillary services markets. ISO-NE utilizes alocational marginal pricing model, with a price mitigation method similar tothe New York Independent System Operator’s (“NYISO”) Automated MitigationProcedure, although it is implemented via manual processes rather than theautomated process employed in New York. In 2004, the FERC approved a locationalinstalled capacity market for ISO-NE (the ‘‘LICAP proposal’’) based on thedemand curve concept used by the NYISO to be implemented in January 2006.Demand curves are administrative mechanisms used to establish electricitygeneration capacity prices. A hearing on the demand curve parameters was heldin February and March 2005, and an initial decision issued by thepresiding administrative law judge ruled in favor of many of the suppliers’issues in the hearing. A subsequent FERC order issued on October 21, 2005,pushed back the LICAP implementation date to no sooner than October 1,2006, and put in place procedures to pursue a settlement on alternatives to theLICAP mechanism. Any such alternatives were to be submitted to the FERC by January 31,2006. On January 31, 2006, a FERC settlement judge reported that anagreement in principle had been reached among the majority of the parties inthe LICAP proceeding and requested an extension of the January 31, 2006,deadline so that a final settlement could be filed with the FERC by March 6,2006. On March 6, 2006, a comprehensive settlement proposal was filed withthe FERC on behalf of numerous parties to the LICAP proceeding. The settlementrequests that FERC approve the settlement without modification by June 30,2006. The settlement will go into effect upon approval, without modification,by the FERC. We cannot predict whether the FERC will accept the settlement withoutmodification or will act by the requested date. If ultimately approved by theFERC without modification, the settlement would result in increasedopportunities for our New England generators to receive more revenues for theircapacity.

***Environmental Regulation***

*MarylandHealthy Air Act.*   In April 2006, theGovernor of Maryland signed into law the Healthy Air Act, which requires moresignificant reductions in emissions of nitrogen oxide (“NOx”), sulfur dioxide (“SO2”)and mercury than the recently finalized federal Clean Air Interstate Rule (“CAIR”)and Clean Air Mercury Rule (“CAMR”). The Act also accelerates thetimeframe for such reductions beyond what is required by CAIR and CAMR andeliminates the ability to use allowances to attain compliance for NOx, SO2and mercury. The law requiresthat Maryland join the Regional Greenhouse Gas Initiative (“RGGI”) in 2007,subject to completion of a study of the costs and benefits of suchparticipation. Participation in the RGGI would require reductions in carbondioxide emissions beginning in 2009, but we can use allowances to attaincompliance.

The Maryland Department of the Environment (the “MDE”)will be issuing the regulations that will implement the Healthy Air Act inseveral phases. The first phase of regulations has been proposed and addressesNOx, SO2 and mercury.

This legislation affectsour Chalk Point, Dickerson and Morgantown facilities and we are currentlyassessing our options for compliance and their financial impacts. We may needto request additional time 

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tocomply, which is provided for in the legislation. Because the law limits ourability to use emissions allowances to comply, we will be required to increasesubstantially our capital expenditures in order to remediate our units. Weanticipate that the capital expenditures required to achieve compliance willrange from $1 billion to $1.5 billion from 2006 through 2011. We currentlyexpect that cash flows from operations will be sufficient to fund our capitalexpenditures.

***Faulkner Ash Storage Zoning Matter***

On April 11, 2006, ata public hearing, the Board of Zoning Appeals for Charles County, Marylandruled on Mirant MD Ash Management LLC’s application to extend the SpecialException for the Faulkner Ash Storage Site for an additional five years.The Board approved a three-year extension with new conditions. The Boardhas not yet issued its written ruling, but we understand the conditions imposedwill include a requirement to reduce ash transported to and stored on the siteby a minimum of 10% per year. We expect the written Special Exception with thenew conditions to be issued within 30 days of the hearing. The economic impactof this requirement is not known at this time.

***Notice of Intent to Shut Down Pittsburg Unit 7 andContra Costa Unit 6***

On May 4, 2006, wefiled a 90-day notice of our intent to shut down Pittsburg Unit 7 andContra Costa Unit 6 with the California Public Utilities Commission and theCalifornia Independent System Operator (the “CAISO”) in accordance withCalifornia law and agreements governing operations with the CAISO. We intend tocontinue to negotiate during the 90-day notice period to reach anagreement that will allow us to operate the units economically. If thesenegotiations are not successful, we do not expect that the retirement of theseunits will have a material impact on our results of operations or financialcondition.

**Critical AccountingPolicies and Estimates**

The accounting policiesdescribed below are considered critical to obtaining an understanding of ourunaudited condensed consolidated and combined financial statements becausetheir application requires significant estimates and judgments by management inpreparing our unaudited condensed combined and consolidated financialstatements. Management’s estimates and judgments are inherently uncertain andmay differ significantly from actual results achieved. It is our view that thefollowing critical accounting policies and the underlying estimates andjudgments involve a higher degree of complexity than others do. We discussedthe selection of and application of these accounting policies with our Board ofManagers and our independent auditors.

***Accounting for Price Risk Management Activities***

Our business uses derivatives and other energycontracts to economically hedge our electricity generation assets and to engagein proprietary trading activities. We use a variety of derivative contracts,such as futures, swaps, forwards and option contracts, in the management of ourbusiness. Such derivative contracts have varying terms and durations, ortenors, which range from a few days to a number of years, depending on theinstrument.

Pursuant to Statementof Financial Accounting Standards Board (“SFAS”) No. 133, “*Accounting for Derivative Instruments and Hedging Activities*”(“SFAS No. 133”), derivative contracts are reflected in ourfinancial statements at fair value, with changes in fair value recognizedcurrently in earnings unless they qualify for a scope exception. The fair valueof such contracts is included in price risk management assets and liabilities—affiliateand price risk management assets and liabilities—nonaffiliate in our unauditedcondensed consolidated balance sheets. A limited number of transactions do notmeet the definition of a derivative or are considered normal purchases ornormal sales, a permissible scope exception under SFAS No. 133. Thus,such transactions qualify for the use of accrual accounting.

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Determining the fair value of derivatives involvessignificant estimates based largely on the mid-point of quoted market prices.The mid-point may vary significantly from the bid or ask price for somedelivery points. If no active market exists, we estimate the fair value ofcertain derivative contracts using quantitative pricing models. Our modelingtechniques include assumptions for market prices, correlation and volatility,such as using the prices of one delivery point to calculate the price of thecontract’s delivery point. The degree of complexity of our pricing modelsincreases for longer duration contracts, contracts with multiple pricingfeatures, option contracts and off-hub delivery points.

The fair value of price risk management assets andliabilities—affiliate and price risk management assets and liabilities—nonaffiliatein our unaudited condensed consolidated balance sheets also are impacted by ourassumptions as to interest rate, counterparty credit risk and liquidity risk.The nominal value of the contracts is discounted using a forward interest ratecurve based on the LIBOR. In addition, the fair value of our derivativecontracts is reduced to reflect the estimated risk of default of counterpartieson their contractual obligations to us.

The amounts recorded as revenues—affiliate andnonaffiliate and as cost of fuel, electricity and other products—affiliate andnonaffiliate change as estimates are revised to reflect actual results andchanges in market conditions or other factors, many of which are beyond ourcontrol. Because we use derivative financial instruments and have not electedcash flow or fair value hedge accounting under SFAS No. 133, our financialstatements—including gross margin, operating income and balance sheet ratios—are,at times, volatile and subject to fluctuations in value primarily due tochanges in energy and fuel prices.

Due to the complexity of the models used to value thederivative instruments, a significant change in estimate could have a materialimpact on our results of operations.

See Note E to ourcondensed unaudited consolidated financial statements for further informationon financial instruments related to energy trading and marketing activities.

***Asset Retirement Obligations***

We account for asset retirement obligations under SFASNo. 143, “*Accounting for Asset Retirement Obligations*”(“SFAS 143”) and under FASB Interpretation No. 47, “*Accountingfor Conditional Asset**Retirement Obligations, aninterpretation of FASB Statement No. 143” (“FIN 47”)*. SFAS No. 143requires an entity to recognize the fair value of a liability for an assetretirement obligation in the period in which it is incurred. FIN 47 expanded onSFAS 143 to include conditional asset retirement obligations that should berecorded when estimable. Upon initial recognition of a liability for an assetretirement obligation, the Company capitalizes an asset retirement cost byincreasing the carrying amount of the related long-lived asset by the sameamount as the liability. The liability is accreted to its present value and thecapitalized cost is depreciated over the useful life of the related asset.Asset retirement obligations associated with long-lived assets included withinthe scope of SFAS No. 143 and FIN 47 are those obligations for which arequirement exists under enacted laws, statutes and written or oralcontractions, including obligations arising under the doctrine of promissoryestoppel.

We have identified certain asset retirementobligations within our power generation operations. These asset retirementobligations are primarily related to asbestos abatement at some of ourgenerating facilities, equipment on leased property and other environmentalobligations related to the closing of ash disposal sites.

Liabilities associatedwith asset retirement obligations are estimated by applying a present valuecalculation to current engineering cost estimates of satisfying theobligations. Significant inputs to the present value calculation includecurrent cost estimates, estimated asset retirement dates and appropriatediscount rates. Where appropriate, multiple cost and/or retirement scenarioshave been weighted. We update liabilities associated with asset retirementobligations as significant assumptions change or as 

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relevantnew information becomes available. However, actual future costs to satisfyasset retirement obligations could differ materially from the current recordedliabilities.

***Estimated Useful Lives***

The estimated useful livesof our long-lived assets are used to compute depreciation expense, future assetretirement obligations and are also used in impairment testing. Estimateduseful lives are based, in part, on the assumption that we provide anappropriate level of capital expenditures while the assets are still inoperation. Without these continued capital expenditures, the useful lives ofthese assets could decrease significantly. Estimated lives could be impacted bysuch factors as future energy prices, environmental regulations, various legalfactors and competition. If the useful lives were found to be shorter thanoriginally estimated, depreciation expense may increase, liabilities for futureasset retirement obligations may be insufficient and impairments in thecarrying value of tangible and intangible assets may result.

***Income Taxes***

We are a limited liability company treated as a branchfor income tax purposes. As a result, Mirant Americas and Mirant have directliability for the majority of the federal and state income taxes relating ouroperations. Through December 31, 2005, we have allocated current and deferredincome taxes to each regarded corporate member entity of our consolidated groupas if each regarded corporate entity member were a single taxpayer utilizingthe asset and liability method to account for income taxes except with respectto recognizing certain current period tax benefits. Specifically, we did notrecord current period tax benefits on each regarded corporate entity’s abilityto carry back its separate company current year net operating loss asrealization of such losses were dependent on reimbursements from Mirant, whichwere at Mirant’s discretion under the tax sharing agreement. Deferred tax assetsand liabilities are recognized for future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and net tax operating losses andtax credit carryforwards. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. Theeffect on deferred tax assets and liabilities of a change in tax rates arerecognized in income in the period that includes the enacted change.

Several significant changes to our tax postureoccurred as a result of the Plan. Implementation of the Plan included theconversion of certain of our regarded corporate entities to limited liabilitycompanies coupled with the liquidation and/or merger of these regardedcorporate entities into other disregarded corporate entities for income taxpurposes. As a result, certain subsidiaries previously treated as regardedcorporate entities for income tax purposes have either been liquidated orconverted into disregarded entities for income tax purposes pursuant to thePlan. Additionally, certain partnerships owned by the regarded corporateentities were also liquidated, and now form part of these disregarded entitiesfor income tax purposes. The result of the above Plan effects was to eliminateour recording of tax expense and benefit prospectively with respect to theliquidated regarded corporate entities. Furthermore, with respect to thoseliquidated regarded corporate entities, all previously existing deferred taxassets and liabilities were eliminated as of December 31, 2005. Certain of ourother subsidiaries continue to exist as regarded corporate entities for incometax purposes, including Mirant New York, Inc., Hudson Valley Gas Corporation,Mirant Kendall, LLC and Mirant Special Procurement, Inc.

In December 2005, pursuant to the Plan, Mirantrejected and thereby eliminated the tax sharing agreement with its direct andindirect wholly owned regarded corporate entities. As a result, Mirant’s directand indirect wholly owned regarded corporate entities are no longer responsiblefor reimbursing Mirant for their intercompany tax obligations attributable totheir operations. Accordingly, our income tax receivables and payables withMirant or Mirant Americas were resolved pursuant to a global settlement 

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under the Plan wherebyintercompany receivables and payables received no distribution, with theexception of income tax payables and receivables related to Mirant New York,Inc. which continues to remain in bankruptcy at March 31, 2006.

For those subsidiariesthat continue to exist as corporate regarded entities, we allocate current anddeferred income taxes to each corporate regarded entity as if such entity werea single taxpayer utilizing the asset and liability method to account forincome taxes. To the extent we provide tax expense or benefit, any related taxpayable or receivable to Mirant is reclassified to equity in the same period.

***Asset Impairments***

We evaluate our long-lived assets (property, plant andequipment) and definite-lived intangibles for impairment whenever indicators ofimpairment exist or when we commit to sell the asset. SFAS No. 144,*“Accounting for the Impairment or Disposal ofLong-Lived Assets,”* requires management to recognize an impairmentcharge if the sum of the undiscounted expected future cash flows from along-lived asset or definite-lived intangible is less than the carrying valueof that asset. The amount of an impairment charge is calculated as the excessof the asset’s carrying value over its fair value, which generally representsthe discounted expected future cash flows from that asset or in the case ofassets we expect to sell, at fair value less costs to sell.

The determination of impairment requires management toapply judgment in estimating future energy prices, environmental and othermaintenance expenditures and other cash flows. Our estimates of the fair valueof the assets include significant assumptions about the timing of future cashflows, remaining useful lives and selecting a discount rate that reflects therisk inherent in future cash flows.

These estimates andassumptions are subject to a high degree of uncertainty. If actual results arenot consistent with the assumptions used in estimating future cash flows andasset fair values, we may be exposed to additional losses that could bematerial to our results of operations.

***Revenue Recognition***

We utilize two comprehensive accounting models inreporting our consolidated financial position and results of operations asrequired by accounting principles generally accepted in the United States ofAmerica (“GAAP”)—an accrual model and a fair value model. We determine theappropriate model for our operations based on applicable accounting standards.

The accrual model historically has been used toaccount for affiliate and nonaffiliate revenue when electric power isdelivered, capacity is made available or ancillary services are provided to anaffiliate or customer pursuant to contractual commitments that specify volume,price and delivery requirements, and collection of such revenue is probable.Some sales of energy are based on economic dispatch, or “as-ordered” by thePennsylvania-New Jersey-Maryland Interconnection, LLC (“PJM”), based onmember participation agreements, but without an underlying contractualcommitment. Independent system operator (“ISO”) revenues and revenues for salesof energy based on economic-dispatch, are recorded on the basis of megawatthour (“MWh”) delivered, at the relevant day-ahead or real-time prices. When along-term electric power agreement conveys the right to use the generatingcapacity of our plant to the buyer of the electric power, that agreement is evaluatedto determine if it is a lease of the generating facility rather than the saleof electric power. The Company also recognizes affiliate and nonaffiliaterevenue when ancillary services have been performed and collection of suchrevenue is probable.

The fair value modelhistorically has been used for derivatives and other energy contracts toeconomically hedge our electricity generation assets and to engage in non-assettrading activities by our businesses. We use a variety of derivative contracts,such as futures, swaps and option contracts, in the 

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managementof our business. Such derivative contracts have varying terms and durations, ortenors, which range from a few days to a number of years, depending on theinstrument.

***Litigation***

We are currently involvedin certain legal proceedings. These legal proceedings are discussed in Part IIItem 1. “Legal Proceedings,” and Note H to the unaudited condensedconsolidated and combined financial statements contained elsewhere in thisreport. We estimate the range of liability through discussions with legalcounsel and analysis of applicable case law and legal precedents. We record ourbest estimate of a loss, if estimable, when the loss is considered probable, orthe low end of our range if no estimate is better than another estimate withina range of estimates. As additional information becomes available, we reassessthe potential liability related to our pending litigation and revise ourestimates. Revisions in our estimates of the potential liability could materiallyimpact our results of operations, and the ultimate resolution may be materiallydifferent from the estimates that we make.

**Item 3.**   *Quantitative and Qualitative Disclosures about Market Risk*

In connection with our powergenerating business, we are exposed to energy commodity price riskassociated with the acquisition of fuel needed to generate electricity, as wellas the electricity produced and sold. A portion of our fuel requirements ispurchased in the spot market and a portion of the electricity we produce alsois sold in the spot market. In addition, the open positions in our proprietarytrading portfolio expose us to risks associated with the changes in energycommodity prices. As a result, our financial performance varies depending onchanges in the prices of energy and energy-related commodities. See “CriticalAccounting Policies and Estimates” for a discussion of the accounting treatmentfor our energy trading and market activities and see Note E to the unauditedcondensed consolidated and combined financial statements for detail of ourprice risk management assets and liabilities.

For a further discussionof market risks, our risk management policy, and our use of Value at Risk tomeasure some of these risks, see Item 7A. “Quantitative and QualitativeDisclosures about Market Risk” in our Annual Report on Form 10-K forthe year ended December 31, 2005.

**Item 4.**   *Controls and Procedures*

**InherentLimitations in Control Systems**

A control system, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Further,the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the Company have been detected. Theseinherent limitations include the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error ormistake. Additionally, controls can be circumvented by the individual acts ofsome persons, by collusion of two or more people, or by management override ofthe control. The design of any system of controls also is based in part uponcertain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions. Over time, controls may become inadequate becauseof changes in conditions, or the degree of compliance with the policies orprocedures may deteriorate. Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand not be detected. As a result, our management, including the Chief ExecutiveOfficer and Chief Financial Officer, does not expect that our disclosurecontrols and procedures, or our internal control over financial reporting, willprevent all error and all fraud.

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**Effectiveness ofDisclosure Controls and Procedures**

As required by Exchange Act Rule 13a-15(b),our management, including our Chief Executive Officer and our Chief FinancialOfficer, conducted an assessment of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined by Rules 13a-15(e) and15d-15(e) under the Exchange Act), as of March 31, 2006. Basedupon this assessment, our management concluded that, as of March 31, 2006,the design and operation of these disclosure controls and procedures wereeffective.

Appearing as exhibits to this report are thecertifications of the Chief Executive Officer and the Chief Financial Officerrequired in accordance with Section 302 of the Sarbanes-Oxley Act of 2002.

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**PART II**

**Item 1.   *Legal Proceedings***

The descriptions belowupdate and should be read in conjunction with the complete descriptions in thesection titled “Legal Proceedings” in the Company’s Form 10-K forthe period ended December 31, 2005.

***Chapter 11 Proceedings***

On July 14, 2003, andvarious dates thereafter, Mirant Corporation and certain of its subsidiaries(collectively, the “Mirant Debtors”), including the Company and itssubsidiaries, filed voluntary petitions for relief under Chapter 11 of theBankruptcy Code in the United States Bankruptcy Court for the Northern Districtof Texas (the “Bankruptcy Court”). As of March 31, 2006, approximately21.4 million of the shares of Mirant common stock to be distributed under thePlan of Reorganization (the “Plan”) that became effective for Mirant , theCompany and certain of the other Mirant Debtors on January 3, 2006, havenot yet been distributed and have been reserved for distribution with respectto claims that are disputed by the Mirant Debtors and have not been resolved,including any claims resulting from the rejection of certain contracts withPEPCO, as described in the Company’s Annual Report on Form 10-K forthe period ended December 31, 2005, in *PEPCO Litigation*.Under the terms of the Plan, to the extent such claims are resolved now thatthe Company has emerged from bankruptcy, the claimants will be paid from thereserve of 21.4 million shares on the same basis as if they had been paid outwhen the Plan became effective. That means that their allowed claims willreceive the same pro rata distributions of Mirant common stock, cash, or bothcommon stock and cash as previously allowed claims in accordance with the termsof the Plan. To the extent the aggregate amount of the payouts determined to bedue with respect to such disputed claims ultimately exceeds the amount of thefunded claim reserve, Mirant would have to issue additional shares of commonstock to address the shortfall, which would dilute existing Mirantshareholders, and the Company would have to pay additional cash amounts asnecessary under the terms of the Plan to satisfy such pre-petition claims. TheCompany will continue to monitor its obligations as the disputed claims areresolved.

***California and Western Power Markets***

*California Rate Payer Litigation.*   OnApril 14, 2006, the California Court of Appeal dismissed the appeal of thesix consolidated suits as to the remaining Mirant defendants pursuant to thestipulation of the plaintiffs and the Mirant defendants and remanded the suitto the superior court. The plaintiffs have filed a request for voluntarydismissal of the remaining Mirant defendants before the superior court, whichremains pending.

***Environmental Matters***

*MirantPotomac River Notice of Violation.**  *On September 10, 2003, theVirginia Department of Environmental Quality (“Virginia DEQ”) issued a Noticeof Violation (“NOV”) to Mirant Potomac River, LLC (“Mirant Potomac River”)alleging that it violated its Virginia Stationary Source Permit to Operate byemitting NOx in excess of the “cap” established by the permit for the 2003summer ozone season. Mirant Potomac River responded to the NOV, asserting thatthe cap is unenforceable, noting that it can comply through the purchase ofemissions allowances and raising other equitable defenses. Virginia’s civilenforcement statute provides for injunctive relief and penalties. On January 22,2004, the Environmental Protection Agency (“EPA”) issued an NOV to MirantPotomac River alleging the same violation of its Virginia Stationary SourcePermit to Operate as set out in the NOV issued by the Virginia DEQ.

On September 27, 2004, Mirant Potomac River,Mirant Mid-Atlantic, the Virginia DEQ, the MDE, the United States Department ofJustice (“DOJ”) and the EPA entered into, and filed for approval with 

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the United States DistrictCourt for the Eastern District of Virginia, a proposed consent decree (the “OriginalConsent Decree”) that, if approved, would resolve Mirant Potomac River’spotential liability for matters addressed in the NOVs previously issued by theVirginia DEQ and the EPA. The Original Consent Decree requires Mirant PotomacRiver and Mirant Mid-Atlantic to (1) install pollution control equipmentat the Potomac River plant and at the Morgantown plant leased by the MirantMid-Atlantic in Maryland, (2) comply with declining system-wide ozoneseason NOx emissions caps from 2004 through 2010, (3) comply withsystem-wide annual NOx emissions caps starting in 2004, (4) meet seasonalsystem average emissions rate targets in 2008 and (5) pay civil penaltiesand perform supplemental environmental projects in and around the Potomac Riverplant expected to achieve additional environmental benefits. Except for theinstallation of the controls planned for the Potomac River units and theinstallation of selective catalytic reduction (“SCR”) or equivalent technologyat Mirant Mid-Atlantic’s Morgantown Units 1 and 2 in 2007 and 2008, theOriginal Consent Decree does not obligate the Company’s subsidiaries to installspecifically designated technology, but rather to reduce emissions sufficientlyto meet the various NOx caps. Moreover, as to the required installations ofSCRs at Morgantown, Mirant Mid-Atlantic may choose not to install thetechnology by the applicable deadlines and leave the units off either permanentlyor until such time as the SCRs are installed. The Original Consent Decree issubject to the approval of the district court and the Bankruptcy Court. Asdescribed below, the Original Consent Decree has not yet been approved and theparties have filed an amended proposed consent decree.

The owners/lessors under the lease-financingtransactions covering the Morgantown and Dickerson plants (the “Owners/Lessors”)objected to the Original Consent Decree in the Bankruptcy Court and filed amotion to intervene in the district court action. As part of a resolution ofdisputed matters in the Chapter 11 proceedings, the Owners/Lessors agreednot to object to the Original Consent Decree, subject to certain terms setforth in the Plan and the order entered by the Bankruptcy Court on December 9,2005 approving the Plan.

On July 22, 2005, the district court granted amotion filed by the City of Alexandria seeking to intervene in the districtcourt action, although the district court imposed certain limitations on the Cityof Alexandria’s participation in the proceedings. On September 23, 2005,the City of Alexandria filed a motion seeking authority to file an amendedcomplaint in the action seeking injunctive relief and civil penalties under theClean Air Act for alleged violations by Mirant Potomac River of its VirginiaStationary Source Permit To Operate and the State of Virginia’s StateImplementation Plan. Based upon a computer modeling, the City of Alexandriaasserted that emissions from the Potomac River plant cause or contribute toexceedances of national ambient air quality standards (“NAAQS”) for SO2,nitrogen dioxide (“NO2”) and particulate matter. The City of Alexandria alsocontended based on its modeling analysis that the plant’s emissions of hydrogenchloride and hydrogen fluoride exceed Virginia state standards. Mirant PotomacRiver disputes the City of Alexandria’s allegations that it has violated theClean Air Act and Virginia law. On December 2, 2005, the district courtdenied the City of Alexandria’s motion seeking to file an amended complaint.

In early May 2006, the parties to the OriginalConsent Decree and Mirant Chalk Point, LLC entered into an amended consentdecree (the “Amended Consent Decree”) to be filed for approval with the UnitedStates District Court for the Eastern District of Virginia that, if approved,will resolve Mirant Potomac River’s potential liability for matters addressedin the NOVs previously issued by the Virginia DEQ and the EPA. The districtcourt and the Bankruptcy Court must approve the Amended Consent Decree for itto become effective. The Amended Consent Decree includes the requirements thatwere to be imposed under the terms of the Original Consent Decree as describedabove. It also defines the rights and remedies of the parties in the event of arejection in bankruptcy or other termination of any of the long-term leasesunder which Mirant Mid-Atlantic leases the coal units at the Dickerson andMorgantown plants. The Amended Consent Decree provides that if MirantMid-Atlantic rejects or otherwise loses one more of its leasehold interests inthe Morgantown and Dickerson plants and ceases to operate one or both 

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of the plants, MirantMid-Atlantic, Mirant Chalk Point and/or Mirant Potomac will (i) providethe EPA, Virginia DEQ and the MDE with the written agreement of the new owneror operator of the affected plant or plants to be bound by the obligations ofthe Amended Consent Decree and (ii) where the affected plant is theMorgantown plant, offer to any and all prospective owners and/or operators ofthe Morgantown plant to pay for completion of engineering, construction andinstallation of the SCRs required by the Amended Consent Decree. If the newowner or operator of the affected plant or plants does not agree to be bound bythe obligations of the Amended Consent Decree, it requires Mirant Mid-Atlantic,Mirant Chalk Point and/or Mirant Potomac to install an alternative suite ofenvironmental controls at the plants they continue to own.

On April 26, 2006, Mirant Mid-Atlantic and theMDE entered into an agreement to allow Mirant Mid-Atlantic to implement theconsent decree with respect to the Morgantown plant, if the consent decreereceives the necessary approvals. Under the agreement, Mirant Mid-Atlanticagreed to certain ammonia and particulate matter emissions limits and to submittesting results to the MDE.

*NewYork Dissolved Oxygen.*   An Order on Consent datedMarch 7, 2006, embodying the settlement reached between Mirant NY-Gen, LLCand the New York State Department of Environmental Conservation (“NYSDEC”) hasbeen executed by the parties.

*NewYork Major Oil Storage Facility Licenses.**  *The NYSDECcontinues to review Mirant Bowline’s pending application for a renewal of itsmajor oil storage facilities license for the Bowline facility. A Consent Orderdated March 29, 2006, entered into between Mirant Bowline, LLC and theNYSDEC has extended the current major oil storage facilities license held byMirant Bowline for sixty days through May 30, 2006.

There have been no othermaterial developments in legal proceedings involving the Company or itssubsidiaries since those reported in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005.

**Item 1A.   *Risk Factors***

There have been nomaterial changes in risk factors since those reported in Mirant AmericasGeneration’s Annual Report on Form 10-K for the year ended December 31,2005.

**Item 6.**                        *Exhibits*

*(a)****Exhibits.*

| **Exhibit  Number** | ** ** | **Exhibit Name**                                                                                                                                                                                                                                                    | ** ** |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|   2.1*    |       | Amended and Restated Joint Chapter 11 Plan of  Reorganization for Registrant and its Affiliated Debtors (designated on  Form 8-K filed December 15, 2005 as Exhibit 2.1)                                                                                       |       |
| 10.1*               |       | Mirant North America, LLC—Credit Agreement with  Deutsche Bank Securities Inc., Goldman Sachs Credit Partners L.P., and  JPMorgan Chase Bank, N.A. (designated in Mirant Corporation Form 10-K for the  year ended December 31, 2005 as Exhibit 10.33)              |       |
| 10.2*               |       | Administrative Services Agreement dated as of  January 3, 2006 between Mirant Americas Generation, Inc. and Mirant Services,  LLC (designated in Form 10-K for the year ended December 31, 2005 as Exhibit  10.5)                                                        |       |
| 10.3*               |       | Power Sale, Fuel Supply and Services Agreement dated  as of January 3, 2006 among Mirant Americas Energy Marketing, LP, Mirant  Bowline, LLC, Mirant Lovett, LLC, and Mirant NY-Gen, LLC (designated in Form  10-K for the year ended December 31, 2005 as Exhibit 10.6) |       |
| 10.4*               |       | Power Sale, Fuel Supply and Services Agreement dated  as of January 3, 2006 among Mirant Americas Energy Marketing, LP, Mirant  Canal, LLC, and Mirant Kendall, LLC (designated in Form 10-K for the year  ended December 31, 2005 as Exhibit 10.7)                      |       |

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| 10.5* |   | Power Sale, Fuel Supply and Services Agreement dated  as of January 3, 2006 between Mirant Americas Energy Marketing, LP and Mirant  Chalk Point, LLC (designated in Form 10-K for the year ended December 31,  2005 as Exhibit 10.8)               |   |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 10.6* |   | Power Sale, Fuel Supply and Services Agreement dated  as of January 3, 2006 between Mirant Americas Energy Marketing, LP and Mirant  Mid-Atlantic, LLC (designated in Form 10-K for the year ended December 31,  2005 as Exhibit 10.9)              |   |
| 10.7* |   | Power Sale, Fuel Supply and Services Agreement dated  January 3, 2006 between Mirant Americas Energy Marketing, LP and Mirant  Potomac River, LLC (designated in Form 10-K for the year ended December 31,  2005 as Exhibit 10.10)             |   |
| 10.8* |   | Power Sale, Fuel Supply and Services Agreement dated  January 3, 2006 between Mirant Americas Energy Marketing, LP and Mirant  Texas, LP (designated in Form 10-K for the year ended December 31, 2005 as  Exhibit 10.11)                      |   |
| 10.9* |   | Power Sale, Fuel Supply and Services Agreement dated  January 3, 2006 among Mirant Americas Energy Marketing, LP, Mirant  Delta, LLC, and Mirant Potrero, LLC (designated in Form 10-K for the year  ended December 31, 2005 as Exhibit 10.12) |   |
| 10.10 |   | Form of Employment Agreement dated January 3, 2006  between Mirant Corporation, Mirant Services LLC and Robert E. Driscoll                                                                                                                          |   |
| 31.1  |   | Certification of Chief Executive Officer Pursuant to  15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).                                                                     |   |
| 31.2  |   | Certification of Chief Financial Officer Pursuant to  15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).                                                                     |   |
| 32.1  |   | Certification of the Chief Executive Officer  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)).                                                       |   |
| 32.2  |   | Certification of the Chief Financial Officer  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)).                                                       |   |

 

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*                    Asteriskindicates exhibits incorporated by reference.

52

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized, on this 11th day of May, 2006.
|          |     |     | MIRANT AMERICAS GENERATION,  Llc |
|----------|----------|----------|----------------------------------|
|     |     |     | By:                              | /s/  THOMAS E. LEGRO |
|     |     |     |                             | Thomas E. Legro |
| * * | * * | * * | * *                         | *Senior  Vice President and Controller  (Principal Accounting Officer)* |

 

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