<PAGE>

================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            -------------------------

                                   FORM 10-Q/A
                                 AMENDMENT NO. 1
              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE QUARTER ENDED MARCH 31, 2002
                                       OR
              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE TRANSITION PERIOD FROM _____TO_____

                         MIRANT AMERICAS GENERATION, LLC
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                                   <C>
             Delaware                                                            51-0390520
-------------------------------------------------------------------------------------------------------
 (State or other Jurisdiction of                                      (I.R.S. Employer Identification
  Incorporation or Organization)                                                    No.)

      1155 Perimeter Center West, Suite 100, Atlanta, Georgia                      30338
-------------------------------------------------------------------------------------------------------
              (Address of Principal Executive Offices)                           (Zip Code)


                                         (678) 579-5000
-------------------------------------------------------------------------------------------------------
                    (Registrant's Telephone Number, Including Area Code)
</TABLE>

                                   ----------

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

     Registrant meets the conditions set forth in General Instruction H of Form
10-Q and is therefore filing this Form with the permitted reduced disclosure
format.
                                       --





<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES

                                      INDEX

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                    Number
                                                                                                    ------
<S>                                                                                                 <C>
DEFINITIONS                                                                                              2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION                                               3
                         PART I - FINANCIAL INFORMATION

Item 1. Interim Financial Statements (Unaudited):
        Condensed Consolidated Statements of Income                                                      4
        Condensed Consolidated Balance Sheets                                                            5
        Condensed Consolidated Statement of Member's Equity                                              7
        Condensed Consolidated Statements of Cash Flows                                                  8
        Notes to the Condensed Consolidated Financial Statements                                         9
        Independent Accountants' Review Report                                                          36
Item 2. Management's Discussion and Analysis of Results of Operations and Financial
          Condition                                                                                     37
Item 3. Quantitative and Qualitative Disclosures about Market Risk                                      51
Item 4. Controls and Procedures                                                                         53

                           PART II - OTHER INFORMATION
Item 1. Legal Proceedings                                                                               54
Item 2. Changes in Securities and Use of Proceeds                                             Inapplicable
Item 3. Defaults Upon Senior Securities                                                       Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders                                   Inapplicable
Item 5. Other Information                                                                     Inapplicable
Item 6. Exhibits and Reports on Form 8-K                                                                54
            Signatures
            Certifications
</TABLE>

                                       i
<PAGE>

     This Quarterly Report on Form 10-Q/A is being filed as Amendment No. 1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, filed on May 13, 2002, to correct accounting and presentation errors
primarily related to Mirant Mid-Atlantic's ECSA with Mirant Americas Energy
Marketing and netting of derivative hedging instruments. The Company has
restated its previously reported financial statements as of and for the three
months ended March 31, 2002 by:

        -       reducing its originally reported current assets by $108 million,
                reducing non current assets by $81 million, reducing current
                liabilities by $102 million, reducing non current liabilities by
                $82 million and reducing members equity by $5 million as of
                March 31, 2002;

        -       changing its previously reported results of operations for the
                three months ended March 31, 2002 from originally reported net
                income of $88 million to net income of $77 million; and

        -       reducing reported cash provided from operations by $19 million,
                increasing cash used in investing activities by $1 million and
                increasing cash provided from financing activities by $20
                million.

     Additional changes have also been made to reflect the corresponding changes
that result from the above restatement adjustments and to update the document to
the time of filing.


                                       1
<PAGE>



                                   DEFINITIONS
<TABLE>
<CAPTION>
TERM                                                   MEANING
<S>                                                    <C>
CAISO                                                  California Independent System Operator
Clean Air Act                                          Clean Air Act Amendments of 1990
CPUC                                                   California Public Utilities Commission
DWR                                                    California Department of Water Resources
ECSA                                                   Energy and Capacity Sales Agreement
EITF                                                   Emerging Issues Task Force
Energy Act                                             Energy Policy Act of 1992
EPA                                                    U. S. Environmental Protection Agency
FASB                                                   Financial Accounting Standards Board
FERC                                                   Federal Energy Regulatory Commission
Mirant                                                 Mirant Corporation and its subsidiaries
Mirant Americas                                        Mirant Americas, Inc.
Mirant Americas Energy Marketing                       Mirant Americas Energy Marketing, L. P.
Mirant Americas Generation or the Company              Mirant Americas Generation, LLC and its
                                                       subsidiaries
Mirant Delta                                           Mirant Delta, LLC
Mirant Mid-Atlantic                                    Mirant Mid-Atlantic, LLC and its subsidiaries
Mirant New York                                        Mirant New York, Inc. and Mirant New York
                                                       Investments, Inc., collectively
Mirant Peaker                                          Mirant Peaker, LLC
Mirant Potomac River                                   Mirant Potomac River, LLC
Mirant Potrero                                         Mirant Potrero, LLC
Moody's                                                Moody's Investors Service
MW                                                     Megawatts
Neenah                                                 Mirant Americas Generation's Neenah generating
                                                       facility
OCI                                                    Other comprehensive income
Pacific Gas and Electric                               Pacific Gas and Electric Co.
PEPCO                                                  Potomac Electric Power Company
PJM                                                    PJM Interconnection Market
PX                                                     California Power Exchange Corporation
RMR                                                    Reliability-Must-Run
SCE                                                    Southern California Edison
SEC                                                    Securities and Exchange Commission
SFAS                                                   Statement of Financial Accounting Standards
State Line                                             State Line Energy, L.L.C
</TABLE>


                                       2
<PAGE>



           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

     The information presented in this quarterly report on Form 10-Q includes
forward-looking statements, in addition to historical information. These
statements involve known and unknown risks and relate to future events, Mirant
Americas Generation's future financial performance or projected business
results. In some cases, forward-looking statements may be identified by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "targets," "potential" or "continue" or the
negative of these terms or other comparable terminology.

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

    -   legislative and regulatory initiatives regarding deregulation,
        regulation or restructuring of the electric utility industry;
    -   the extent and timing of the entry of additional competition in the
        markets of our subsidiaries and affiliates;
    -   our pursuit of potential business strategies, including acquisitions or
        dispositions of assets or internal restructuring;
    -   political, legal and economic conditions and developments and state,
        federal and other rate regulations in the United States;
    -   changes in or application of environmental and other laws and
        regulations to which we and our subsidiaries and affiliates are subject;
    -   financial market conditions and the results of our or our affiliates
        financing efforts or possible future refinancing efforts;
    -   changes in market conditions, including developments in energy and
        commodity supply, volume and pricing and interest rates;
    -   weather and other natural phenomena;
    -   developments in the California power markets, including, but not limited
        to, governmental intervention, deterioration in the financial condition
        of our counterparties, default on receivables due and adverse results in
        current or future litigation;
    -   the direct or indirect effects on our business, including the
        availability of insurance, resulting from the terrorist actions on
        September 11, 2001 or any other terrorist actions or responses to such
        actions, including, but not limited to, acts of war;
    -   the direct or indirect effects on our business resulting from the
        financial difficulties of competitors of Mirant Americas Generation,
        including, but not limited to, their effects on liquidity in the trading
        and power industry, and their effects on the capital markets' views of
        the energy or trading industry and our ability to access the capital
        markets on the same favorable terms as in the past;
    -   the direct or indirect effects on our business of a further lowering of
        our credit rating or the credit ratings of Mirant Mid-Atlantic, Mirant
        Americas Energy Marketing and Mirant Corporation (or actions we may take
        in response to changing credit ratings criteria), including, refusal by
        current or potential counterparties to enter into transactions with us,
        Mirant Mid-Atlantic, Mirant Americas Energy Marketing and Mirant and our
        respective inability to obtain credit or capital in desired amounts or
        on terms favorable to us;
    -   the disposition of the pending litigation described in our Form 10-K
        filed March 28, 2002 and this amended Form 10-Q;
    -   the direct or indirect effects of the accounting issues discussed in
        Note A in the notes to the unaudited condensed consolidated financial
        statements included in this Form 10-Q/A and any additional issues
        arising from the weakness identified by the internal control and
        procedures review of Mirant Corporation discussed in Item 4 of this Form
        10-Q/A;
    -   the direct or indirect ramifications of the results of the reaudits of
        the 2000 and 2001 financial statements of Mirant Corporation, Mirant
        Mid-Atlantic and the Company and any restatements that may be required
        as a result of these reaudits including potential effects on our or our
        affiliates financing arrangements and possible future refinancing
        efforts;
    -   the direct or indirect effects of informal inquiries by the U.S.
        Securities & Exchange Commission, the U.S. Department of Justice and the
        Commodities Futures Trading Commission regarding, among other things,
        the accounting issues described in Mirant's July 30 and August 14, 2002
        press releases and energy trading issues;
    -   the direct or indirect effects on our business of our or our
        subsidiary's failure to timely file our or their Form 10-Q for the
        quarters ended June 30, 2002 and September 30, 2002;
    -   the direct or indirect effects of the change in the way Mirant
        Mid-Atlantic calculates its fixed charge coverage ratios and any
        restriction on this subsidiary's ability to pay dividends as a result of
        this change as discussed in Item 2 of this Form 10-Q; and
    -   other factors discussed in this Form 10-Q/A and in our reports filed
        from time to time with the SEC (including our Form 10-K filed March 28,
        2002).

     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance or achievements. We expressly disclaim a duty to update
any of the forward-looking statements contained herein.




                                       3
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
           (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

<TABLE>
<CAPTION>

                                                          FOR THE THREE MONTHS
                                                            ENDED MARCH 31,
                                                           2002          2001
                                                         (NOTE A)
                                                        (RESTATED)
                                                        -----------   -----------
                                                              (in millions)
<S>                                                     <C>           <C>
OPERATING REVENUES
Affiliate (Notes A and F)                                    $ 631       $ 1,367
Other                                                           85            60
                                                        -----------   -----------
    Total operating revenues                                   716         1,427
                                                        -----------   -----------

COST OF FUEL, ELECTRICITY AND OTHER PRODUCTS
Affiliate (Note F)                                             351           907
Other                                                           35           107
                                                        -----------   -----------
    Total cost of fuel, electricity and other products         386         1,014
                                                        -----------   -----------
GROSS MARGIN                                                   330           413
                                                        -----------   -----------
OTHER OPERATING EXPENSES:
Maintenance                                                     24            20
Depreciation and amortization                                   30            39
Selling, general and administrative - affiliates
 (Note F)                                                       24            19
Selling, general and administrative - other                     10           103
Taxes other than income taxes                                   23            19
Restructuring charges (Note F)                                   4             -
Other - affiliate                                               22            27
Other                                                           30            35
                                                        -----------   -----------
    Total other operating expenses                             167           262
                                                        -----------   -----------
OPERATING INCOME                                               163           151
                                                        -----------   -----------
OTHER INCOME (EXPENSE), NET:
Interest income - affiliates                                    14             8
Interest income - other                                          -             2
Interest expense - affiliates                                   (4)            -
Interest expense - other                                       (55)          (43)
Other, net                                                       1             1
                                                        -----------   -----------
    Total other expense, net                                   (44)          (32)
                                                        -----------   -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
    INCOME TAXES                                               119           119
PROVISION FOR INCOME TAXES                                      44            48
                                                        -----------   -----------
INCOME FROM CONTINUING OPERATIONS                               75            71
                                                        -----------   -----------
INCOME FROM DISCONTINUED OPERATIONS,
    NET OF TAX PROVISION OF $2 AND $4 IN 2002
    AND 2001, RESPECTIVELY                                       2             6
                                                        -----------   -----------
NET INCOME                                                    $ 77          $ 77
                                                        ===========   ===========
</TABLE>



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



                                       4
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

<TABLE>
<CAPTION>

                                                                              (NOTE A)
                                                                             (RESTATED)
                                                                            AT MARCH 31,    At December 31,
ASSETS:                                                                         2002              2001
                                                                           ---------------  -----------------
                                                                                     (in millions)
<S>                                                                        <C>              <C>
CURRENT ASSETS:
Cash and cash equivalents                                                             $ 2               $ 15
Receivables:
 Customer accounts                                                                     14                  9
 Affiliates, less provision for uncollectibles
   of $123 and $123 for 2002 and 2001, respectively                                   332                282
Notes receivable from affiliates (Note F)                                             627                246
Assets from risk management activities (Note E)                                        71                125
Derivative hedging instruments (Notes C and E)                                        140                296
Fuel stock                                                                             81                 87
Materials and supplies                                                                 63                 63
Deferred income taxes                                                                 111                102
Prepayments                                                                           158                200
Assets held for sale (Note H)                                                         191                200
Other                                                                                  34                 62
                                                                           ---------------  -----------------
  Total current assets                                                              1,824              1,687
                                                                           ---------------  -----------------

PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment                                                       2,582              2,581
Less accumulated provision for depreciation                                          (196)              (176)
                                                                           ---------------  -----------------
                                                                                    2,386              2,405
Construction work in progress                                                         607                454
                                                                           ---------------  -----------------
  Total property, plant and equipment, net                                          2,993              2,859
                                                                           ---------------  -----------------

NONCURRENT ASSETS:
Notes receivable from affiliates  (Note F)                                            223                223
Goodwill, net of accumulated amortization
  of $76 and $57 for 2002 and 2001, respectively (Notes A and B)                    1,599              1,377
Other intangible assets, net of accumulated amortization
  of $41 and $59 for 2002 and 2001, respectively (Notes A and B)                      470                742
Assets from risk management activities (Note E)                                        15                  8
Derivative hedging instruments (Notes C and E)                                         79                 99
Other, less provision for uncollectibles of $50 and
    $43 for 2002 and 2001, respectively                                                40                 42
                                                                           ---------------  -----------------
  Total noncurrent assets                                                           2,426              2,491
                                                                           ---------------  -----------------
  Total assets                                                                    $ 7,243            $ 7,037
                                                                           ===============  =================
</TABLE>

                 The accompanying notes are an integral part of
                  these condensed consolidated balance sheets.


                                       5
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

<TABLE>
<CAPTION>

                                                                              (NOTE A)
                                                                             (RESTATED)
                                                                            AT MARCH 31,    At December 31,
LIABILITIES AND MEMBER'S EQUITY:                                                2002              2001
                                                                           ---------------  -----------------
CURRENT LIABILITIES:                                                                (in millions)
<S>                                                                         <C>                <C>
Accounts payable                                                                    $ 151              $ 122
Payable to affiliates                                                                 132                160
Notes payable to affiliates (Note F)                                                  220                253
Liabilities from risk management activities (Note E)                                   82                141
Derivative hedging instruments (Notes C and E)                                         98                252
Revenues subject to refund (Note G)                                                   269                243
Liabilities related to assets held for sale (Note H)                                   25                112
Other                                                                                 112                 50
                                                                           ---------------  -----------------
  Total current liabilities                                                         1,089              1,333
                                                                           ---------------  -----------------

NONCURRENT LIABILITIES:
Notes payable (Note D)                                                              2,567              2,567
Deferred income taxes                                                                 168                142
Liabilities from risk management activities (Note E)                                   16                  9
Derivative hedging instruments (Notes C and E)                                         19                 54
Other                                                                                   7                  7
                                                                           ---------------  -----------------
  Total noncurrent liabilities                                                      2,777              2,779
                                                                           ---------------  -----------------

COMMITMENTS AND CONTINGENT MATTERS (NOTES G AND I)

MEMBER'S EQUITY:
Member's interest                                                                   3,499              2,969
Capital contribution receivable from affiliate pursuant to ECSA (Note F)             (124)               (91)
Retained earnings                                                                      51                108
Accumulated other comprehensive loss                                                  (49)               (61)
                                                                           ---------------  -----------------
  Total member's equity                                                             3,377              2,925
                                                                           ---------------  -----------------

  Total liabilities and member's equity                                           $ 7,243            $ 7,037
                                                                           ===============  =================
</TABLE>



                 The accompanying notes are an integral part of
                  these condensed consolidated balance sheets.





                                       6
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
         CONDENSED CONSOLIDATED STATEMENT OF MEMBER'S EQUITY (UNAUDITED)
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)


<TABLE>
<CAPTION>
                                                                  CAPITAL                           ACCUMULATED
                                                               CONTRIBUTION                            OTHER
                                                MEMBER'S        RECEIVABLE         RETAINED        COMPREHENSIVE       COMPREHENSIVE
                                                INTEREST      FROM AFFILIATE       EARNINGS            LOSS               INCOME
                                              -------------   ----------------  ---------------  ------------------  ---------------
                                                                                 (in millions)
<S>                                            <C>              <C>                <C>                <C>            <C>
BALANCE, DECEMBER 31, 2001                       $ 2,969           $ (91)            $ 108              $ (61)
   Net income (as restated)                            -               -                77                  -                 $ 77
   Other comprehensive income (Note C)                 -               -                 -                 12                   12
                                                                                                                     ---------------
   Comprehensive income                                                                                                       $ 89
                                                                                                                     ===============
   Dividends                                           -               -              (134)                 -
   Capital contributions - cash                       27               -                 -                  -
   Capital contributions - noncash                   540             (53)                -                  -
   Deferred tax liability related to
       reclass of trading and marketing
       rights under SFAS No. 142                     (37)              -                 -                  -
   Capital contribution received pursuant
       to ECSA (Note F)                                -              20                 -                  -
                                              -------------   ----------------  ---------------  ------------------
BALANCE, MARCH 31, 2002 (AS RESTATED)            $ 3,499          $ (124)            $  51              $ (49)
                                              =============   ================  ===============  ==================
</TABLE>




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




                                       7
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

<TABLE>
<CAPTION>
                                                                            For the Three Months
                                                                              Ended March 31,
                                                                            2002           2001
                                                                          (NOTE A)
                                                                         (RESTATED)
                                                                        -------------- --------------
                                                                                (in millions)
<S>                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                       $ 77           $ 77
                                                                        -------------- --------------
Adjustments to reconcile net income to net cash provided by operating
 activities:
 Depreciation and amortization                                                     33             41
 Risk management activities, net                                                   (4)            (9)
 Deferred income taxes                                                              5           (117)
 Restructuring charge                                                               3              -
 Changes in certain assets and liabilities, excluding effects
   from acquisitions:
  Accounts receivable - affiliates, net                                             9           (208)
  Accounts receivable - other, net                                                 20            (48)
  Inventory                                                                         4            (14)
  Other current assets                                                             41             21
  Other noncurrent assets                                                           -             15
  Accounts payable and accrued liabilities - affiliates                            (81)          125
  Accounts payable and accrued liabilities - other                                  56            89
  Accrued taxes                                                                     8            141
  Other current liabilities                                                         -              1
  Other noncurrent liabilities                                                      2              -
                                                                        -------------- --------------
   Total adjustments                                                               96             37
                                                                        -------------- --------------
   Net cash provided by operating activities                                      173            114
                                                                        -------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                                              (79)           (99)
Cash from contribution of Mirant New England, LLC                                   7              -
Issuance of notes receivable from affiliates                                     (246)           (15)
Repayments on notes receivable from affiliates                                    128              -
Property insurance proceeds                                                         2              9
                                                                        -------------- --------------
   Net cash used in investing activities                                         (188)          (105)
                                                                        -------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions                                                              20              5
Payment of dividends                                                             (134)           (21)
Capital contribution received from affiliate pursuant to ECSA (Note F)             20              -
Proceeds from issuance of debt                                                    200              -
Repayment of debt                                                                (200)             -
Proceeds from issuance of notes payable to affiliate                              128              -
Repayment of notes payable to affiliate                                           (32)             -
                                                                        -------------- --------------
   Net cash provided by (used in) financing activities                              2            (16)
                                                                        -------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                         (13)            (7)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                     15             83
                                                                        -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                          $ 2           $ 76
                                                                        ============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized                                $ 5           $ 41
                                                                        ============== ==============
Cash paid for income taxes, net                                                   $ -           $ 27
                                                                        ============== ==============
NONCASH FINANCING ACTIVITIES:
Capital contribution of Mirant New England, LLC                                  $270            $ -
                                                                        ============== ==============
Conversion of notes payable to Mirant Americas to equity                         $217            $ -
                                                                        ============== ==============
Capital contribution receivable from affiliate pursuant to ECSA                  $ 53            $ -
                                                                        ============== ==============
</TABLE>

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



                                       8
<PAGE>


                 MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

A.  ACCOUNTING AND REPORTING POLICIES

GENERAL

    Mirant Americas Generation, LLC (formerly Mirant Americas Generation, Inc.
and Southern Energy North America Generating, Inc.) and subsidiaries
(collectively, the "Company" or "Mirant Americas Generation") was formed in May
1999. In the same year, all assets and liabilities of Mirant State Line
Ventures, Inc. (purchased from Commonwealth Edison in December 1997), Mirant New
England Investments, Inc. (purchased from Commonwealth Energy System and Eastern
Utilities Associates in December 1998), Mirant New York (purchased from Orange
and Rockland Utilities, Inc. and Consolidated Edison Company of New York in June
1999), Mirant California Investments, Inc., (the assets of which were purchased
from Pacific Gas and Electric Company in April 1999), were merged with and into
Mirant Americas Generation in a common control reorganization. In 2000, Mirant
Mid-Atlantic, LLC, was formed as a subsidiary of Mirant Americas Generation in
conjunction with Mirant Corporation's ("Mirant's") planned acquisition of
generating assets and other related assets from Potomac Electric Power Company.
Mirant Americas Generation is a direct wholly owned subsidiary of Mirant
Americas, Inc. ("Mirant Americas") and is an indirect wholly owned subsidiary of
Mirant Corporation ("Mirant"). Essentially all of the Company's operating
revenue stems from sales to Mirant Americas Energy Marketing (Note F).

    Mirant Americas Generation is engaged in the development and operation of
domestic merchant power generation facilities.

    ADJUSTMENTS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS. The Company has
restated its previously reported results of operations for the first quarter of
2002 to net income of $77 million from originally reported net income of $88
million. At March 31, 2002, revenue related to Mirant Mid-Atlantic's ECSA with
Mirant Americas Energy Marketing (an affiliate), was reduced by $11 million,
accounts receivable from Mirant Americas Energy Marketing was reduced by $5
million, and capital contribution receivable pursuant to the ECSA (a member's
equity account) was reduced by $6 million. The previously issued financial
statements did not take into account Mirant Americas Energy Marketing's election
under the ECSA in January 2002 to increase the energy purchased from Mirant
Mid-Atlantic for 2002 to 100% of the capacity of its facilities from the
contractual minimum of 75%, as described in Note E. In addition, Mirant
Mid-Atlantic recorded an addition to member's equity, with a corresponding
capital contribution receivable pursuant to the ECSA, of $53 million, to reflect
the excess of the fixed price of the capacity and energy in the ECSA over the
projected market prices when Mirant Mid-Atlantic became committed to provide the
additional energy to Mirant Americas Energy Marketing.

    The statement of cash flows has also been restated to reflect amounts
received under the ECSA attributable to the capital contribution received as a
financing activity, rather than an operating activity.

    In addition, for the three months ended March 31, 2002, the Company recorded
adjustments to net income related primarily to a decrease of revenue of
approximately $2 million, an increase of maintenance expense of approximately $1
million, an increase of restructuring charges of $1 million, and a decrease of
interest expense of $4 million.

                                       9
<PAGE>

    A summary comparison of the previously reported and restated March 31, 2002
unaudited condensed consolidated balance sheet follows (in millions):

<TABLE>
<CAPTION>
                                                MARCH 31, 2002,
                                                 AS PREVIOUSLY      MARCH 31, 2002,
                                                    REPORTED          AS RESTATED
                                               ------------------- ----------------
<S>                                                 <C>                <C>
    Total current assets....................        $1,932             $1,824
    Noncurrent assets.......................         5,500              5,419
                                                     -----              -----
        Total assets........................        $7,432             $7,243
                                                    ======             ======

    Total current liabilities...............        $1,191             $1,089
    Other liabilities.......................         2,859              2,777
    Member's equity.........................         3,382              3,377
                                                     -----              -----
         Total liabilities and member's
           equity...........................        $7,432             $7,243
                                                    ======             ======
</TABLE>

     A summary comparison of the previously reported and restated first quarter
2002 unaudited condensed consolidated statement of income follows (in millions):

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED    THREE MONTHS ENDED
                                                MARCH 31, 2002, AS     MARCH 31, 2002,
                                               PREVIOUSLY REPORTED       AS RESTATED
                                               --------------------- ---------------------
<S>                                               <C>                 <C>
    Operating revenues....................              $729                $716
    Cost of fuel, electricity and other
      products............................               386                 386
                                                         ---                 ---
    Gross margin..........................               343                 330
    Other.................................              (255)               (253)
                                                        -----               -----
    Net income............................             $  88               $  77
                                                       =====               =====
</TABLE>

    A summary comparison of the previously reported and restated first quarter
2002 unaudited condensed consolidated statement of cash flows follows (in
millions):

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED    THREE MONTHS ENDED
                                                MARCH 31, 2002, AS     MARCH 31, 2002,
                                               PREVIOUSLY REPORTED       AS RESTATED
                                               --------------------- ---------------------
<S>                                                 <C>                   <C>
    Cash flows from operating activities...             $192                  $173
    Cash flows from investing activities...             (187)                 (188)
    Cash flows from financing activities...              (18)                    2
                                                       ------               ------
    Net decrease in cash and cash equivalents           $(13)               $  (13)
                                                        =====               =======
</TABLE>


    The Company has engaged KPMG to reaudit the Company's 2000 and 2001
financial statements for two primary reasons: (i) to address accounting errors
identified during reviews of Mirant's previously disclosed accounting issues;
and (ii) to enable its independent auditors to provide an opinion on the
Company's 2000 and 2001 financial statements in accordance with the new
accounting standard SFAS No. 144. The effects, if any, of such reaudit on the
Company's financial statements cannot be determined. In addition, we are not
currently able to assess the impact on the Company of the reaudit of Mirant and
the accounting issues at Mirant Americas Energy Marketing in light of the
business relationships among the Company, Mirant Mid-Atlantic, Mirant Americas
Energy Marketing and Mirant Corporation.

    BASIS OF ACCOUNTING. These unaudited condensed consolidated financial
statements should be read in conjunction with the Company's audited 2000 and
2001 consolidated financial statements and the accompanying footnotes which are
contained in the Company's annual report on Form 10-K, for the year ended
December 31, 2001. As previously discussed, Mirant has engaged its independent
auditors to reaudit its 2000 and 2001 financial statements.

    The results for interim periods are not necessarily indicative of the
results for the entire year. Certain prior-year amounts have been reclassified
to conform with the current year financial statement presentation.

    Management believes that the accompanying unaudited condensed consolidated
financial statements as of March 31, 2002 and for the three months then ended
reflect adjustments, consisting of normal recurring items, necessary for a fair
presentation of results for those interim periods presented.

                                       10
<PAGE>

    ACCOUNTING CHANGES. In July 2001, the FASB issued SFAS No. 141, "Business
Combinations," ("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). These pronouncements significantly change the
accounting for business combinations, goodwill and intangible assets. SFAS No.
141 establishes that all business combinations will be accounted for using the
purchase method; use of the pooling-of-interests method is no longer allowed.
The statement further clarifies the criteria to recognize intangible assets
separately from goodwill. The provisions of SFAS No. 141 are effective for all
business combinations initiated after June 30, 2001 and for business
combinations accounted for using the purchase method for which the acquisition
date was before July 1, 2001. SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and, generally,
adopts a non-amortization and periodic impairment-analysis approach to goodwill
and indefinite-lived intangibles. SFAS No. 142 is effective for the Company's
2002 fiscal year or for business combinations initiated after June 30, 2001.
Mirant Americas Generation adopted these statements on January 1, 2002.

    Upon initial application of SFAS No. 141, Mirant Americas Generation
reassessed the classification of its intangible assets and determined that
trading rights resulting from business combinations did not meet the new
criteria for recognition apart from goodwill. Effective January 1, 2002, trading
rights related to business combinations were reclassified to goodwill as
required by the Statement. The reclassification increased goodwill by $194
million, net of accumulated amortization of $18 million and net of the effect on
deferred taxes of the adjustment recorded by our parent of $37 million. Since
Mirant Mid-Atlantic is not a taxable entity, all deferred income taxes related
to book/tax differences of the assets and liabilities of Mirant Mid-Atlantic are
recorded by Mirant Americas. A deferred tax liability was not recognized in the
purchase accounting for the non-deductible goodwill attributed to Mirant
Mid-Atlantic. A deferred tax liability was recognized for the book/tax basis
difference related to the trading rights attributed to Mirant Mid-Atlantic. The
reclassification of trading rights to goodwill in connection with the adoption
of SFAS No. 142 resulted in the reversal of the deferred tax liability recorded
by Mirant Americas. The reduction in the deferred tax liability at Mirant
Americas resulted in a reduction in the amount of goodwill attributed to Mirant
Mid-Atlantic.

    As a result of the adoption of SFAS No. 142, Mirant Americas Generation
discontinued amortization of goodwill effective January 1, 2002. During the
three months ended March 31, 2002, Mirant Americas Generation completed the
transitional impairment test required by SFAS No. 142 and did not record any
impairments of goodwill. Net income for the three months ended March 31, 2001
has been adjusted below to exclude amortization related to goodwill and trading
rights recognized in business combinations (in millions).

<TABLE>
<CAPTION>
                                                         NET INCOME
                                                         ----------
<S>                                                      <C>
             Net income as reported..................      $    77
             Effect of goodwill and trading rights              10
                                                         ----------
             amortization............................
             Net income as adjusted..................
                                                           $    87
                                                         ==========
</TABLE>

    In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 addresses financial
accounting and reporting obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The provisions of
SFAS No. 143 are effective for the Company's 2003 fiscal year. Mirant Americas
Generation has not yet determined the financial statement impact of this
statement.

    In October 2001, the FASB issued SFAS No. 144, which supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," and Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 amends accounting and reporting standards
for the disposal of segments of a business and addresses various issues related
to the accounting for impairments or disposals of long-lived assets. Mirant
Americas Generation adopted SFAS No. 144 on January 1, 2002. Prior to SFAS No.
144, the disposition of State Line would not have been classified as a
discontinued operation. Because SFAS No. 144 expanded the breadth of

                                       11
<PAGE>

transactions subject to discontinued operations classification, the disposition
of State Line is now required to be presented as a discontinued operation (Note
H).

      In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
requires companies to recognize certain costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company will
adopt SFAS No. 146 on January 1, 2003 and does not believe that it will have a
material impact on its financial statements.

      In June 2002, the EITF reached consensus on certain issues related to EITF
Issue 02-3, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities," with the main consensus being that gains and losses on
energy trading contracts should be reported net in the statement of income. In
October 2002, the Task Force rescinded EITF Issue 98-10, "Accounting for
Contracts Involved in Energy Trading and Risk Management Activities" resulting
in energy-related contracts that are not accounted for pursuant to SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," as amended
("SFAS No. 133") such as transportation contracts, storage contracts and tolling
agreements, being accounted for as executory contracts using the accrual method
of accounting and not at fair value. The consensus reached on EITF Issue 02-3
and the rescission of EITF Issue 98-10 do not impact the Company's financial
statements.

     CONCENTRATION OF REVENUES AND CREDIT RISK. Essentially all of the Company's
operating revenue stems from sales to Mirant Americas Energy Marketing (Note F).
However, under its agreements with Mirant Americas Energy Marketing, the Company
retains the ultimate credit risk from the sales that Mirant Americas Energy
Marketing engages in on its behalf to third-parties, except for sales under the
Mirant Mid-Atlantic ECSA (Note F). During the three months ended March 31, 2002,
approximately 16% of the Company's revenues were attributable to sales to the
DWR, as compared to approximately 7% for the same period in 2001. In addition,
during the three months ended March 31, 2002, approximately 27% of the Company's
revenues were attributable to sales to Mirant Americas Energy Marketing through
the Company's subsidiary, Mirant Mid-Atlantic under the ECSA, whereby the
ultimate credit risk to the Company from these sales is with Mirant Americas
Energy Marketing.

      As of March 31, 2002, the DWR (a non-affiliate of Mirant), Mirant, Mirant
Americas, Inc., Mirant Americas Energy Marketing and Mirant Potomac River, a
direct wholly owned subsidiary of Mirant, owed Mirant Americas Generation $245
million (includes accounts receivable and open contract positions), $372
million, $296 million, $179 million and $156 million, respectively, each
representing more than 10% of Mirant Americas Generation's total credit
exposure. The DWR exposure is not currently supported by the state of
California's credit and is subject to the risk that the California State
Legislature will not adequately appropriate funds to support the DWR's
obligations with respect to its contracts with Mirant Americas Generation. The
Mirant exposure is related to participation in Mirant's cash management program
by the Company's subsidiaries, including interest, in which the available cash
of the Company's subsidiaries is loaned to Mirant on a daily basis (Note F). The
Company's total credit exposure is computed as total accounts and notes
receivable, adjusted for risk management and derivative hedging activities,
netted where appropriate.

     CAPITALIZATION OF INTEREST COST. Mirant Americas Generation capitalizes
interest on projects during the advanced stages of development and the
construction period, in accordance with SFAS No. 34, "Capitalization of Interest
Cost," as amended by SFAS No. 58, "Capitalization of Interest Cost in Financial
Statements That Include Investments Accounted for by the Equity Method." The
Company determines which debt instruments represent a reasonable measure of the
cost of financing construction assets in terms of interest cost incurred that
otherwise could have been avoided. These debt instruments and associated
interest cost are included in the calculation of the weighted average interest
rate used for determining the capitalization rate. Upon commencement of
commercial operations of the plant or project, capitalized interest, as a
component of the


                                       12

<PAGE>

total cost of the plant, is amortized over the estimated useful life of the
plant. For the three months ended March 31, 2002 and 2001, the Company incurred
$67 million and $47 million, respectively, in interest costs, of which $8
million and $4 million, respectively, were capitalized and included in
construction work in process. The remaining interest was expensed during the
period.

As part of Mirant's restructuring plan announced in March of 2002, the Company
suspended construction on several projects and no longer capitalizes interest on
these projects.

B.    GOODWILL AND OTHER INTANGIBLE ASSETS

     During the three months ended March 31, 2002, Mirant Americas Generation
recorded $31 million of goodwill, net of $3 million of accumulated amortization
when Mirant Americas transferred its ownership interest in Mirant New England,
LLC to Mirant Americas Generation. Subsequent to March 31, 2002, there may be an
impairment of goodwill at Mirant Americas Generation as a result of the overall
conditions impacting the energy sector. Mirant Americas Generation cannot
currently estimate the potential goodwill impairment charge, if any, until
completion of its assessment of the book values of long-lived assets, estimated
future cash flows associated with such assets as well as the completion of the
2003 financial planning process. The Company expects to complete its analysis
prior to reporting its 2002 results. As of March 31, 2002, Mirant Americas
Generation's goodwill was $1.6 billion.

     All of Mirant Americas Generation's other intangible assets are subject to
amortization. Other intangible assets are being amortized on a straight-line
basis over the related useful lives, up to 40 years. Effective January 1, 2002,
trading rights related to business combinations were reclassified to goodwill.
The reclassification decreased other intangible assets by $227 million, net of
accumulated amortization of $18 million. These provisions of SFAS No. 141 do not
apply to asset acquisitions, therefore trading rights resulting from asset
acquisitions continue to be recognized apart from goodwill. The trading rights
represent the Company's ability to create additional cash flows by incorporating
Mirant's trading organization activities with generation assets. In a
deregulated marketing structure, trading rights are the ability to create value
beyond that of the tangible assets through developing markets. During the three
months ended March 31, 2002, the Company transferred $36 million, net of
accumulated amortization of $4 million, in development rights to construction
work in process. Development rights represent the ability to expand capacity at
certain acquired generation facilities. The existing infrastructure, including
storage facilities, transmission interconnections, and fuel delivery systems,
and contractual rights acquired by Mirant provide the opportunity to expand or
repower generation facilities. This ability to repower or expand is at
significant cost savings compared to greenfield construction. Other intangible
asset amortization expense for the three months ended March 31, 2002 was $8
million. The components of other intangible assets as of March 31, 2002 and
December 31, 2001 were as follows (in millions):

<TABLE>
<CAPTION>
                                                       MARCH 31, 2002                                DECEMBER 31, 2001
                                     -----------------------------------------------  ---------------------------------------------
                                         GROSS CARRYING               ACCUMULATED       GROSS CARRYING               ACCUMULATED
                                             AMOUNT                  AMORTIZATION           AMOUNT                  AMORTIZATION
                                     -----------------------------------------------  ---------------------------------------------
<S>                                    <C>                        <C>                  <C>                    <C>
Trading rights                             $   207                    $   (29)             $   453                    $   (45)
Development rights                             159                         (6)                 199                         (9)
Emissions allowances                           131                         (5)                 131                          -
Other intangibles                               14                         (1)                  18                         (5)
                                     -----------------------------------------------  ---------------------------------------------
  Total other intangible assets            $   511                    $   (41)             $   801                    $   (59)
                                     ===============================================  =============================================
</TABLE>


     Assuming no future acquisitions, dispositions or impairments of the
intangible assets, amortization expense is estimated to be $21 million for the
year ended December 31, 2002 and $17 million for each of the following four
years.

                                       13

<PAGE>

C.    COMPREHENSIVE INCOME/(LOSS)

     Other comprehensive income(loss) includes unrealized gains and losses on
certain derivatives that qualify as cash flow hedges. The effect of other
comprehensive income is set forth in the accompanying unaudited condensed
consolidated statement of member's equity.

     Components of accumulated other comprehensive loss consisted of the
following, net of tax (in millions):

<TABLE>
<S>                                                                             <C>
           BALANCE, DECEMBER 31, 2001..........................................  $  (61)

           Other comprehensive income for the period:
             Change in fair value of derivative instruments, net of tax
                   effect of $(12).............................................      50
             Reclassification to earnings, net of tax effect of $11............     (38)
                                                                                 -------
           Other comprehensive income..........................................      12
                                                                                 -------

           BALANCE, MARCH 31, 2002.............................................  $  (49)
                                                                                 =======
</TABLE>

     The $49 million balance of accumulated other comprehensive loss at March
31, 2002 includes the impact of $128 million related to interest rate swap
breakage costs and $79 million of gains on commodity price management hedges.

     Mirant Americas Generation estimates that $41 million ($52 million of
commodity hedge gains and $11 million of interest rate hedging losses) of net
derivative after-tax gains included in OCI as of March 31, 2002 will be
reclassified from OCI into earnings or otherwise settled within the next twelve
months as certain transactions relating to commodity contracts and interest
payments are realized.

D.     DEBT

        As of March 31, 2002, Mirant Americas Generation had noncurrent notes
payable outstanding of $2.57 billion, including senior notes and bank credit
facilities.

      In May 2002, Mirant Americas Generation completed the exchange offer of
its $750 million senior unsecured notes issued under Rule 144A of the Securities
Act in October of 2001. The notes exchanged included $300 million of 7.2% senior
notes due 2008 and $450 million of 8.5% senior notes due 2021. The Company
received no additional proceeds from this exchange and the new notes contain the
same terms as the original notes.

      At March 31, 2002, Mirant Americas Generation had two credit facilities,
each entered into in October 1999, which consisted of a $250 million 5-year
revolving credit agreement ("Credit Facility B") for capital expenditures and
general corporate purposes and a $50 million 5-year revolving credit facility
("Credit Facility C") for working capital needs. The commitments under Credit
Facility B and Credit Facility C remain available through October 2004. As of
March 31, 2002, the outstanding borrowings under Credit Facility B were $73
million. As of March 31, 2002, there were no borrowings under Credit Facility C.

      In addition to other covenants and terms, each of Mirant Americas
Generation's credit facilities includes minimum debt service coverage, a maximum
leverage covenant and a minimum debt service coverage test for dividends and
distributions. As of March 31, 2002, there were no events of default under such
credit facilities.

      In July 2002, the Company fully drew the commitments under its two credit
facilities. As of September 30, 2002, the outstanding borrowings under Credit
Facility B were $250 million at an interest rate of 3.31%, and the outstanding
borrowings under Credit Facility C were $50 million at an interest rate of
3.31%. The net proceeds from additional borrowings of approximately $227 million
were used primarily to repay $131 million of notes payable to affiliates. The
remaining amount is expected to be used for working capital and capital
expenditures.

                                       14

<PAGE>

E.    FINANCIAL INSTRUMENTS

DERIVATIVE HEDGING INSTRUMENTS

     Mirant Americas Generation uses derivative instruments to manage exposures
arising from changes in commodity prices and interest rates. Mirant Americas
Generation's objective for holding derivative instruments is to minimize risks
using the most effective methods to eliminate or reduce the impacts of these
exposures and to provide a measure of stability to the Company's cash flows in a
time of volatile changes in commodity prices.

     Derivative gains and losses arising from cash flow hedges that are included
in OCI are reclassified into earnings in the same period as the settlement of
the underlying transaction. Amounts reclassified to operating income include
commodity net gains and losses from both taxable and non-taxable entities. Taxes
are provided on the commodity net gains and losses related to the taxable
entities within Mirant Americas Generation. During the three months ended March
31, 2002, $53 million of net pre-tax derivative gains were reclassified to
operating income and $4 million of pre-tax losses were reclassified to interest
expense.

      The derivative gains and losses reclassified to earnings were partly
offset by realized gains and losses arising from the settlement of the
underlying physical transactions being hedged. Under SFAS No. 133, transactions
may meet the requirements for hedge treatment, but may be less than 100%
effective. For example, a derivative instrument specifying one commodity
delivery location may be used to hedge a risk at a different commodity delivery
location. The price differential between the two locations is considered the
ineffective portion of the hedge. Any changes in the fair value of the
ineffective portion must be recorded currently in earnings. During the three
months ended March 31, 2002, gains or losses arising from hedge ineffectiveness
were immaterial. At March 31, 2002, the maximum term over which the Company is
hedging exposures to the variability of cash flows is through 2010.

COMMODITY PRICE HEDGING

     Mirant Americas Generation enters into commodity financial instruments and
other contracts in order to hedge its exposure to market prices for electricity
expected to be produced by its generation assets. These contracts are primarily
physical forward sales but may also include options and other financial
instruments. Mirant Americas Generation also uses commodity financial
instruments and other contracts to hedge its exposure to market prices for
natural gas, coal and other fuels expected to be utilized by its generation
assets. These contracts primarily include futures, options and swaps. Where
these contracts are derivatives and are designated as cash flow hedges, the
gains and losses are deferred in OCI and are then recognized in earnings in the
same period as the settlement of the underlying physical transaction.

     At March 31, 2002, Mirant Americas Generation had a net commodity
derivative hedging asset of approximately $102 million. The fair value of the
Company's commodity derivative hedging instruments is determined using various
factors, including closing exchange or over-the-counter market price quotations,
time value and volatility factors underlying options and contractual
commitments.

     At March 31, 2002, these contracts relate to periods through 2006. The net
notional amount, or net short position, of the commodity derivative hedging
instruments for natural gas, electricity, crude oil and residual fuel at March
31, 2002 was approximately 4 million equivalent megawatt-hours. Following is a
summary of the units, equivalent megawatt-hours and duration by commodity. These
amounts are indicative only of the volume of activity and not of the amount
exchanged by the parties to the financial instruments. Consequently, these
amounts are not a measure of market risk.

                                       15

<PAGE>

<TABLE>
<CAPTION>
                                                                                         EQUIVALENT                 AVERAGE
                                                        NOMINAL UNITS                  MEGAWATT-HOURS              DURATION
                                                         LONG (SHORT)                   LONG (SHORT)                (YEARS)
                                                         ------------                   ------------                -------
<S>                                                    <C>                               <C>                          <C>
   Natural gas............................             40 million mmbtu                  4 million                    .86
   Electricity............................             (14) million mwh                 (14) million                 1.09
   Crude oil..............................             0.6 million barrels               0.3 million                  .45
   Residual fuel..........................             9 million barrels                  6 million                  1.05
</TABLE>

     Power sales agreements and other contracts that are used to mitigate
exposure to commodity prices but which either do not meet the definition of a
derivative or are excluded under certain exceptions under SFAS No. 133 are not
included in derivative hedging instruments in the accompanying unaudited
condensed consolidated balance sheets.

INTEREST RATE HEDGING

     Mirant Americas Generation's policy is to manage interest expense using a
combination of fixed- and variable-rate debt. To manage this mix in a
cost-efficient manner, Mirant Americas Generation from time to time enters into
interest rate swaps in which it agrees to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference
to agreed-upon notional amounts. These swaps are designated to hedge underlying
debt obligations. For qualifying hedges, the changes in the fair value of gains
and losses of the swaps are deferred in OCI, net of tax, and the interest rate
differential is reclassified from OCI to interest expense as an adjustment over
the life of the swaps. Gains and losses resulting from the termination of
qualifying hedges prior to their stated maturities are recognized ratably over
the remaining life of the hedged instruments. At March 31, 2002, the Company was
not a party to any interest rate swaps.

RISK MANAGEMENT ACTIVITIES

     Certain financial instruments that Mirant Americas Generation uses to
manage risk exposure to energy prices do not meet the hedge criteria under SFAS
No. 133. Therefore, the fair values of these financial instruments are included
in risk management assets and liabilities in the accompanying unaudited
condensed consolidated balance sheets. These financial instruments include
contracts such as forward contracts, futures contracts, option contracts and
financial swap agreements.

     At March 31, 2002, the Company had contracts that related to periods
through 2010. The net notional amount, or net short position, of the risk
management assets and liabilities at March 31, 2002 was approximately 1 million
equivalent megawatt-hours. Following is a summary of the units, equivalent
megawatt-hours and duration by commodity. These amounts are indicative only of
the volume of activity and not of the amount exchanged by the parties to the
financial instruments. Consequently, these amounts are not a measure of market
risk.

<TABLE>
<CAPTION>
                                                                                         EQUIVALENT              AVERAGE
                                                              NOMINAL UNITS            MEGAWATT-HOURS           DURATION
                                                              LONG (SHORT)              LONG (SHORT)             (YEARS)
                                                              ------------              ------------             -------
<S>                                                       <C>                           <C>                       <C>
   Natural gas..................................            26 million mmbtu            2.6 million               1.18
   Electricity..................................             (4) million mwh            (4) million               1.96
   Crude oil....................................           0.5 million barrels          0.2 million               1.14
   Residual fuel................................          0.15 million barrels          0.09 million              2.26
</TABLE>

     The fair values of Mirant Americas Generation's risk management assets and
liabilities as of March 31, 2002 are included in the following table (in
millions).

<TABLE>
<CAPTION>
                                                                             RISK MANAGEMENT
                                                                    -------------------------------
                                                                       ASSETS          LIABILITIES
<S>                                                                     <C>            <C>
              Energy commodity instruments:
              Electricity..........................................        $ 24           $ 19
              Natural gas..........................................          55             74
              Crude oil............................................           6              5
              Residual fuel........................................           1              -
                                                                           ----         ------
              Total................................................        $ 86           $ 98
                                                                           ====           ====
</TABLE>


                                       16

<PAGE>

F.    RELATED PARTY TRANSACTIONS

MID-ATLANTIC SALES AGREEMENT WITH MIRANT AMERICAS ENERGY MARKETING

      Mirant Mid-Atlantic has entered into an Energy and Capacity Sales
Agreement ("ECSA"), which is a fixed rate power purchase agreement with Mirant
Americas Energy Marketing. Under the terms of the ECSA, Mirant Mid-Atlantic
supplies all of its capacity and energy of its facilities to Mirant Americas
Energy Marketing for the period from August 1, 2001 through June 30, 2004,
extendable through December 31, 2004 at Mirant Americas Energy Marketing's
option. For 2002 and 2003, Mirant Americas Energy Marketing has elected to keep
its committed capacity and energy purchases at 100% of the total output of
Mirant Mid-Atlantic's facilities. For 2004, Mirant Americas Energy Marketing has
the option to purchase up to 100% (in blocks of 25%) of the total output of
Mirant Mid-Atlantic's facilities, with no minimum commitment. Mirant Americas
Energy Marketing is a party to transitional power agreements with PEPCO under
which PEPCO has a similar option to purchase energy with respect to PEPCO's load
requirements.

      Prior to August 1, 2001, Mirant Mid-Atlantic sold its power to Mirant
Americas Energy Marketing pursuant to a master sales agreement. Under this
agreement the price Mirant Mid-Atlantic received was based on the market price
for energy in the PJM market at the time the energy was delivered. Mirant
Mid-Atlantic also sold power to Mirant Americas Energy Marketing under fixed
price contracts.

      Mirant Mid-Atlantic's affiliated companies, Mirant Potomac River and
Mirant Peaker, have also entered into fixed rate power purchase agreements with
Mirant Americas Energy Marketing, on the same terms and effective over the same
period as the agreement outlined above. Through the capital contribution
agreement between Mirant Mid-Atlantic and Mirant, the cash available from these
affiliated companies is paid as a dividend to Mirant, which in turn makes an
indirect capital contribution to Mirant Mid-Atlantic for the same amount.

     At the inception date of the ECSA, the pricing of Mirant Americas Energy
Marketing's minimum committed capacity and energy purchases was favorable to
Mirant Mid-Atlantic and its affiliates when compared to estimated market rates
in the PJM for power to be delivered over the initial term of the agreement. The
estimated market rates were based on quoted market prices in the PJM, as
adjusted upwards by approximately 12% for what Mirant Mid-Atlantic believed, at
the time, to be temporary anomalies in such market prices based on forecasted
demand growth and other factors. At inception, the aggregate value to Mirant
Mid-Atlantic and its affiliates relating to the favorable pricing variance was
approximately $167 million. The amount related specifically to the Mirant
Mid-Atlantic owned or leased facilities amounted to $120 million and was
reflected as both an addition to member's equity and an offsetting capital
contribution receivable pursuant to the ECSA on the Company's consolidated
balance sheet and statement of member's equity at the inception of the
agreements. At inception, Mirant Mid-Atlantic had assumed that in 2002 Mirant
Americas Energy Marketing would elect to take the contracted minimum 75% of the
capacity and output of Mirant Mid-Atlantic's facilities. In January 2002, Mirant
Americas Energy Marketing elected to keep its committed capacity at 100% of the
total output of Mirant Mid-Atlantic's facilities. Therefore, the Company has
recorded an additional equity contribution of $53 million in the first quarter
of 2002 to reflect the favorable pricing terms related to the additional 25%
capacity and energy that Mirant Americas Energy Marketing committed to take in
2002. This adjustment is reflected in the accompanying unaudited condensed
consolidated balance sheet and statement of member's equity as both an addition
to member's interest and an offsetting capital contribution receivable pursuant
to the ECSA.

      The contractual amount payable under the ECSA in excess of the amount of
revenue recognized due to the favorable pricing variances was $28 million for
the three months ended March 31, 2002. This amount is generally received in the
month following the month the related revenue is recognized and is recorded as a
reduction in the capital contribution receivable pursuant to the ECSA when
received. During the three months ended March 31, 2002, Mirant Mid-Atlantic
received $20 million under the ECSA that was applied as a reduction to the
capital contribution receivable pursuant to the ECSA. The capital contribution
receivable pursuant to the ECSA was $124 million at March 31, 2002, of which $12
million represents amounts received

                                       17

<PAGE>

subsequent to March 31, 2002 related to the revenue recognized prior to that
date and $112 million relates to the favorable pricing variance over the
remaining months of 2002.

      The favorable pricing variance accounted for as a capital contribution
receivable is not adjusted for subsequent changes in energy prices. As a result,
amounts recognized as revenue under the ECSA do not necessarily reflect market
rates at the time the energy is delivered. Amounts recognized as revenue for
capacity and energy delivered under the ECSA exceeded the amounts based on
current market rates by approximately $97 million for the three months ended
March 31, 2002.

      On November 15, 2002, Mirant Americas Energy Marketing elected to keep its
committed capacity at 100% of the output of Mirant Mid-Atlantic's facilities for
2003. The aggregate value to the Company and its affiliates relating to the
favorable price variance from this election was approximately $170 million. The
amount allocated specifically to Mirant Mid-Atlantic's owned or leased
facilities was approximately $120 million. Accordingly, an adjustment of
approximately $120 million to member's equity and an offsetting capital
contribution receivable pursuant to the ECSA will be recorded in the fourth
quarter of 2002.

SERVICES AND ADMINISTRATION ARRANGEMENTS

      The Company and its subsidiaries utilize the services of Mirant, Mirant
Services and Mirant Americas Energy Marketing. The significant arrangements with
these affiliated companies are described below. Management believes that the
amounts allocated or charged to the Company are reasonable and are substantially
similar to costs it would have incurred on a stand-alone basis. The following
table summarizes the amounts incurred under the arrangements that are recorded
in the accompanying unaudited condensed consolidated statements of income as
selling, general and administrative expenses - affiliates:

<TABLE>
<CAPTION>
                                                                                               FOR THE THREE MONTHS ENDED
                                                                                                         MARCH 31,
                                                                                              ----------------------------
                                                                                                   2002            2001
                                                                                                   ----            ----
<S>                                                                                             <C>             <C>
      Management, personnel and services agreement........................................          $ 14            $ 14
      Services agreements.................................................................             5               5
      Other...............................................................................             5               0
                                                                                                   -----           -----
         Total selling, general and administrative expenses - affiliates..................          $ 24            $ 19
                                                                                                   =====           =====
</TABLE>

Management, Personnel and Services Agreement with Mirant Services

     Mirant Services provides the Company with various management, personnel and
other services. The Company reimburses Mirant Services for amounts equal to
Mirant Services' direct costs of providing such services.

      The total costs incurred under the agreement with Mirant Services for the
three months ended March 31, 2002 and 2001 have been included in the
accompanying unaudited condensed consolidated statements of income as follows
(in millions):

<TABLE>
<CAPTION>
                                                                                     FOR THE THREE MONTHS ENDED
                                                                                             MARCH 31,
                                                                                    ---------------------------
                                                                                       2002            2001
                                                                                       ----            ----
<S>                                                                                  <C>             <C>
      Selling, general and administrative expense............................           $ 14            $ 14
      Other operating expense................................................             22              27
                                                                                       -----           -----

         Total costs under the Management, Personnel and Services Agreement.            $ 36            $ 41
                                                                                       =====           =====
</TABLE>

Services Agreements with Mirant Americas Energy Marketing

      The Company, through its subsidiaries, is a party to separate services
agreements with Mirant Americas Energy Marketing. Mirant Americas Energy
Marketing is responsible for marketing and scheduling the majority of the
capacity from the Company's Mid-Atlantic, New York, California and New England
facilities. Mirant Americas Energy Marketing has no minimum purchase
requirements under these agreements, except for a commitment with Mirant
Mid-Atlantic under its ECSA which runs through the end of 2003 with an option by
Mirant Americas Energy Marketing to extend it through 2004.

                                       18

<PAGE>

     Effective April 1, 2002, Mirant Americas Generation's operating
subsidiaries, except Mirant Mid-Atlantic, entered into new power sales, fuel
supply and services agreements with Mirant Americas Energy Marketing. The terms
of these new agreements are similar to the terms under the agreements in effect
during 2001 and the first quarter of 2002; however, the new agreements do not
contain a bonus for Mirant Americas Energy Marketing based on the percentage by
which revenues exceeded costs under the agreement. There was no bonus expense
for the three months ended March 31, 2002 and 2001. Under the new agreements,
the various operating subsidiaries of Mirant Americas Generation, except for
Mirant Mid-Atlantic, will pay Mirant Americas Energy Marketing a fixed
administrative fee of approximately $10 million for the period from April 1,
2002 through December 31, 2002. The new agreements expire December 31, 2002.

      During the three months ended March 31, 2002, the Company incurred
approximately $5 million in costs under the power sales, fuel supply and
services agreements it has with Mirant Americas Energy Marketing as compared to
$5 million for the same period in 2001. These costs are included in selling,
general and administrative expenses - affiliates in the accompanying unaudited
condensed consolidated statements of income.

      Effective July 1, 2002, the Company and Mirant Americas Energy Marketing
amended the services and risk management agreement with regard to the provision
of the residual fuel oil requirements at the Company's Bowline, Lovett, Canal,
Chalk Point and certain other facilities. The revised agreement is an
all-requirements contract with pricing based on the daily Platts New York Harbor
mean index for residual fuel oil plus a delivery charge. Pursuant to the revised
agreement, Mirant Americas Energy Marketing will also manage the fuel oil
storage associated with these facilities. The Company believes that its fuel
price risk can be more effectively managed because the forward fuel oil hedge
instruments frequently purchased by the Company typically settle against the New
York Harbor index. The new arrangement is expected to lower the working capital
requirements for the Company, as Mirant Americas Energy Marketing will now own
the majority of fuel oil inventory. Under the new arrangement, the generating
facilities will be obligated to purchase residual fuel oil at the index price on
the day it is utilized at the facility. Previously, these facilities ordered
residual fuel oil at market prices in advance of its use. Fuel will be purchased
by the facilities as burned. In July 2002, the Company sold fuel oil inventory
at its book value of approximately $15 million to Mirant Americas Energy
Marketing.

NOTES PAYABLE TO AND NOTES RECEIVABLE FROM AFFILIATES

     Mirant Peaker and Mirant Potomac River borrowed funds from Mirant
Mid-Atlantic in order to finance their respective acquisitions of generation
assets. At both March 31, 2002 and December 31, 2001, notes receivable from
these two affiliates consisted of the following (in millions):

<TABLE>
<CAPTION>
      BORROWER                                                    PRINCIPAL         INTEREST RATE         MATURITY
      --------                                                    ---------         -------------         --------
<S>                                                               <C>               <C>                  <C>
      Mirant Potomac River..................................        $ 152                10%             12/30/2028
      Mirant Peaker.........................................        $ 71                 10%             12/30/2028
</TABLE>

      Mirant Potomac River and Mirant Peaker have a capital contribution
agreement with Mirant in which they make quarterly distributions to Mirant of
all cash available after taking into consideration projected cash requirements,
including mandatory debt service, prepayments permitted under the terms of the
notes payable and maintenance reserves.

      Under the capital contribution agreement, the owner lessors, the holders
of the lessor notes, and the indenture trustee of Mirant Mid-Atlantic's lease
arrangements (Note G) have the ability to enforce the payment terms of the notes
receivable.

      Principal is due on maturity with interest due semiannually, in arrears,
on June 30 and December 30. Any amount not paid when due bears interest
thereafter at 12%. Mirant Potomac River and Mirant Peaker may

                                     19


<PAGE>

prepay up to $5 million and $3 million per year, respectively. Interest earned
by Mirant Mid-Atlantic from Mirant Potomac and Mirant Peaker was $6 million for
the three month periods ended March 31, 2002 and 2001.

     Under Mirant's cash management program, the available cash of the Company's
subsidiaries was loaned to Mirant on a daily basis and kept in a Mirant account.
Participation in Mirant's cash management program exposed such subsidiaries to
Mirant credit risk as unsecured creditors in the full amount of cash held by
Mirant pursuant to the cash management loan agreements. Repayment by Mirant of
any advances under the cash management program was subordinated to the repayment
of the senior obligations of Mirant. Furthermore, Mirant Americas Energy
Marketing makes substantially all of the Company's sales on the Company's behalf
and collects all cash receipts from sales made on the Company's behalf. As such,
the Company is also subject to the risk of collection from Mirant Americas
Energy Marketing of substantially all of the Company's outstanding accounts
receivables at any point in time.

     At March 31, 2002, the subsidiaries of the Company had made net advances to
Mirant under the cash management agreements totaling $76 million (consisting of
approximately $185 million in advances to Mirant recorded as a notes receivable
from affiliates on the unaudited condensed consolidated balance sheet and
approximately $109 million in advances from Mirant recorded as a notes payable
to affiliates on the unaudited condensed consolidated balance sheet). These
advances were due on demand and accrued interest at various rates. Effective
February 1, 2002, the interest rate payable on advances from Mirant Mid-Atlantic
was changed to LIBOR plus 180 basis points from an interest rate based on the
actual return obtained by Mirant on its short-term investments.

      Effective October 21, 2002, Mirant Mid-Atlantic discontinued its
involvement in Mirant's cash management program and commenced the operation of
bank deposit and money market accounts in Mirant Mid-Atlantic's own name. As of
October 21, 2002, the net principal balance outstanding under the cash
management program of $83 million was received by the Company from Mirant.
Similarly, effective December 19, 2002, the remaining subsidiaries of the
Company that participated in Mirant's cash management program discontinued their
participation and commenced the operation of bank deposit and money market
accounts in the Company's own name. As of December 19, 2002, the net balance
outstanding under the cash management program of approximately $90 million was
received by the Company from Mirant.

CONTRIBUTION OF MIRANT NEW ENGLAND, LLC TO MIRANT AMERICAS GENERATION

      Effective January 1, 2002, Mirant Americas transferred its ownership
interest in Mirant New England, LLC (a wholly owned subsidiary of Mirant
Americas) to Mirant Americas Generation. The transfer was accounted for as cash
and non-cash capital contributions of approximately $7 million and $270 million,
respectively to Mirant Americas Generation in the first quarter of 2002. The
assets and liabilities of Mirant New England, LLC are reflected in the
accompanying unaudited condensed consolidated financial statements at their
historical cost.

      At January 1, 2002, Mirant New England, LLC's significant assets were $7
million of cash, a $255 million note receivable from Mirant Americas, Inc.,
interest receivable from Mirant Americas, Inc. of $37 million, goodwill of $28
million and other current assets of $28 million. The note receivable is payable
on demand and bears interest at 6%, which is payable monthly. Mirant New
England, LLC's liabilities consisted primarily of accounts payable of $49
million, deferred tax liabilities of $25 million and other current liabilities
of $10 million.

CAPITAL CONTRIBUTION OF NOTES PAYABLE TO AFFILIATE

      During the three months ended March 31, 2002, Mirant Americas made cash
capital contributions of $6 million to certain operating subsidiaries of the
Company. In addition, Mirant Americas made noncash capital contributions to the
Company of $217 million of notes payable by certain operating subsidiaries of
the Company to Mirant Americas, and in turn, the Company made subsequent capital
contributions to the

                                       20

<PAGE>

respective intermediate and ultimate operating subsidiaries that were obligated
with respect to such notes payable. These capital contributions are reflected in
the accompanying unaudited condensed consolidated financial statements.

CAPITAL CONTRIBUTION AGREEMENT

      Under a capital contribution agreement, Mirant Potomac River and Mirant
Peaker, which are both wholly owned subsidiaries of Mirant, make distributions
to Mirant at least once per quarter, if funds are available. Distributions are
equal to all cash available after taking into account projected cash
requirements, including mandatory debt service, prepayments permitted under the
Mirant Potomac River and Mirant Peaker notes, and maintenance reserves, as
reasonably determined by Mirant. Mirant will contribute or cause these amounts
to be contributed to Mirant Mid-Atlantic. Total capital contributions received
by Mirant Mid-Atlantic under this agreement totaled $14 million and $0 million
for the three months ended March 31, 2002 and 2001, respectively.

RESTRUCTURING CHARGE

     As a result of changing market conditions including constrained access to
capital markets attributable primarily to the Enron bankruptcy and Moody's
December 2001 downgrade of Mirant's credit rating, Mirant adopted a plan to
restructure its operations by exiting certain business operations, canceling and
suspending planned power plant developments, closing business development
offices and severing employees. During the first quarter of 2002, the Company
recorded pre-tax restructuring charges of $4 million for severance costs and
costs related to suspending planned power plant developments.

G.    COMMITMENTS AND CONTINGENT MATTERS

LITIGATION AND OTHER CONTINGENCIES

     With respect to each of the following matters, the Company cannot currently
determine the outcome of the proceedings or the amounts of any potential losses
from such proceedings.

Western Power Markets Investigations: Several governmental entities have
launched investigations into the western power markets, including activities by
several Mirant Americas Generation entities. Those governmental entities include
the FERC, the U.S. Department of Justice, the CPUC, the California Senate, the
California State Auditor, California's Electricity Oversight Board, the General
Accounting Office of the U.S. Congress, the San Joaquin District Attorney and
the Attorney General's offices of Washington, Oregon and California. These
investigations, some of which are civil and some criminal, have resulted in the
issuance of civil investigative demands, subpoenas, document requests, requests
for admission, and interrogatories directed to several Mirant Americas
Generation entities. In addition, the CPUC has had personnel onsite on a
periodic basis at Mirant Americas Generation's California generating facilities
since December 2000. Each of these civil investigative demands, subpoenas,
document requests, requests for admission, and interrogatories, as well as the
plant visits, could impose significant compliance costs on Mirant Americas
Generation and its subsidiaries. Despite the various measures taken to protect
the confidentiality of sensitive information provided to these agencies, there
remains a risk of governmental disclosure of the confidential, proprietary and
trade secret information obtained by these agencies throughout this process.

      Additionally, on February 13, 2002, the FERC directed its staff to
undertake a fact-finding investigation into whether any entity manipulated
short-term prices in electric energy or natural gas markets in the West or
otherwise exercised undue influence over wholesale prices in the West, for the
period January 1, 2000 forward. Information from this investigation could be
used in any existing or future complaints before the FERC relevant to the
matters being investigated, including the California refund proceeding described
below in "Western Power Markets Price Mitigation and Refund Proceedings." On
August 13, 2002, the FERC Staff issued an initial report regarding its
preliminary findings. The report recommended that the FERC initiate separate

                                       21

<PAGE>

proceedings to further investigate specific instances of inappropriate conduct
by several companies, none of which are affiliated with Mirant Americas
Generation. In addition, the report recommended that the natural gas indices
used for purposes of calculating potential refunds in the California refund case
be replaced with indices at a different location plus a transportation
component.

      The initial report of the FERC Staff described its investigation of the
effect on spot electric prices in the West of trading strategies employed by
Enron subsidiaries and other entities but could not quantify the exact economic
impact. The FERC Staff will continue to investigate whether the questionable
trading strategies had an indirect effect on other products sold in the West,
such as long-term contracts. The staff report also recommended imposition of
certain limitations on entities with market-based rate authority designed to
prohibit trading strategies based on the submission of false information or the
omission of material information to the FERC, independent system operators, or
other market participants. The staff report is a preliminary report, and the
staff continues to investigate a variety of matters. The Company cannot predict
the impact of the initial staff report on any FERC action that might be taken in
this investigation docket or any other ongoing proceeding at the FERC.

      Subsequent to the issuance of the FERC Staff's report, some companies that
sell natural gas at wholesale have announced that certain of their employees did
not correctly report transactional information to the trade press that publish
natural gas spot price data. Mirant Americas Generation cannot at this time
predict what effect, if any, such misreporting of information to the trade press
will have upon the use of spot price data published by the trade press in the
ongoing proceeding before FERC or upon other transactions to which Mirant
Americas Generation is a party that utilize such published spot price data as
part of the price terms. The FERC Staff has requested information from various
market participants, including Mirant Americas Generation, regarding the
reporting of transactional information to the trade press.

     In September 2002, the CPUC issued a report that purported to show that on
days in the fall of 2000 through the spring of 2001 during which the CAISO had
to declare a system emergency requiring interruption of interruptible load or
imposition of rolling blackouts, Mirant Americas Generation and the other four
out of state purchasers of generation in California had generating capacity that
either was not operated or was out of service due to an outage and that could
have avoided the problem if operated. The report identified two specific days on
which Mirant Americas Generation allegedly had capacity available that was not
used or that was on outage and that if operated could have avoided the system
emergency. Mirant has publicly responded to the report pointing out a number of
material inaccuracies and errors that it believes cause the CPUC's conclusions
to be wrong with respect to Mirant Americas Generation.

      In November 2002 Mirant received a subpoena from the Department of Justice
acting through the United States Attorney's office for the Northern District of
California requesting information about its activities and those of its
subsidiaries, including Mirant Americas Generation entities, for the period
since January 1, 1998. The subpoena requests information related to the
California energy markets and other topics, including the reporting of
inaccurate information to the trade press that publish natural gas or
electricity spot price data. The subpoena was issued as part of a grand jury
investigation. Mirant Americas Generation intends to cooperate fully with the
United States Attorney's office in this investigation.

California Attorney General Litigation: On March 11, 2002, the California
Attorney General filed a civil suit against Mirant and several of its wholly
owned subsidiaries (including Mirant Americas Generation entities). The lawsuit
alleges that between 1998 and 2001 the companies effectively double-sold their
capacity by selling both ancillary services and energy from the same generating
units, such that if called upon, the companies would have been unable to perform
their contingent obligations under the ancillary services contracts. The
California Attorney General claims that this alleged behavior violated both the
tariff of the CAISO and, more importantly, the California Unfair Competition
Act. The suit seeks both restitution and penalties in unspecified amounts.
Mirant removed this suit from the state court in which it was originally filed
to the United States District Court for the Northern District of California.
This suit has been consolidated for joint administration

                                       22

<PAGE>

with the California Attorney General suits filed on April 9, 2002, and April 15,
2002. Mirant has filed a motion seeking dismissal of the claims.

     On March 20, 2002, the California Attorney General filed a complaint with
the FERC against certain power marketers and their affiliates, including Mirant
and several of its wholly owned subsidiaries (including Mirant Americas
Generation entities), alleging that market-based sales of energy made by such
generators were in violation of the Federal Power Act because such transactions
were not appropriately filed with the FERC. The complaint requests, among other
things, refunds for any prior short-term sales of energy that are found to not
be just and reasonable along with interest on any such refunded amounts.

     The FERC has dismissed the California Attorney General's complaint and
denied the California Attorney General's request for rehearing. The California
Attorney General has appealed that dismissal to the United States Court of
Appeals for the Ninth Circuit.

     On April 9, 2002, the California Attorney General filed a second civil suit
against Mirant and several of its wholly owned subsidiaries (including Mirant
Americas Generation entities). The lawsuit alleges that the companies violated
the California Unfair Competition Act by failing to properly file their rates,
prices, and charges with the FERC as required by the Federal Power Act, and by
charging unjust and unreasonable prices in violation of the Federal Power Act.
The complaint seeks unspecified penalties, costs and attorney fees. Mirant
removed this suit from the state court in which it was originally filed to the
United States District Court for the Northern District of California. This suit
has been consolidated for joint administration with the California Attorney
General suits filed on March 11, 2002 and April 15, 2002. Mirant has filed a
motion seeking dismissal of the claims.

     On April 15, 2002, the California Attorney General filed a third civil
lawsuit against Mirant and several of its wholly owned subsidiaries (including
Mirant Americas Generation entities) in the United States District Court for the
Northern District of California. The lawsuit alleges that the acquisition and
possession of the Potrero and Delta power plants owned by subsidiaries of Mirant
Americas Generation has substantially lessened, and will continue to
substantially lessen, competition in violation of the Clayton Act and the
California Unfair Competition Act. The lawsuit seeks equitable remedies in the
form of divestiture of the plants and injunctive relief, as well as monetary
damages in unspecified amounts to include disgorgement of profits, restitution,
treble damages, statutory civil penalties and attorney fees. This suit has been
consolidated for joint administration with the California Attorney General suits
filed on March 11, 2002 and April 9, 2002. Mirant has filed a motion seeking
dismissal of the claims.

Defaults by SCE and Pacific Gas and Electric, and the Bankruptcies of Pacific
Gas and Electric and the PX: On January 16, 2001, SCE suspended indefinitely
certain payment obligations to the PX and to the CAISO. Pacific Gas and Electric
similarly suspended payments. The failure of SCE and Pacific Gas and Electric to
make these payments prevented the PX and CAISO from making payments to Mirant
Americas Generation. As of March 31, 2002, the total amount owed to Mirant
Americas Generation by the CAISO and the PX as a result of these defaults was
$305 million. During 2000 and 2001, Mirant Americas Generation took provisions
in relation to these and other uncertainties arising from the California power
markets (discussed elsewhere in this Note) of $229 million pre-tax.

     On March 9, 2001, as a result of the nonpayments of SCE and Pacific Gas and
Electric, the PX ceased operation and filed for bankruptcy protection. The PX's
ability to repay its debt is directly dependent on the extent to which it
receives payment from Pacific Gas and Electric and SCE and on the outcome of its
litigation with the California State government.

     On April 6, 2001, Pacific Gas and Electric filed a voluntary petition under
Chapter 11 of the Bankruptcy Code. It is not known at this time what effect the
bankruptcy filing will have on the ultimate recovery of amounts owed to Mirant
Americas Generation. Pacific Gas and Electric and the CPUC have each filed
proposed plans of reorganization for Pacific Gas and Electric, and each of these
competing proposed plans

                                       23

<PAGE>

contemplates payment of one hundred percent of all approved claims. Mirant
Americas Generation does not expect any payment to be made to it for power sold
by it into the PX or CAISO markets and repurchased by Pacific Gas and Electric
until the FERC issues a final ruling in the Western Power Markets Price
Mitigation and Refund Proceedings.

     On March 1, 2002, SCE paid approximately $870 million to the PX in
satisfaction of all claims of or through the PX and the CAISO through
approximately January 18, 2001. The PX is not expected to make any payment to
Mirant Americas Generation until the bankruptcy judge so orders, and the judge
is not expected to rule until after the FERC issues a final ruling in the refund
proceeding. Mirant Americas Generation cannot now determine the timing of such
payment or the extent to which such payment would satisfy its claims.

Reliability-Must-Run Agreements: Mirant Americas Generation's subsidiaries
acquired generation assets from Pacific Gas and Electric in April 1999, subject
to reliability-must-run ("RMR") agreements. These agreements allow the CAISO,
under certain conditions, to require certain of Mirant Americas Generation's
subsidiaries to run the acquired generation assets in order to support the
reliability of the California electric transmission system. Under the RMR
agreements, Mirant Americas Generation recovers a portion of the annual fixed
revenue requirement (the "Annual Requirement") of the generation assets through
fixed charges to the CAISO, and Mirant Americas Generation depends on revenues
from sales of the output of the units at market prices to recover the remainder.
The portion of the Annual Requirement that can be recovered through fixed
charges to the CAISO is subject to the FERC's review and approval both as to the
percentage and the amount of the Annual Requirement to which the percentage is
applied.

     Mirant Americas Generation assumed the RMR agreements from Pacific Gas and
Electric prior to the outcome of a FERC proceeding initiated in October 1997
(the "Fixed Portion Proceeding"). The Fixed Portion Proceeding will determine
the percentage to be paid to Mirant Americas Generation by the CAISO under the
RMR agreements of a $159 million Annual Requirement that was in effect through
December 31, 2001, as well as any future Annual Requirement in effect through
the final disposition of the Fixed Portion Proceeding. This $159 million Annual
Requirement was negotiated as part of a prior settlement of a FERC rate
proceeding. In the Fixed Portion Proceeding, Mirant Americas Generation
contended that the amount paid by the CAISO should reflect an allocation based
on the CAISO's right to call on the units (as defined by the RMR agreements) and
the CAISO's actual calls, which would have resulted in the CAISO paying
approximately $120 million, or 75% of the settled Annual Requirement in effect
through December 31, 2001. Mirant Americas Generation currently collects 50% of
the Annual Requirement from the CAISO, which charges are subject to refund once
the FERC determines the percentage of the Annual Requirement that should be
recovered by Mirant Americas Generation from the CAISO. The decision in the
Fixed Portion Proceeding will affect the amount the CAISO will pay to Mirant
Americas Generation for the period from June 1, 1999 through the final
disposition of the Fixed Portion Proceeding, including any appeals. On June 7,
2000, the administrative law judge ("ALJ") in the Fixed Portion Proceeding
issued an initial decision providing for the CAISO to pay approximately 3% of
the Annual Requirement to Mirant Americas Generation. On July 7, 2000, Mirant
Americas Generation appealed the ALJ's decision and the matter is pending at the
FERC.

     In the Fall of 2001, Mirant Americas Generation filed with the FERC to
increase the Annual Requirement for the generating assets subject to the RMR
agreements from the $159 million amount that had been in effect to $199 million.
That increase took effect January 1, 2002, subject to refund of any amount that
the FERC may determine in a proceeding (the "Annual Requirement Proceeding")
separate from the Fixed Portion Proceeding to be in excess of just and
reasonable rates. The CAISO and Pacific Gas and Electric, which buys from the
CAISO the electricity sold to the CAISO by Mirant Americas Generation under the
RMR agreements, have contested the increase in the Annual Requirement at the
FERC. On November 22, 2002, the parties filed with the FERC for its approval a
settlement agreement regarding the increase in the Annual Requirement that would
set the Annual Requirement through 2004. If approved by the FERC, the settlement
agreement will result in refunds being made by Mirant Americas Generation of a
portion of the Annual Requirement currently being collected by Mirant Americas
Generation for 2002. Mirant Americas Generation expects that the amount of such
refunds would not materially exceed the amounts currently being reserved by
Mirant Americas Generation

                                       24

<PAGE>

with respect to the Annual Requirement issue. The percentage that ultimately
results from the Fixed Portion Proceeding, discussed above, will be applied to
the Annual Requirement for 2002 in the Annual Requirement Proceeding.

     Mirant Americas Generation has also exercised its right under the RMR
agreements to recover 100% of the Annual Requirement specific to the Potrero
plant through fixed charges to the CAISO beginning January 1, 2002. The Annual
Requirement of the Potrero plant constitutes $35 million of the total $199
million Annual Requirement currently in effect for 2002, subject to refund as
subsequently determined in the Annual Requirement Proceeding. As part of their
challenge to the increase in the Annual Requirement in the Annual Requirement
Proceeding, discussed above, the CAISO and Pacific Gas and Electric have
contested the increase in the Annual Requirement for the Potrero plant. This
issue is also part of the settlement agreement that was filed on November 22,
2002 with the FERC for its approval. By exercising this right under the RMR
agreement, Mirant Americas Generating has limited its potential refund liability
resulting from the Fixed Portion Proceeding related to the Potrero plant, if
any, to the period June 1, 1999 through December 31, 2001.

      On October 1, 2002, the CAISO notified Mirant Americas Generation that it
was electing to receive service under the RMR agreements during 2003 from Contra
Costa Units 4-7, Pittsburg Units 5-7, and Potrero Units 3- 6. On November 26,
2002, Mirant Americas Generating exercised its right under the RMR agreements to
recover 100% of the Annual Requirement specific to all of its plants and units
subject to RMR agreements, except for the Pittsburg Unit 5, through fixed
charges to the CAISO, beginning January 1, 2003. The result of this election is
that any refund amounts that might be owed by Mirant upon resolution of the
Fixed Portion Proceeding would be limited to the period June 1, 1999 through
December 31, 2002 for the units subject to the RMR agreements other than
Pittsburg Unit 5 and the Potrero plant, as discussed above.

     If Mirant Americas Generation is unsuccessful in its appeal of the ALJ's
decision in the Fixed Portion Proceeding, it will be required to refund certain
amounts of the Annual Requirement paid by the CAISO for the period from June 1,
1999. For the Potrero plant the period for which such refunds would be owed
would run through December 31, 2001, for Mirant Americas Generation's other
California plants except Pittsburg Unit 5 the refund period would run through
December 31, 2002, and for Pittsburg Unit 5 the refund period would run through
the final disposition of the appeal. Mirant Americas Generation estimates that
the amount of such refunds, together with the refunds potentially resulting from
resolution of the Annual Requirement Proceeding described above, as of March 31,
2002, would have been approximately $240 million. This amount does not include
interest that may be payable in the event of a refund. If resolution of the
Fixed Portion Proceeding and the Annual Requirement Proceeding results in
refunds of that magnitude, no effect on net income for the periods under review
would result as adequate reserves have been recorded.

Western Power Markets Price Mitigation and Refund Proceedings: On June 19, 2001,
the FERC issued an order that provides for price mitigation in all hours in
which power reserves fall below 7%. During these emergency hours, the FERC will
use a formula based on the marginal costs of the highest cost generator called
on to run to determine the overall market clearing price. This price mitigation
includes all spot market sales in markets throughout the Western System
Coordinating Council. This price mitigation was implemented on June 20, 2001 and
was in effect until July 11, 2002, at which time the formula was replaced by a
hard cap of $91.87/MWh, which was in place until October 30, 2002. The FERC
requires that all public and non-public utilities which own or control
non-hydroelectric generation in California must offer power in the CAISO's spot
markets, to the extent the output is not scheduled for delivery in the hour.

     On July 25, 2001, the FERC issued an order requiring hearings to determine
the amount of any refunds and amounts owed for sales made to the CAISO or PX
from October 2, 2000 through June 20, 2001. Parties have appealed the FERC's
June 19, 2001 and July 25, 2001 orders to the United States Court of Appeals for
the Ninth Circuit, seeking review of various issues, including expanding the
potential refund date to include periods prior to October 2, 2000. Any such
expansion of the refund period could significantly increase Mirant's (including
Mirant Americas Generation's) refund exposure in this proceeding. In response to
an order by the Ninth Circuit allowing the California parties to include
additional evidence in the record regarding purported

                                       25

<PAGE>

market manipulation, on September 6, 2002, the California parties filed a motion
for additional discovery in the refund case on the issue of purported market
manipulation. On November 20, 2002, the FERC issued an order permitting
additional discovery in this proceeding commencing on the date of the order and
continuing through February 28, 2003. Following that period for additional
discovery, the parties to the proceeding will be allowed to introduce additional
evidence for the FERC's consideration in determining the refund issues.

      In the July 25, 2001 order, the FERC also ordered that a preliminary
evidentiary proceeding be held to develop a factual record on whether there have
been unjust and unreasonable charges for spot market bilateral sales in the
Pacific Northwest from December 25, 2000 through June 20, 2001. In the
proceeding, the DWR filed to recover certain refunds from parties, including one
of Mirant's subsidiaries, for bilateral sales of electricity to the DWR at the
California/Oregon border, claiming that such sales took place in the Pacific
Northwest. The refunds sought from a subsidiary of Mirant totaled approximately
$90 million. A FERC ALJ concluded a preliminary evidentiary hearing related to
possible refunds for power sales in the Pacific Northwest. In a preliminary
ruling issued September 24, 2001, the ALJ indicated that she would order no
refunds because the complainants had failed to prove any exercise of market
power or that any prices were unjust or unreasonable. The FERC may accept or
reject this preliminary ruling and the FERC's decision may itself be appealed.
On May 13, 2002 and May 24, 2002, the City of Tacoma, Washington and the City of
Seattle, Washington, respectively, filed to reopen the evidentiary record in
this proceeding as a result of the contents of three internal Enron Power
Marketing, Inc. memoranda that had been obtained and publicly released by the
FERC as part of its continuing investigation. On December 19, 2002, the FERC
granted in part the motion to reopen the record, allowing parties the
opportunity to conduct additional discovery through February 28, 2003 on claims
of purported market manipulation. Upon the completion of that period for
additional discovery, parties can submit directly to the FERC any additional
evidence and proposed findings of fact that they wish the FERC to consider in
evaluating the ALJ's initial decision. The Company cannot predict the outcome of
these proceedings. If the Mirant subsidiary was required to refund such amounts,
the Company would be required to refund amounts previously received pursuant to
sales made on the behalf of Mirant Americas Generation entities during the
refund periods. In addition, the Company would be owed amounts for purchases
made on the behalf of Mirant Americas Generation entities from other sellers in
the Pacific Northwest.

     On August 13, 2002, the FERC in the California refund proceeding requested
comments from parties on whether the gas indices in the existing formula for
calculating refunds should be replaced with different gas indices (plus
transportation costs) as recommended by the FERC Staff in its report (as
described in Western Power Markets Investigation above). If the FERC adopts the
staff's recommended gas formula for purposes of calculating refunds, it would
increase Mirant Americas Generation's refund exposure in the California refund
case.

      On December 12, 2002, the ALJ in the California refund proceeding issued
an initial decision providing for a method to implement the FERC's mitigated
market clearing price methodology set forth in its July 25, 2001 order and a
preliminary determination of what refunds are owed under that methodology. In
addition, the ALJ determined the preliminary amounts currently owed to each
supplier in the proceeding. The ALJ determined that the initial amounts owed to
Mirant and its subsidiaries (including Mirant Americas Generation entities) from
the CAISO and the PX totaled approximately $292 million and that Mirant and its
subsidiaries (including Mirant Americas Generation entities) owed the CAISO and
the PX refunds totaling approximately $170 million. Mirant Americas Generation
cannot at this time determine what portion of these amounts pertains to
subsidiaries of Mirant that are not Mirant Americas Generation entities. The ALJ
recommended that any refunds owed by a supplier to the CAISO and the PX should
be offset against any outstanding amounts owed to that supplier by the CAISO and
the PX. Under this approach, Mirant and its subsidiaries (including Mirant
Americas Generation entities) would be owed net amounts totaling approximately
$122 million from the CAISO and the PX. The ALJ stressed that the monetary
amounts are not final since they do not reflect the final mitigated market
clearing prices, interest that would be applied under the FERC's regulations,
offsets for emission costs or the effect of certain findings made by the ALJ in
the initial decision. Mirant Americas Generation believes that the amount
identified by the ALJ as being owed to Mirant (including Mirant Americas
Generation entities) by the PX fails to reflect an adjustment for January 2001
that the ALJ concluded elsewhere in his initial decision should be applied. If
that adjustment is applied, the amount owed Mirant (including Mirant Americas
Generation entities) by the PX, and the net amount owed Mirant (including Mirant
Americas

                                       26

<PAGE>

Generation entities) by the CAISO and the PX after taking into account the
proposed refunds, would increase by approximately $36 million. The amount owed
to Mirant and its subsidiaries (including Mirant Americas Generation entities)
from either the CAISO or the PX or any refund that Mirant and its subsidiaries
(including Mirant Americas Generation entities) might be determined to owe to
the CAISO or the PX may also be affected materially by the FERC's resolution of
the issues described above related to which gas indices should be used in
calculating the mitigated market clearing prices, allegations of market
manipulation, and whether the refund period should include periods prior to
October 2, 2000. Mirant and its subsidiaries (including Mirant Americas
Generation entities) have until January 13, 2003 to appeal the ALJ's initial
decision to the FERC, at which time the FERC may accept, reject or modify any
and all parts of that decision.

     On July 17, 2002, the FERC issued an order adopting new market design rules
("Market Design 2002") applicable to the California wholesale power markets as
well as price caps and other requirements that are applicable to all West-wide
wholesale power markets. Key elements of the Market Design 2002 that were
supposed to be in place on October 1, 2002 included an increase in the amount
sellers of electricity at wholesale may bid to the CAISO from $91.87/MWh to
$250/MWh on bids into the California real-time energy and ancillary services
markets, and a FERC imposed maximum price of $250/MWh for all spot market sales
in the western markets. The FERC delayed implementation of the increase in the
price cap until October 30, 2002. Sellers are still required to offer all
available uncommitted capacity for sale in the region. The FERC also put in
place, effective October 31, 2002, procedures in the CAISO market that will
mitigate prices whenever a supplier bids greater than established thresholds.

DWR Power Purchases: On January 17, 2001, the Governor of California issued an
emergency proclamation giving the DWR authority to enter into arrangements to
purchase power in order to mitigate the effects of electrical shortages in the
state. The DWR began purchasing power under that authority the next day. On
February 1, 2001, the Governor of California signed Assembly Bill No. 1X
authorizing the DWR to purchase power in the wholesale markets to supply retail
consumers in California on a long-term basis. The Bill became effective
immediately upon its execution by the Governor. The Bill did not, however,
address the payment of amounts owed for power previously supplied to the CAISO
or PX for purchase by SCE and Pacific Gas and Electric. The CAISO and PX have
not paid the full amounts owed to Mirant Americas Generation's subsidiaries for
power delivered to the CAISO and PX in prior months and are expected to pay less
than the full amount owed on further obligations coming due in the future for
power provided to the CAISO for sales that were not arranged by the DWR. The
ability of the DWR to make future payments is subject to the DWR having a
continued source of funding, whether from legislative or other emergency
appropriations, from a bond issuance or from amounts collected from SCE and
Pacific Gas and Electric for deliveries to their customers. On May 22, 2001,
Mirant Americas Energy Marketing entered into a 19-month agreement, on behalf of
Mirant Americas Generation, with the DWR to provide the State of California with
approximately 500 MW of electricity during peak hours through December 31, 2002.
Mirant Americas Generation bears the risk of nonpayment by the CAISO, the PX or
the DWR, including the May 22, 2001 agreement.

     On February 25, 2002, the CPUC and the California Electricity Oversight
Board ("EOB") filed separate complaints at the FERC against certain sellers of
energy under long-term agreements with the California DWR, including the
contract entered into by Mirant Americas Energy Marketing with the DWR dated May
22, 2001, alleging that the terms of these contracts are unjust and unreasonable
and that the contracts should be abrogated or the prices under the contracts
should be reduced. In particular, the EOB claims that the contracts should be
voidable at the option of the State of California. The complaints allege that
the DWR was forced to enter into these long-term contracts due to dysfunctions
in the California market and the alleged market power of the sellers. Mirant
Americas Generation bears the risk of any abrogation of or revision to the terms
of the May 22, 2001 contract between Mirant Americas Energy Marketing and the
DWR.

     Two lawsuits, the McClintock suit and the Millar suit, have also been filed
that seek relief for contracts between the California DWR and certain marketers
of electricity, including the May 22, 2001 contract between DWR and Mirant
Americas Energy Marketing, that allegedly contain unfair terms. The plaintiffs
allege that the terms of the contracts are unjust and unreasonable and that the
DWR was forced to enter into these long-term contracts due to dysfunctions in
the California market and alleged market power of the sellers. Plaintiffs seek,

                                       27

<PAGE>

among other things, a declaration that the contracts are void and unenforceable,
enjoinment of the enforcement and performance of those contracts and restitution
for funds allegedly obtained wrongfully under the contracts.

     The Millar suit has been consolidated for purposes of pretrial proceedings
with the six rate payer suits described below in "California Rate Payer
Litigation." The McClintock suit has been stayed pending a resolution of a
separate action challenging the long term contracts that were entered into by
the DWR, which suit does not include Mirant Americas Generation or any of its
subsidiaries as parties.

California Rate Payer Litigation: A total of seventeen lawsuits have been filed
asserting claims under California law based on allegations that certain owners
of electric generation facilities in California and energy marketers, including
Mirant Americas Generation subsidiaries, engaged in various unlawful and
anti-competitive acts that served to manipulate wholesale power markets and
inflate wholesale electricity prices in California. One of the suits has been
voluntarily dismissed, and the other sixteen suits remain pending.

     Six of those suits were filed between November 27, 2000 and May 2, 2001 in
various California Superior Courts. Three of these suits seek class action
status, while two of the suits are brought on behalf of all citizens of
California. One lawsuit alleges that, as a result of the defendants' conduct,
customers paid approximately $4 billion more for electricity than they otherwise
would have and seeks an award of treble damages as well as other injunctive and
equitable relief. One lawsuit also names certain of Mirant's officers
individually as defendants and alleges that the state had to spend more than $6
billion purchasing electricity and that if an injunction is not issued, the
state will be required to spend more than $150 million per day purchasing
electricity. The other suits likewise seek treble damages and equitable relief.
One such suit names Mirant Corporation itself as a defendant.

      These six suits (the "Six Coordinated Suits") were coordinated for
purposes of pretrial proceedings before the Superior Court for San Diego County.
In the Spring of 2002, two of the defendants filed crossclaims against other
market participants who were not parties to the actions. Some of those
crossclaim defendants then removed the Six Coordinated Suits to the United
States District Court for the Southern District of California. The plaintiffs
filed a motion seeking to have the actions remanded to the California state
court, and the defendants filed motions seeking to have the claims dismissed. On
December 13, 2002, the United States District Court for the Southern District of
California granted the plaintiff's motion seeking to have the six cases remanded
to the California State Court. That decision remanding the Six Coordinated Suits
to the California state courts has been appealed to the United States Court of
Appeals for the Ninth Circuit by the defendants that filed the crossclaims.
Those defendants have requested the district court to stay its remand decision
until the Ninth Circuit can act on their appeal, but the district court has not
yet ruled upon that request. If the district court's remand order is not stayed,
then the Six Coordinated Suits will be remanded to the Superior Court for San
Diego County and will go forward before that court while the appeal is pending.


     Seven additional rate payer lawsuits were filed between April 23, 2002 and
May 24, 2002 alleging that certain owners of electric generation facilities in
California, as well as certain energy marketers, including Mirant Americas
Generation entities, engaged in various unlawful and fraudulent business acts
that served to manipulate wholesale markets and inflate wholesale electricity
prices in California. The suits are related to events in the California
wholesale electricity market occurring over the last three years. Each of the
complaints alleges violation of California's Unfair Competition Act. One
complaint also alleges violation of California's anti-trust statute. Each of the
plaintiffs seeks class action status for their respective case. The actions
seek, among other things, restitution, compensatory and general damages, and to
enjoin the defendants from engaging in illegal conduct. These suits were
initially filed in California state courts by the plaintiffs and removed to the
United States district courts.

     These seven cases have been consolidated for purposes of pretrial
proceedings with the Six Coordinated Suits described above. Whether these cases
will remain in United States District Court for the Southern District

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<PAGE>

of California or be remanded to the California state courts in light of the
district court's decision on December 13, 2002 to remand the Six Coordinated
Suits cannot be determined at this time.

     On June 3, 2002, a lawsuit, Hansen v. Dynegy Power Marketing, et al., was
filed in the Superior Court for the County of San Francisco against various
owners of electric generation facilities in California, including Mirant
Americas Generation entities, alleging substantially similar claims to the
ratepayer actions described above. The plaintiff sought class action status for
the lawsuit and purported to represent residential ratepayers located in various
public utility districts in the State of Washington. The complaint sought, among
other things, injunctive relief, disgorgement of profits, restitution and treble
damages. This action was dismissed by the plaintiff on July 11, 2002.

     On July 15, 2002, an additional rate payer lawsuit, Public Utility District
No. 1 of Snohomish Co. v. Dynegy Power Marketing, et al., was filed in the
United States District Court for the Central District of California against
various owners of electric generation facilities in California, including Mirant
Americas Generation entities, by Public Utility District No. 1 of Snohomish
County, which is a municipal corporation in the state of Washington that
provides electric and water utility service. The plaintiff public utility
district alleges that defendants violated California's antitrust statute by
conspiring to raise wholesale power prices, injuring plaintiff through higher
power purchase costs. The plaintiff also alleges that defendants acted both
unfairly and unlawfully in violation of California's Unfair Competition Act
through various unlawful and anticompetitive acts, including the purportedly
wrongful acquisition of plants, engagement in "Enron-style" trading, and
withholding power from the market. The plaintiff seeks restitution, disgorgement
of profits, injunctive relief, treble damages, and attorney's fees. The federal
judicial panel on multidistrict litigation has ordered the Snohomish suit to be
transferred to the United States District Court for the Southern District of
California and consolidated for purposes of pretrial proceedings with the Six
Coordinated Suits. The defendants have filed motions seeking to have the claims
dismissed.

     On October 18, 2002, another rate payer lawsuit, Kurtz v. Duke Energy
Trading et al., was filed in the Superior Court for the County of Los Angeles.
The Kurtz suit alleges that certain owners of electric generation facilities in
California, as well as certain energy marketers, including Mirant Americas
Generation entities, engaged in various unlawful and fraudulent business acts
that served to manipulate wholesale markets and inflate wholesale electricity
prices in California since early 1998 in violation of California's Unfair
Competition Act. The Kurtz suit contains allegations of misconduct by the
defendants, including the Mirant Americas Generation entities, that are similar
to the allegations made in the previously filed rate payer suits, in the suits
filed by the California Attorney General on March 11, 2002, and April 15, 2002,
and in the suits filed challenging long-term agreements with the California DWR.
The plaintiff seeks to represent a class consisting of all persons and entities
that purchased energy that was sold into California by the defendants through
sales to the CAISO, the PX or the DWR. The action seeks, among other things,
restitution, compensatory and general damages, and to enjoin the defendants from
engaging in illegal conduct.

      On November 20, 2002, a class action suit, Bustamante v. The McGraw-Hill
Companies, Inc., et al., was filed in the Superior Court for the County of Los
Angeles against certain publishers of index prices for natural gas, gas
distribution or marketing companies, owners of electric generation facilities in
California and energy marketers, including Mirant Americas Generation entities.
The plaintiff in the Bustamante suit alleges that the defendants violated
California Penal Code sections 182 and 395 and California's Unfair Competition
Act by reporting false information about natural gas transactions to the
defendants that published index prices for natural gas causing the prices paid
by Californians for natural gas and for electricity to be artificially inflated.
The suit seeks, among other things, disgorgement of profits, restitution, and
compensatory and punitive damages.

Enron Bankruptcy Proceedings: Since December 2, 2001, Enron and a number of its
subsidiaries have filed for bankruptcy. As of March 31, 2002, the total amount
owed to Mirant Americas Generation by Enron was approximately $55 million. Based
on a reserve for potential bad debts recorded in 2001, the Company does not



                                       29
<PAGE>

expect the outcome of the bankruptcy proceeding to have a material adverse
effect on the Company's consolidated financial position, results of operations
or cash flows.

State Line: On July 28, 1998, an explosion occurred at the Company's State Line
plant causing a fire and substantial damage to the plant. The precise cause of
the explosion and fire has not been determined. Thus far, seven personal injury
lawsuits have been filed against Mirant Americas Generation, five of which were
filed in Cook County, Illinois. Mirant Americas Generation has settled the
claims of five of these plaintiffs. The terms of the settlements involve cash
payments to the plaintiffs, with such payments being fully covered by insurance.
The outcome of these proceedings cannot now be determined and an estimated range
of loss cannot be made; however, the Company has significant insurance coverage
for losses occurring as a result of the explosion.

PEPCO Asbestos Litigation: On December 19, 2000, Mirant Americas Generation
entities, together with its affiliates Mirant Potomac River and Mirant Peaker,
and with lessors in a lease transaction, purchased from PEPCO four electric
generation facilities in the Washington D.C. area. As a part of the purchase,
and with certain qualifications, Mirant Americas Generation entities agreed to
indemnify PEPCO for certain liabilities arising in lawsuits filed after December
19, 2000, even if they relate to incidents occurring prior to that date. Since
the acquisition, PEPCO has notified Mirant Americas Generation of approximately
50 asbestos cases, distributed among three Maryland jurisdictions (Prince
George's County, Baltimore City and Baltimore County), as to which it claims a
right of indemnity. In each of these claims, the plaintiff's allegation of
liability on the part of PEPCO is primarily grounded on the theory of premises
liability. Each plaintiff seeks a multi-million dollar award. It is expected
that additional such lawsuits will be filed in the future; however, the number
of such additional lawsuits cannot now be determined. Five suits have been set
for trial in 2003, while the remainder have not yet been scheduled for trial.
The Company believes that substantial defenses to liability exist and that, even
if found liable, plaintiffs' damages claims are greatly exaggerated. Based on
information and relevant circumstances known at this time, the Company does not
believe these suits will have a material adverse effect on its financial
position. An unfavorable decision, however, could have a material adverse effect
on results of operations in the particular year in which a decision is rendered.

Environmental Information Requests: Along with several other electric generators
which own facilities in New York, in October 1999 Mirant New York received an
information request from the State of New York concerning the air quality
control implications of various repairs and maintenance activities at its Lovett
facility. Mirant New York responded fully to this request and provided all of
the information requested by the State. The State of New York issued notices of
violation to some of the utilities being investigated. The State issued a notice
of violation to the previous owner of Plant Lovett, Orange and Rockland
Utilities, alleging violations associated with the operation of Plant Lovett
prior to the acquisition of the plant by Mirant New York. To date, Mirant New
York has not received a notice of violation. Mirant New York disagrees with the
allegations of violations in the notice of violation issued to the previous
owner. The notice of violation does not specify corrective actions, which the
State of New York may require. If a violation is determined to have occurred at
Plant Lovett, Mirant New York may be responsible for the cost of purchasing and
installing emission control equipment, the cost of which may be material. Under
the sales agreement with Orange and Rockland Utilities for Plant Lovett, Orange
and Rockland Utilities is responsible for fines and penalties arising from any
violation associated with historical operations, but the state or federal
government could seek fines and penalties from Mirant New York, the cost of
which may be material. Mirant New York is engaged in discussions with the State
to explore a resolution of this matter.

     In January 2001, the EPA, Region 3 issued a request for information to
Mirant Mid-Atlantic concerning the air permitting implications of past repair
and maintenance activities at its Chalk Point, Dickerson and Morgantown plants
in Maryland. The requested information concerns the period of operations that
predates Mirant Mid-Atlantic's ownership of the plants. Mirant Mid-Atlantic has
responded fully to this request. If a violation is determined to have occurred
at any of the plants, Mirant Mid-Atlantic may be responsible for the cost of
purchasing and installing emission control equipment, the cost of which may be
material. Under the sales agreement with PEPCO for those plants, PEPCO is
responsible for fines and penalties arising from any violations associated with
historical operations prior to the Mirant Mid-Atlantic's acquisition of the
plants, but

                                       30

<PAGE>

the state or federal government could seek fines and penalties from Mirant
Mid-Atlantic, the cost of which may be material.

      The Company cannot provide assurance that lawsuits or other administrative
actions against its power plants will not be filed or taken in the future. If an
action is filed against the Company or its power plants and it is judged to not
be in compliance, this could require substantial expenditures to bring the
Company's power plants into compliance and have a material adverse effect on its
financial condition, cash flows and results of operations.

New York Property Tax: On January 29, 2002, Mirant New York won a favorable
judgement against the Town of Haverstraw, New York and the Haverstraw Stoney
Point School District with regards to the Town's and School District's failure
to perform under a previously agreed to property tax agreement. Under the terms
of the judgement, Mirant New York is entitled to receive approximately $32
million from the Town and the School District related to over assessed property
taxes. The judgement has been appealed by both the Town and the School District.
The Company believes it will ultimately prevail in this matter; however, due to
the uncertainty related to the ultimate outcome of this matter, the Company has
not recorded the potential income in the accompanying condensed consolidated
financial statements.

      In addition to the matters discussed above, Mirant Americas Generation
entities are parties to legal proceedings arising in the ordinary course of
business. In the opinion of management, the disposition of these matters will
not have a material adverse impact on the Company's consolidated results of
operations, cash flows or financial position. The Company recognizes estimated
losses from contingencies when information available indicates that a loss is
probable and the amount of the loss is reasonably estimable in accordance with
SFAS No. 5, "Accounting for Contingencies."

FUEL SUPPLY AGREEMENTS

      The Company, through its subsidiaries, is a party to four separate power
marketing and fuel purchase arrangements with Mirant Americas Energy Marketing.
Mirant Americas Energy Marketing is responsible for marketing and scheduling the
majority of the capacity from the Company's Mid-Atlantic, New York, California
and New England facilities. Mirant Americas Energy Marketing has no minimum
purchase requirements under these agreements. Additionally, the Company has
entered into a fuel supply agreement with an independent third party to provide
a minimum of 90% of the coal burned at one of the New York facilities through
2007. The Company has entered into a related transportation agreement for that
coal through March of 2004. Substantially all of the Company's fuel requirements
are fulfilled through these five agreements.

      This supplier and customer concentration could adversely affect the
Company's financial position or results of operations should these parties
default under the provisions of the agreements.

      Mirant Americas Generation has total minimum commitments under the fuel
purchase and transportation agreements noted above of $116 million at March 31,
2002. These agreements will continue to be in effect through 2007.

CONSTRUCTION RELATED COMMITMENTS

      The Company has entered into various turbine and other construction
related commitments related to brownfield developments at its various generation
facility sites. At March 31, 2002, these construction related commitments
totaled approximately $320 million.

LONG-TERM SERVICE AGREEMENTS

      The Company has entered into long-term service agreements for the
maintenance and repair by third parties of many of its combustion turbine
generating plants. Generally, these agreements may be terminated at little or

                                       31

<PAGE>

no cost in the event that the shipment of the associated turbine is canceled. As
of March 31, 2002, the maximum termination amounts for long-term service
agreements associated with completed and shipped turbines were approximately
$180 million. As of March 31, 2002, the total estimated commitments for
long-term service agreements associated with turbines already completed and
shipped were approximately $180 million. These commitments are payable over the
course of each agreement's terms. The terms are projected to range from ten to
twenty years. Estimates for future commitments for long-term service agreements
are based on the stated payment terms in the contracts at the time of execution.
These payments are subject to an annual inflationary adjustment.

      As a result of the turbine cancellations as part of Mirant's
restructuring, the long-term service agreements associated with the canceled
turbines will also be canceled. However, as stated above, canceling the
long-term service agreements will result in little or no termination costs to
the Company. Mirant Americas Generation does not intend to cancel long-term
service agreements associated with turbines that have already shipped.
Consequently, the Company's restructuring should not have an impact on the
long-term service agreement commitments disclosed above.

OPERATING LEASES

      On December 19, 2000, in conjunction with the purchase of the PEPCO
assets, the Company, through Mirant Mid-Atlantic, entered into multiple
sale-leaseback transactions totaling $1.5 billion relating to the Dickerson and
the Morgantown baseload units and associated property. The terms of each lease
vary between 28.5 and 33.75 years. Mirant Mid-Atlantic is accounting for these
leases as operating leases. The Company's expenses associated with the
commitments under the Dickerson and Morgantown operating leases totaled
approximately $24 million for both the three months ended March 31, 2002 and
2001. As of March 31, 2002, the total notional minimum lease payments for the
remaining life of the leases was approximately $2.9 billion. The lease
agreements contain covenants that restrict Mirant Mid-Atlantic's ability to,
among other things, make dividend distributions, incur indebtedness, or sublease
the facilities.

      Mirant Mid-Atlantic is not permitted to make any dividend distributions
unless, at the time of such distribution, each of the following conditions is
satisfied:

      -     Mirant Mid-Atlantic's fixed charge coverage ratio for the most
            recently ended four full fiscal quarters equals at least:

            (1) 1.7 to 1.0; or

            (2) 1.6 to 1.0, 1.45 to 1.0, 1.3 to 1.0 or 1.2 to 1.0 if, as of the
      last day of the most recently completed fiscal quarter, Mirant
      Mid-Atlantic and its designated subsidiaries have entered into power sales
      agreements (meeting certain criteria, including investment grade rating
      criteria) covering, in the aggregate, at least 25%, 50%, 75% or 100%,
      respectively of the projected total consolidated operating revenue for the
      consecutive period of eight full fiscal quarters following that date; and

      -     the projected fixed charge coverage ratio (determined on a pro forma
            basis after giving effect to any such dividend) for each of the two
            following periods of four fiscal quarters commencing with the fiscal
            quarter in which the restricted payment is proposed to be made
            equals at least:

            (1) 1.7 to 1.0; or

            (2) 1.6 to 1.0, 1.45 to 1.0, 1.3 to 1.0 or 1.2 to 1.0, if, as of the
      last day of the most recently completed fiscal quarter, Mirant
      Mid-Atlantic and its designated subsidiaries have entered into power sales
      agreements (meeting certain criteria, including investment grade rating
      criteria) covering, in the aggregate, at least 25%, 50%, 75% or 100%,
      respectively, of the projected total consolidated operating revenue for
      the consecutive period of eight full fiscal quarters following that date;
      and
                                       32

<PAGE>

      -     no significant lease default or event of default has occurred and is
            continuing.

      In accordance with the terms of the lease documentation, Mirant
Mid-Atlantic calculates the projected fixed charge coverage ratio based on
projections prepared in good faith based upon assumptions consistent in all
material respects with the relevant contracts and agreements, historical
operations, and Mirant Mid-Atlantic's good faith projections of future revenues
and projections of operating and maintenance expenses in light of then existing
or reasonably expected regulatory and market environments in the markets in
which the leased facilities or other assets owned by it will be operated. Mirant
Mid-Atlantic also assumes that there will be no early redemption or prepayment
of Indebtedness, and that any Indebtedness which matures within such projected
periods will be refinanced on reasonable terms. The reclassification of the
capital contribution received pursuant to the ECSA will reduce Mirant
Mid-Atlantic's fixed charge coverage ratios for purposes of determining its
ability to make dividend payments.

      These leases are part of a leveraged lease transaction. Three series of
certificates were issued and sold pursuant to a Rule 144A offering by Mirant
Mid-Atlantic. These certificates are interests in pass through trusts that hold
the lessor notes issued by the owner lessors. Mirant Mid-Atlantic pays rent to
an indenture trustee, who in turn makes payments of principal and interest to
the pass through trusts and any remaining balance to the owner lessors for the
benefit of the owner participants. According to the registration rights
agreement dated December 18, 2000, Mirant Mid-Atlantic must maintain its status
as a reporting company under the Exchange Act. Mirant Mid-Atlantic was also
obliged to consummate an exchange offer pursuant to an effective registration
statement under the Securities Act. On July 6, 2001, Mirant Mid-Atlantic's
registration statement became effective and the exchange offer was completed in
August 2001.

      Mirant Mid-Atlantic has an option to renew the lease for a period that
would cover up to 75% of the economic useful life of the facility, as measured
near the end of the lease term. However, the extended term of the lease will
always be less than 75% of the revised economic useful life of the facility.

      Upon an event of default by Mirant Mid-Atlantic, the lessors are entitled
to a termination value payment as defined in the agreements which, in general,
decreases over time. At March 31, 2002, the termination value was approximately
$1.5 billion. Upon expiration of the original lease term, the termination value
will be $300 million.

      The Company has additional commitments under operating leases with various
terms and expiration dates. Expenses associated with these additional operating
leases totaled approximately $300 thousand for each of the three month periods
ended March 31, 2002 and 2001. The total notional minimum lease payments for the
remaining life of these leases as of March 31, 2002 was approximately $5
million.

H. DISCONTINUED OPERATIONS

STATE LINE

     In February 2002, the Company announced that it had entered into an
agreement to sell its State Line generating facility for $181 million plus an
adjustment for working capital. The sale was completed in June 2002. This asset
was sold at approximately book value based on the value of the asset at the date
of sale.


                                       33

<PAGE>

     Mirant Americas Generation's results of operations from State Line for the
three months ended March 31, 2002 and 2001 were as follows (in millions):

<TABLE>
<CAPTION>
                                                     FOR THE THREE MONTHS
                                                        ENDED MARCH 31,
                                                  --------------------------
                                                    2002             2001
                                                    ----             ----
<S>                                                <C>             <C>
Revenue...............................              $  15           $  14
Expense...............................                  9               4
Impairment loss.......................                  2               0
                                                      ---         -------
Pre-tax income........................                  4              10
Taxes.................................                  2               4
                                                    -----               -
Net income............................             $    2          $    6
                                                   ======          ======
</TABLE>

     The table below presents the components of State Line's balance sheet
accounts classified as current assets and liabilities held for sale as of March
31, 2002 and December 31, 2001 (in millions):

<TABLE>
<CAPTION>
                                                         MARCH 31, 2002    DECEMBER 31, 2001
                                                        ----------------   ------------------
<S>                                                      <C>               <C>
CURRENT ASSETS:
Accounts and notes receivable......................           $    5           $   12
Inventory..........................................                3                4
Other..............................................                1                0
Property, plant and equipment......................              173              175
Intangibles........................................                9                9
                                                             -------          -------
   Total current assets held for sale..............            $ 191            $ 200
                                                               =====            =====
CURRENT LIABILITIES:
Taxes and other payables...........................           $   10           $   17
Deferred taxes.....................................               15               15
Other long-term debt...............................               --               80
                                                             -------           ------
   Total current liabilities held for sale.........           $   25            $ 112
                                                              ======            =====
</TABLE>

I.   SUBSEQUENT EVENTS

Mirant New England, LLC Guarantee

     Mirant New England, LLC is required to sell electricity at fixed prices to
Cambridge and Commonwealth in order for them to meet their supply requirements
to certain retail customers. In April 2002, Mirant Corporation issued a
guarantee in the amount of $188 million for any obligations Mirant New England,
LLC may incur under its Wholesale Transition Service Agreement with Cambridge
Electric Light Company and Commonwealth Electric Company. Both the guarantee and
the agreement expire in February 2005.

Fuel Purchase Agreement

     In April 2002, Mirant Mid-Atlantic entered into a long-term fuel purchase
agreement. The fuel supplier will convert coal feedstock received at the
Company's Morgantown facility into a synthetic fuel. Under the terms of the
agreement, Mirant Mid-Atlantic is required to purchase a minimum of 2.4 million
tons of fuel per annum through December 2007. Minimum purchase commitments
became effective upon the commencement of the synthetic fuel plant operation at
the Morgantown facility in July 2002. The purchase price of the fuel will vary
with the delivered cost of the coal feedstock. Based on current coal prices it
is expected that the annual purchase commitment will be approximately $100
million. At July 1, 2002, total estimated minimum commitments under the
agreement were $546 million. In July 2002, Mirant Mid-Atlantic sold its coal
inventory at the Morgantown facility to the synthetic fuel supplier for
approximately $10 million.

Administration Arrangement with Mirant Services

     Beginning in May 2002, Mirant Services implemented a fixed administration
charge to various subsidiaries of Mirant, including Mirant Americas Generation
and Mirant Mid-Atlantic, which serves to reimburse Mirant Services for various
indirect administrative services performed on the subsidiaries' behalf,
including, but not limited to, information technology services, regulatory
support, consulting, legal and accounting and financial services. The fixed
charge is approximately $2.7 million per month and the initial term of the
agreement expires on December 31, 2002. Management believes that the amounts
allocated to the Company are reasonable and are substantially similar to costs
it would have incurred on a stand-alone basis for the periods covered by the
fixed administration charge. Prior to May 2002, similar administrative services
were charged by Mirant Services to the Company based on incremental costs
directly attributable to the Company.


                                       34

<PAGE>

Sale of Neenah

      In July 2002, the Company announced that it had entered into an agreement
to sell its Neenah generating facility ("Neenah") in the state of Wisconsin to
Alliant Energy Resources, Inc. for approximately $109 million. The sale of the
Company's investment in Neenah will be near book value. The sale is expected to
close in the first quarter of 2003. The table below presents the components of
Neenah's balance sheet accounts as of March 31, 2002 (in millions):

<TABLE>
<S>                                                                            <C>
              ASSETS:
              Accounts receivable - customers......................              $  2
              Prepayments..........................................                 2
              Materials and supplies...............................                 1
              Property, plant and equipment........................               101
                                                                                 ----
                 Total assets......................................              $106
                                                                                 ====
              LIABILITIES:
              Accounts payable.....................................                 4
                                                                                 ----
                 Total liabilities ................................              $  4
                                                                                 ====
</TABLE>
                                       35

<PAGE>


                     INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors and Members
Mirant Americas Generation, LLC:

We have reviewed the accompanying condensed consolidated balance sheet of Mirant
Americas Generation, LLC (a wholly-owned indirect subsidiary of Mirant
Corporation) and subsidiaries as of March 31, 2002, and the related condensed
consolidated statements of income, member's equity and cash flows for the
three-month period ended March 31, 2002. These condensed consolidated financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modification that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.

The consolidated financial statements of the Company as of and for the year
ended December 31, 2001, were not audited by us and, accordingly, we do not
express an opinion or any form of assurance on the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2001.
Additionally, the condensed consolidated statements of income and cash flows for
the three-month period ended March 31, 2001, were not reviewed or audited by us
and, accordingly, we do not express an opinion or any form of assurance on them.


/s/ KPMG LLP
Atlanta, Georgia
December 19, 2002

                                       36

<PAGE>


ITEM 2.

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

     We are an indirect wholly owned subsidiary of Mirant, formed on May 12,
1999, for the purpose of financing, acquiring, owning, operating and maintaining
our electric power generating facilities and any others that we may acquire. As
of September 30, 2002, we own or control approximately 12,000 MW of electricity
generation capacity, all of which is located in the United States.

     Our generating facilities were either acquired in competitive auctions or
were developed as greenfield construction projects. Our geographically
diversified portfolio of generating assets utilizes a variety of technologies,
fuel types and fuel sources and sells its output directly or through Mirant
Americas Energy Marketing. Our customers are located near key metropolitan load
centers of the United States.

      In December 2002, the Company commenced operation of its expansion project
at its Kendall facility located in Cambridge, Massachusetts.

      In November 2002, Mirant Americas Energy Marketing exercised its option
under the ECSA to purchase 100% of Mirant Mid-Atlantic's energy and capacity in
2003. At the time the option was exercised, the market price for energy to be
delivered in 2003 was less than the price received for revenue recorded under
the ECSA in 2002, after the reduction for the favorable pricing variance.
Accordingly, revenues recorded in 2003, after the reduction for the favorable
pricing variance, will be less than the revenue recorded in 2002. In the event
that Mirant Americas Energy Marketing exercises its option for 2004 and similar
market conditions exist at that time, revenue recorded in 2004, after the
reduction for the favorable pricing variance, will also be less than in 2002.
The cash flows received under the ECSA are unaffected by changes in market
price. However, the reclassification of the capital contribution received
pursuant to the ECSA (Note A) will reduce Mirant Mid-Atlantic's fixed charge
coverage ratios calculated for purposes of determining its ability to make
dividend payments. Because Mirant Mid-Atlantic's ability to pay dividends could
be restricted by this change, Mirant Americas Energy Marketing may not exercise
its option to renew the ECSA for future periods. To the extent that the option
to renew is not exercised, Mirant Mid-Atlantic would likely sell its energy at
market prices in the PJM. Over the term of the ECSA, PJM market prices have
tended to be lower than the prices received from Mirant Americas Energy
Marketing under the ECSA. If current market conditions persist, the inability to
enter into contracts with margins similar to those realized in 2002 when the
ECSA expires would also be expected to adversely impact our future operating
results.

      Our operating revenues and expenses are primarily driven by the operations
of our controlled subsidiaries, which are consolidated for accounting purposes.
We expect substantially all of our revenues to be derived from sales of
capacity, energy and ancillary services from our generating facilities into spot
and forward markets and fixed price agreements. The market for wholesale
electric energy and energy services in the United States is largely deregulated.
Our revenues and results of operations will depend, in part, upon prevailing
market prices for energy, capacity and ancillary services in these competitive
markets.

      Historically, we have obtained cash from operations, borrowings under
credit facilities, borrowings from issuances of senior debt and borrowings and
capital contributions from Mirant. Because our operations are conducted
primarily by our subsidiaries, our cash flows are dependent upon cash dividends,
distributions and other transfers from our subsidiaries, including Mirant
Mid-Atlantic. As noted above the reclassification of the capital contribution
received pursuant to the ECSA will reduce the fixed charge coverage ratios
calculated for purposes of determining Mirant Mid-Atlantic's ability to
make dividend payments.

                                       37

<PAGE>

     Most of our operating subsidiaries have entered into fuel supply, energy
services, risk management and power marketing agreements with our affiliate
Mirant Americas Energy Marketing. As part of the services and risk management
agreements, Mirant Americas Energy Marketing provides fuel and procures
emissions credits necessary for the operation of our generating facilities, the
cost of which is charged to our subsidiaries based upon actual costs incurred by
Mirant Americas Energy Marketing.

      Our costs are primarily derived from the ongoing operations and
maintenance of our generating facilities and capital expenditures needed to
ensure their continued reliable, safe and environmentally compliant operation.

      Our Mid-Atlantic, New York, and New England facilities are subject to the
northeast ozone transport region NOx allowance cap and trade regulatory program.
As part of that regulatory program, the various state regulations allocate NOx
emission allowances to covered facilities, and if the allocated allowances are
not sufficient to cover actual NOx emissions, facilities must purchase NOx
allowances from other facilities. We presently have to purchase additional NOx
allowances beyond our allocation to cover our emissions. We expect that the
number of allowances allocated to our plants will decrease in 2003 and that the
market price may increase significantly in 2003 and in subsequent years for NOx
allowances we need to purchase under the regulatory program.

      As a result of the PEPCO acquisition, several owner lessors each own
undivided interests in the Dickerson and Morgantown generating assets. We,
through Mirant Mid-Atlantic have entered into long-term leases for each of these
undivided interests. The leases were part of the leveraged lease transactions
that raised approximately $1.5 billion, which was used by the owner lessors to
acquire the undivided interests in the lease facilities and to pay the lease
transaction expenses.

      The subsidiaries of the institutional investors who hold the membership
interests in the owner lessors are called owner participants. Equity funding by
the owner participants plus transaction expenses paid by the owner participants
totals $299 million. The issuance and sale of pass through certificates raised
the remaining $1.224 billion.

      Pass through certificates in the aggregate principal amount of $1.224
billion were issued on December 18, 2000. The pass through certificates are not
our, or Mirant Mid-Atlantic's, direct obligations. Each pass through certificate
represents a fractional undivided interest in one of three pass through trusts
formed pursuant to three separate pass through trust agreements between us and
State Street Bank and Trust Company of Connecticut, National Association, as
pass through trustee under each pass through trust agreement.

      The property of the pass through trusts consists of lessor notes. The
lessor notes were issued in connection with eleven separate leveraged lease
transactions with respect to each lessor's undivided interest in either (i) the
Dickerson electric generating baseload units 1, 2, and 3 and related assets or
(ii) the Morgantown electric generating baseload units 1 and 2 and related
assets. The lessor notes issued by an owner lessor are secured by that owner
lessor's undivided interest in the lease facilities and its rights under the
related lease and other financing documents.

      The lessor notes issued by each owner lessor were issued in three series.
Each pass through trust purchased one series of the lessor notes issued by each
owner lessor so that all of the lessor notes held in each pass through trust
have an interest rate corresponding to the interest rate of the pass through
certificates, and a final maturity on or before the final expected distribution
date applicable to the certificates issued by that pass through trust. Principal
and interest paid on the lessor notes held in each pass through trust is
distributed by each pass through trust to its certificate holders on June 30 and
December 30 of each year.

      Although neither the certificates nor the lessor notes are obligations of,
or guaranteed by us or Mirant Mid-Atlantic, the amount unconditionally payable
by Mirant Mid-Atlantic under the leases of the leased facilities will be at
least sufficient to pay in full when due all payments of principal, premium, if
any, and interest on the lessor notes. The lease obligations of Mirant
Mid-Atlantic are not obligations of, or guaranteed by, us or our indirect
parent, Mirant, or any of its other affiliates. However, Mirant is currently
providing the credit support to fund the rent payment reserve required in
connection with this lease transaction.

      The lease payment obligations of Mirant Mid-Atlantic are senior unsecured
obligations of Mirant Mid-Atlantic and rank equally in right of payment with all
of its other existing and future senior unsecured obligations. Under the terms
of the lease, Mirant Mid-Atlantic is responsible for the payment of rent to the
indenture trustee, which in turn makes payments of principal and interest to the
pass through trust and any remaining balance to the owner lessors for the
benefit of the owner participants.


                                       38

<PAGE>

CHANGES IN SENIOR MANAGEMENT

      In October 2002, the Company announced that at the end of October 2002,
Randy Harrison, Senior Vice President - East Region and Manager of the Company,
would be retiring and that Gary Morsches, Senior Vice President - West Region
and Manager of the Company, would be leaving the Company.

      On December 4, 2002, Mirant announced that Harvey Wagner would be joining
Mirant as its Executive Vice President and Chief Financial Officer beginning
January 1, 2003. Mr. Wagner will be replacing Mirant's current Chief Financial
Officer, Raymond Hill. Mr. Hill is a Manager of the Company and will be leaving
the Company effective December 31, 2002.

ACCOUNTING ERRORS AND REAUDIT OF HISTORICAL FINANCIAL STATEMENTS

      As disclosed in a press release dated July 30, 2002, Mirant Corporation,
Mirant Americas Generation's ultimate parent company, identified several
accounting issues related to its risk management and marketing operations. These
issues related to Mirant Americas Energy Marketing, which is an affiliate of the
Company and a separate subsidiary of Mirant. Corrections have been reflected in
Mirant's amended first quarter Form 10-Q/A and Mirant's second quarter Form 10-Q
both filed on November 7, 2002. The resolution of these items did not impact the
Company's financial statements.

      As a result of the identification of the initial accounting issues
described in the July 30, 2002 press release, Mirant retained the law firm of
King & Spalding with the support of a nationally recognized accounting firm to
conduct an independent review and to report to Mirant's Audit Committee. King &
Spalding has concluded that there was no fraudulent conduct on the part of any
Mirant employee or officer related to the identified accounting issues.

      In the course of resolving Mirant's previously announced accounting issues
discussed above, and the concurrent review of Mirant's interim financial
statements, errors affecting the Company's historical financial statements were
identified. At March 31, 2002, revenue related to Mirant Mid-Atlantic's ECSA
with Mirant Americas Energy Marketing (an affiliate), was reduced by $11
million, accounts receivable from Mirant Americas Energy Marketing was reduced
by $5 million, and capital contribution receivable pursuant to the ECSA (a
member's equity account) was reduced by $6 million. The previously issued
financial statements did not take into account Mirant Americas Energy
Marketing's election under the ECSA in January 2002 to increase the energy
purchased from Mirant Mid-Atlantic to 100% of the capacity of its facilities
from the contractual minimum of 75%, as described in Note F. In addition, the
Company recorded an addition to member's equity, with a corresponding capital
contribution receivable pursuant to the ECSA, of $53 million, to reflect the
excess of the fixed price of the capacity and energy in the ECSA over the
projected market prices when Mirant Mid-Atlantic became committed to provide the
additional energy to Mirant Americas Energy Marketing.

      The statement of cash flows has also been restated to reflect amounts
received under the ECSA attributable to the capital contribution received as a
financing activity, rather than an operating activity.

      In addition, for the three months ended March 31, 2002, the Company
recorded adjustments to net income related primarily to a decrease of revenue of
approximately $2 million, an increase of maintenance expense of approximately $1
million, an increase of restructuring charges of $1 million, and a decrease of
interest expense of $4 million.

      A summary of these adjustments that affect net income is as follows (in
millions):

<TABLE>
<CAPTION>
                                                                  INCREASE (DECREASE) IN NET INCOME
                                                                       FIRST QUARTER 2002
                                                                     -----------------------
<S>                                                               <C>
Mirant Mid-Atlantic ECSA ..................................                 $ (11)
Other, net ................................................                     -
                                                                     -----------------------
  TOTAL CORRECTIONS........................................                 $ (11)
</TABLE>

      The Company has restated its previously reported financial statements as
of and for the three months ended March 31, 2002. The Company has restated its
financial position by reducing its originally reported assets and


                                       39

<PAGE>

liabilities and member's equity by $189 million, the major details of which are
shown below. The Company has restated its previously reported results of
operations for the three months ended March 31, 2002 to net income of $77
million from originally reported net income of $88 million. The Company has
restated its previously reported first quarter 2002 statement of cash flows,
decreasing originally reported cash provided from operations by $19 million to
reflect cash receipts and disbursements in the appropriate period, increasing
cash used in investing activities by $1 million, and increasing cash provided
from financing activities by $20 million. These corrections have been reflected
in the accompanying 2002 unaudited condensed consolidated financial statements.

     A summary comparison of the previously reported and restated March 31, 2002
unaudited condensed consolidated balance sheet follows (in millions):

<TABLE>
<CAPTION>
                                                                     MARCH 31, 2002, AS PREVIOUSLY        MARCH 31, 2002, AS
                                                                               REPORTED                        RESTATED
                                                                    -------------------------------- ----------------------------
<S>                                                                  <C>                             <C>
      Total current assets......................................                $1,932                          $1,824
      Noncurrent assets.........................................                 5,500                           5,419
                                                                                 -----                           -----
          Total assets..........................................                $7,432                          $7,243
                                                                                ======                          ======

      Total current liabilities.................................                $1,191                          $1,089
      Other liabilities.........................................                 2,859                           2,777
      Member's equity...........................................                 3,382                           3,377
                                                                                 -----                           -----
           Total liabilities and member's equity................                $7,432                          $7,243
                                                                                ======                          ======
</TABLE>

     A summary comparison of the previously filed and restated first quarter
2002 unaudited condensed consolidated statement of income follows (in millions):

<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                        MARCH 31, 2002
                                                                       -------------------------------------------------
                                                                         AS PREVIOUSLY FILED          AS RESTATED
                                                                       ------------------------- -----------------------
<S>                                                                    <C>                       <C>
  Operating revenues................................................           $729                      $716
  Cost of fuel, electricity and other products......................            386                       386
                                                                                ---                       ---
  Gross margin......................................................            343                       330
  Other                                                                        (255)                     (253)
                                                                               -----                     -----
  Net income........................................................          $  88                     $  77
                                                                              =====                     =====

</TABLE>

           A summary comparison of the previously reported and restated first
quarter 2002 unaudited condensed consolidated statement of cash flows follows
(in millions):

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED       THREE MONTHS ENDED
                                                                                  MARCH 31, 2002, AS          MARCH 31, 2002,
                                                                                 PREVIOUSLY REPORTED            AS RESTATED
                                                                                 ---------------------------------------------
<S>                                                                              <C>                          <C>
  Cash flows from operating activities.............................                     $192                         $173
  Cash flows from investing activities.............................                     (187)                        (188)
  Cash flows from financing activities.............................                      (18)                           2
                                                                                       ------                      ------
  Net decrease in cash and cash equivalents........................                     $(13)                      $  (13)
                                                                                        =====                      =======

</TABLE>

     Mirant's independent auditors assessed Mirant's internal controls of its
North American energy marketing and risk management operations as part of the
interim review of Mirant for the second quarter. The independent auditors
provided Mirant with detailed process improvement recommendations to address
internal control deficiencies in existence at June 30, 2002. The independent
auditors have advised Mirant's Audit Committee that these internal control
deficiencies constitute reportable conditions and, collectively, a material
weakness as defined in Statement on Auditing Standards No. 60. Mirant has
assigned the highest priority to the short-term and long-term correction of
these internal control deficiencies. Mirant has discussed its proposed actions
with its Audit Committee and its independent auditors. Mirant Americas Energy
Marketing personnel prepare certain entries to the Company's accounts, however,
there has been no indication that control

                                       40

<PAGE>

deficiencies present in Mirant's North American energy marketing and risk
management operations directly impact the Company or its financial statements.
Mirant has implemented corrective actions to mitigate the risk that these
deficiencies could lead to material misstatements in Mirant's or the Company's
current financial statements. In addition, the Company has performed additional
procedures to enable the completion of the independent auditors' review of the
Company's interim financial statements despite the presence of the control
weaknesses at Mirant noted above.

      The Company has engaged KPMG to reaudit the Company's 2000 and 2001
financial statements for two primary reasons: (i) to address accounting errors
identified during reviews of Mirant's previously disclosed accounting issues;
and (ii) to enable its independent auditors to provide an opinion on the
Company's 2000 and 2001 financial statements in accordance with the new
accounting standard SFAS No. 144. The effects, if any, of such reaudit on the
Company's financial statements cannot be determined. In addition, we are not
currently able to assess the impact on the Company of the reaudit of Mirant and
the accounting issues at Mirant Americas Energy Marketing in light of the
business relationships among the Company, Mirant Mid-Atlantic, Mirant Americas
Energy Marketing and Mirant Corporation.

RESULTS OF OPERATIONS

      Results of operations for the three months ended March 31, 2002 include
revenue under a power sales agreement with the California DWR and under Mirant
Mid-Atlantic's ECSA agreement with Mirant Americas Energy Marketing. Our power
sales agreement with the California DWR expires in December 2002 and is above
current market prices. In addition, revenue recognized under Mirant
Mid-Atlantic's ECSA agreement with Mirant Americas Energy Marketing was based on
forward price curves at the inception of the ECSA and at the time of Mirant
Americas Energy Marketing's election to keep its committed capacity at 100% of
the total output of the Company's facilities for 2002, which resulted in higher
revenues and margins than are currently available based on current market
prices. The revenue recognized under the ECSA is not adjusted for subsequent
changes in market prices. As a result, amounts recognized as revenue under the
ECSA do not necessarily reflect market prices at the time the energy is
delivered. Amounts recognized as revenue for capacity and energy delivered under
the ECSA exceeded the amounts based on current market prices by approximately
$97 million for the three months ended March 31, 2002.

                    FIRST QUARTER 2002 vs. FIRST QUARTER 2001


      Significant income statement items appropriate for discussion include the
following:

<TABLE>
<CAPTION>
                                                                Increase (Decrease)
                                                            ---------------------------
                                                                    (in millions)

<S>                                                         <C>                   <C>
   Operating revenues...................................        $(711)                (50%)
   Cost of fuel, electricity and other products.........         (628)                (62%)
   Other operating expenses.............................
   Depreciation and amortization........................          (9)                (23%)
   Selling, general and administrative..................         (88)                (72%)
   Taxes other than income taxes........................           4                  21%
   Other operating......................................         (11)                (17%)
   Other expense, net...................................          12                  38%
   Provision for income taxes...........................          (4)                 (8%)
</TABLE>

     Operating revenues. Our operating revenues for the three months ended March
31, 2002 were $716 million, a decrease of $711 million from the same period in
2001. This decrease was primarily due to unusually high prices for power in the
first quarter of 2001, as compared to decreased market demand and prices for our
energy in the western United States in the first quarter of 2002. In addition,
revenues from our Mid-Atlantic operations

                                       41

<PAGE>

were higher in 2001 primarily due to higher volumes and prices. This was
partially offset by operating revenues related to Mirant New England, LLC which
was contributed to us by our parent in January 2002.

     Cost of fuel, electricity and other products. Our cost of fuel, electricity
and other products for the three months ended March 31, 2002 was $386 million,
compared to $1.01 billion for the same period in 2001. This decrease was
primarily attributable to decreased generation and lower prices for natural gas
primarily in the western United States in the first quarter of 2002. This was
offset somewhat by costs related to Mirant New England, LLC which were
contributed to us in January 2002.

     Other operating expenses. Our other operating expenses for the three months
ended March 31, 2002 were $167 million, a decrease of $96 million from the same
period in 2001. The following factors were responsible for the decrease in other
operating expenses:

-     Depreciation and amortization expenses for the three months ended March
      31, 2002, were $30 million, compared to $39 million for the same period in
      2001. This decrease of $9 million was primarily from the elimination of
      goodwill amortization from implementation of SFAS No. 142.

-     Selling, general and administrative expenses for the three months ended
      March 31, 2002, were $34 million, compared to $122 million for the same
      period in 2001. The majority of the decrease of $88 million resulted from
      provisions taken in the first quarter of 2001 related to uncertainties in
      the California power markets.

-     Taxes other than income taxes for the three months ended March 31, 2002
      were $23 million, compared to $19 million for the same period in 2001.
      This increase of $4 million is primarily due to higher property taxes
      resulting from increases in the assessed property values of our generating
      facilities.

-     Other operating expenses for the three months ended March 31, 2002, were
      $52 million, compared to $63 million for the same period in 2001. This
      decrease of $11 million resulted primarily from lower labor costs at our
      generating facilities.

      Other Expense, net. Other expense, net for the three months ended March
31, 2002, was $44 million, compared to $32 million for the same period in 2001.
The increase of $12 million was primarily due to interest expense on the senior
notes, which were issued during the second and third quarters of 2001.

     Provision for income taxes. The provision for income taxes for the three
months ended March 31, 2002, was $44 million, compared to a provision of $48
million for the same period in 2001. The primary reason for this decrease is
that effective November 1, 2001, we changed our form of organization from a
corporation to a limited liability company. The effect of this change of
organization is that taxes are no longer paid directly by the Company, but
rather, will accrue directly to our sole owner, Mirant Americas. Furthermore, we
also changed the form of organization of one of our wholly owned subsidiaries
from a corporation to a limited liability company. Our unaudited condensed
consolidated financial statements will continue to reflect the accounting and
reporting for income taxes for our subsidiaries that continue to retain their
corporate form of organization for tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

     Historically, we have obtained cash from operations, borrowings under
credit facilities, borrowings from issuances of senior debt and borrowings and
capital contributions from Mirant. These funds have been used to finance
operations, service debt obligations, fund acquisitions, develop and construct
generating facilities, finance capital expenditures and meet other cash and
liquidity needs. Some of the cash flows generated by our businesses have been
distributed to Mirant from time to time, and Mirant has provided funds to cover
our disbursements from time to time.

                                       42

<PAGE>

      Because our operations are conducted primarily by our subsidiaries, our
cash flows are dependent upon cash dividends, distributions and other transfers
from our subsidiaries, including Mirant Mid-Atlantic. The reclassification of
the capital contribution received pursuant to the ECSA will reduce Mirant
Mid-Atlantic's fixed charge coverage ratios calculated for purposes of
determining its ability to make dividend payments.

Operating Activities. During the three months ended March 31, 2002, we generated
net cash from operations of approximately $173 million, compared to $114 million
for the same period in 2001. This increase is due to the timing of payments for
interest, taxes and affiliated company receivables and payables.

Investing Activities. During the three months ended March 31, 2002, we used $188
million for investing activities compared to $105 million for the same period in
2001. During the three months ended March 31, 2002, our investment activities
were primarily attributable to the issuance of loans to affiliates of $246
million, partly offset by repayments of $128 million, and capital expenditures
of $79 million. During the three months ended March 31, 2001, our investing
activities were primarily attributed to $99 million in capital expenditures.

Financing Activities. During the three months ended March 31, 2002, our
financing activities provided $2 million in net cash as compared to using $16
million during the same period in 2001. During the three months ended March 31,
2002, our financing activities included receipt of $200 million in proceeds from
the issuance of debt under our credit facilities, $128 million in proceeds from
the issuance of debt due from affiliates, capital contributions of $20 million
from Mirant Americas and $20 million related to the ECSA. These inflows were
mostly offset by repayment of debt under our credit facilities of $200 million,
repayment of debt to affiliates of $32 million and payment of $134 million in
distributions to Mirant Americas. During the three months ended March 31, 2001,
our financing activities included $21 million in distributions offset by capital
contributions of $5 million from Mirant Americas.

      Our cash flow from operations, asset sales, existing credit facilities,
cash position and capital contributions related to the ECSA are expected to
provide sufficient liquidity for operations, working capital, capital
expenditures and to fund our interest costs over the next 12 months. Our
liquidity could be impacted by the ability of our subsidiaries to pay dividends,
changing prices resulting from abnormal weather, excess capacity, the inability
to complete asset sales, changes in our, Mirant's or Mirant Americas Energy
Marketing's credit ratings and other factors.

INCOME TAXES

      In September 2002, the Internal Revenue Service refunded overpaid income
taxes to the Company's ultimate parent, Mirant, for the tax period April 3, 2001
to December 31, 2001. Approximately $96 million of that refund related to the
Company and its subsidiaries. Approximately $52 million is attributable to
companies that are no longer taxable entities, while the remaining approximately
$44 million represents refunds for existing taxable entities.

CREDIT RATINGS

      As of December 20, 2002, we have a credit rating of Ba3 (non-investment
grade) with a negative watch by Moody's, BB (non-investment grade) with a
negative outlook by S&P and BB (non-investment grade) with a negative outlook by
Fitch. While the foregoing indicates the ratings from the various agencies, we
note that these ratings are not a recommendation to buy, sell or hold Mirant
Americas Generation's securities, that the ratings may be subject to revision or
withdrawal at any time by the assigning rating organization and that each rating
should be evaluated independently of any other rating. There can be no assurance
that a rating will remain in effect for any given period of time or that a
rating will not be lowered or withdrawn entirely by a rating agency if, in its
judgment, circumstances in the future so warrant. Further, the Company notes
that each of the rating agencies continues to monitor the Company's credit
profile, with increased scrutiny arising from the reported financial
difficulties of other market participants, the uncertainty and turmoil in the
financial

                                       43

<PAGE>

markets generally and in the energy sector specifically and our pending reaudit.
In addition, we note the risk factors related to a downgrade in our credit
ratings as disclosed in our Form 10-K filed in March 2002.

CREDIT FACILITIES

      As of March 31, 2002, we had two credit facilities, each entered into in
October 1999, which consisted of a $250 million 5-year revolving credit
agreement ("Credit Facility B") for capital expenditures and general corporate
purposes and a $50 million 5-year revolving credit facility ("Credit Facility
C") for working capital needs. The commitments under Credit Facility B and
Credit Facility C remain available through October 2004. As of March 31, 2002,
the outstanding borrowings under Credit Facility B were $73 million. As of March
31, 2002, there were no borrowings under Credit Facility C.

      In July 2002, the Company fully drew the commitments under its two credit
facilities. As of September 30, 2002, the outstanding borrowings under Credit
Facility B were $250 million at an interest rate of 3.31%, and the outstanding
borrowings under Credit Facility C were $50 million at an interest rate of
3.31%. The net proceeds from additional borrowings of approximately $227 million
were used primarily to repay $131 million in notes payable to affiliates. The
remaining amount will be used for working capital and capital expenditures.

      In addition to other covenants and terms, each of our credit facilities
includes minimum debt service coverage, a maximum leverage covenant and a
minimum debt service coverage test for dividends and distributions. As of March
31, 2002, there were no events of default under such credit facilities.

MID-ATLANTIC POWER SALES AGREEMENT WITH MIRANT AMERICAS ENERGY MARKETING

      Mirant Mid-Atlantic has entered into an Energy and Capacity Sales
Agreement ("ECSA"), which is a fixed rate power purchase agreement with Mirant
Americas Energy Marketing. Under the terms of the ECSA, Mirant Mid-Atlantic
supplies all of its capacity and energy of its facilities to Mirant Americas
Energy Marketing for the period from August 1, 2001 through June 30, 2004,
extendable through December 31, 2004 at Mirant Americas Energy Marketing's
option. For 2002 and 2003, Mirant Americas Energy Marketing has elected to keep
its committed capacity and energy purchases at 100% of the total output of
Mirant Mid-Atlantic's facilities. For 2004, Mirant Americas Energy Marketing has
the option to purchase up to 100% (in blocks of 25%) of the total output of
Mirant Mid-Atlantic's facilities, with no minimum commitment. Mirant Americas
Energy Marketing is a party to transitional power agreements with PEPCO under
which PEPCO has a similar option to purchase energy with respect to PEPCO's load
requirements.

      Prior to August 1, 2001, Mirant Mid-Atlantic sold its power to Mirant
Americas Energy Marketing pursuant to a master sales agreement. Under this
agreement the price Mirant Mid-Atlantic received was based on the market price
for energy in the PJM market at the time the energy was delivered. Mirant
Mid-Atlantic also sold power to Mirant Americas Energy Marketing under fixed
price contracts.

      Mirant Mid-Atlantic's affiliated companies, Mirant Potomac River and
Mirant Peaker, have also entered into fixed rate power purchase agreements with
Mirant Americas Energy Marketing, on the same terms and effective over the same
period as the agreement outlined above. Through the capital contribution
agreement between Mirant Mid-Atlantic and Mirant, the cash available from these
affiliated companies is paid as a dividend to Mirant, which in turn makes an
indirect capital contribution to Mirant Mid-Atlantic for the same amount.

      At the inception date of the ECSA, the pricing of Mirant Americas Energy
Marketing's minimum committed capacity and energy purchases was favorable to
Mirant Mid-Atlantic and our affiliates when compared to estimated market rates
in the PJM for power to be delivered over the initial term of the agreement. The
estimated market rates were based on quoted market prices in the PJM, as
adjusted upwards by approximately 12% for what Mirant Mid-Atlantic believed, at
the time, to be temporary anomalies in such market prices based on forecasted
demand growth and other factors expected to affect demand and supply in the

                                       44

<PAGE>

PJM market through 2002. At inception, the aggregate value to us and our
affiliates relating to the favorable pricing variance was approximately $167
million. The amount related specifically to the Mirant Mid-Atlantic owned or
leased facilities amounted to $120 million and was reflected as both an addition
to member's equity and an offsetting capital contribution receivable pursuant to
the ECSA on our consolidated balance sheet and statement of member's equity at
the inception of the agreements. At inception, Mirant Mid-Atlantic had assumed
that in 2002 Mirant Americas Energy Marketing would elect to take the contracted
minimum 75% of the capacity and output of Mirant Mid-Atlantic's facilities. In
January 2002, Mirant Americas Energy Marketing elected to keep its committed
capacity at 100% of the total output of Mirant Mid-Atlantic's facilities.
Therefore, the Company has recorded an additional equity contribution of $53
million in the first quarter of 2002 to reflect the favorable pricing terms
related to the additional 25% capacity and energy that Mirant Americas Energy
Marketing committed to take in 2002. This adjustment is reflected in the
accompanying unaudited condensed consolidated balance sheet and statement of
member's equity as both an addition to member's interest and an offsetting
capital contribution receivable pursuant to the ECSA.

      The contractual amount payable under the ECSA in excess of the amount of
revenue recognized due to the favorable pricing variances was $28 million for
the three months ended March 31, 2002. This amount is generally received in the
month following the month the related revenue is recognized and is recorded as a
reduction in the capital contribution receivable pursuant to the ECSA when
received. During the three months ended March 31, 2002, the Company received $20
million under the ECSA that was applied as a reduction to the capital
contribution receivable pursuant to the ECSA. The capital contribution
receivable pursuant to the ECSA was $124 million at March 31, 2002, of which $12
million represents amounts received subsequent to March 31, 2002 related to the
revenue recognized prior to that date and $112 million relates to the favorable
pricing variance over the remaining nine months of 2002.

      The favorable pricing variance accounted for as a capital contribution
receivable is not adjusted for subsequent changes in energy prices. As a result,
amounts recognized as revenue under the ECSA do not necessarily reflect market
prices at the time the energy is delivered. Amounts recognized as revenue for
capacity and energy delivered under the ECSA exceeded the amounts based on
current market prices by approximately $97 million for the three months ended
March 31, 2002.

      On November 15, 2002, Mirant Americas Energy Marketing elected to keep its
committed capacity at 100% of the output of the Company's facilities for 2003.
This election will result in an adjustment of approximately $120 million to
member's equity and an offsetting capital contribution receivable pursuant to
the ECSA in the fourth quarter of 2002. However, the reclassification of the
capital contribution received pursuant to the ECSA (Note A) will reduce Mirant
Mid-Atlantic's fixed charge coverage ratios calculated for purposes of
determining its ability to make dividend payments. Because Mirant Mid-Atlantic's
ability to pay dividends could be restricted by this change, Mirant Americas
Energy Marketing may not exercise its option to renew the ECSA for future
periods. To the extent that the option to renew the ECSA is not exercised,
Mirant Mid-Atlantic would likely sell its energy at market prices in the PJM.
Over the term of the ECSA, PJM market prices have tended to be lower than the
prices received from Mirant Americas Energy Marketing under the ECSA.


NOTES PAYABLE TO AND NOTES RECEIVABLE FROM AFFILIATES

      We are organized and operate as a legal entity separate and apart from
Mirant and any other affiliates of Mirant. Therefore, our facilities are not
generally available to satisfy the obligations of Mirant or any other affiliates
of Mirant. However, our unrestricted cash or other assets which are available
for distribution may, subject to applicable law and the terms of financing
arrangements, be advanced, loaned, paid as dividends or otherwise distributed or
contributed to Mirant or any of its affiliates.

                                       45

<PAGE>

      Mirant Peaker and Mirant Potomac River borrowed funds from Mirant
Mid-Atlantic in order to finance their respective acquisitions of generation
assets. At both March 31, 2002 and December 31, 2001, notes receivable from
these two affiliates consisted of the following (in millions):

<TABLE>
<CAPTION>
      BORROWER                                                 PRINCIPAL         INTEREST RATE         MATURITY
      --------                                                 ---------         -------------         --------
<S>                                                            <C>               <C>                  <C>
     Mirant Potomac River.................................       $ 152                10%             12/30/2028
     Mirant Peaker........................................       $ 71                 10%             12/30/2028
</TABLE>

      Mirant Potomac River and Mirant Peaker have a capital contribution
agreement with Mirant in which they make quarterly distributions to Mirant of
all cash available after taking into consideration projected cash requirements,
including mandatory debt service, prepayments permitted under the terms of the
notes payable and maintenance reserves.

      Under the capital contribution agreement, the owner lessors, the holders
of the lessor notes, and the indenture trustee of Mirant Mid-Atlantic's lease
arrangements (Note G) have the ability to enforce the payment terms of the notes
receivable.

      Principal is due on maturity with interest due semiannually, in arrears,
on June 30 and December 30. Any amount not paid when due bears interest
thereafter at 12%. Mirant Potomac River and Mirant Peaker may prepay up to $5
million and $3 million per year, respectively. Interest earned by Mirant
Mid-Atlantic from Mirant Potomac and Mirant Peaker was $6 million for the three
month periods ended March 31, 2002 and 2001.

     Mirant Americas Generation's subsidiaries had a cash management program
with Mirant, whereby any excess cash, including capital contributions, was
transferred to Mirant pursuant to a note agreement which was payable upon
demand. Similarly, Mirant advanced funds to our subsidiaries for working
capital. Effective October 21, 2002, Mirant Mid-Atlantic discontinued its
involvement in Mirant's cash management program and commenced the operation of
bank deposit and money market accounts in Mirant Mid-Atlantic's own name. As of
October 21, 2002, the net principal balance outstanding under the cash
management program of $83 million was received by the Company from Mirant.
Similarly, effective December 19, 2002, the remaining subsidiaries of the
Company that participated in Mirant's cash management program discontinued their
participation and commenced the operation of bank deposit and money market
accounts in the Company's own name. As of December 19, 2002, the net balance
outstanding under the cash management program of approximately $90 million was
received by the Company from Mirant.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

ADMINISTRATION ARRANGEMENT WITH MIRANT SERVICES

     Beginning in May 2002, Mirant Services implemented a fixed administration
charge to various subsidiaries of Mirant, including Mirant Americas Generation
and Mirant Mid-Atlantic, which serves to reimburse Mirant Services for various
indirect administrative services performed on the subsidiaries behalf,
including, but not limited to, information technology services, regulatory
support, consulting, legal and accounting and financial services. The fixed
charge is approximately $2.7 million per month and the initial term of the
agreement expires on December 31, 2002. Management believes that the amounts
allocated to the Company are reasonable and are substantially similar to costs
it would have incurred on a stand-alone basis for the periods covered by the
fixed administration charge. Prior to May 2002, similar administrative services
were charged by Mirant Services to the Company based on incremental costs
directly attributable to the Company.

MANAGEMENT, PERSONNEL AND SERVICES AGREEMENT WITH MIRANT SERVICES

     Mirant Services provides the Company with various management, personnel and
other services. The Company reimburses Mirant Services for amounts equal to
Mirant Services' direct costs of providing such services.

     The total costs incurred under the agreement with Mirant Services for the
three months ended March 31, 2002 and 2001 were $36 million and $41 million,
respectively.

                                       46

<PAGE>

CONSTRUCTION RELATED COMMITMENTS

      We have entered into various turbine and other construction related
commitments related to brownfield developments at our various generation
facility sites. At March 31, 2002, these construction related commitments
totaled approximately $320 million.

LONG-TERM SERVICE AGREEMENTS

      We have entered into long-term service agreements for the maintenance and
repair by third parties for certain combustion turbine generating plants, which
are in effect through approximately 2016. Generally, these agreements may be
terminated at little or no cost in the event that the shipment of the associated
turbine is canceled. As of March 31, 2002, the maximum termination amounts for
long-term service agreements associated with completed and shipped turbines were
approximately $180 million. As of March 31, 2002, the total estimated
commitments for long-term service agreements associated with turbines already
completed and shipped were approximately $180 million. These commitments are
payable over the course of each agreement's terms. The terms are projected to
range from ten to twenty years. Estimates for future commitments for long-term
service agreements are based on the stated payment terms in the contracts at the
time of execution. These payments are subject to an annual inflationary
adjustment.

      As a result of the turbine cancellations as part of Mirant's
restructuring, the long-term service agreements associated with the canceled
turbines will also be canceled. However, as stated above, canceling the
long-term service agreements will result in little or no termination costs to
the Company. Mirant Americas Generation does not intend to cancel long-term
service agreements associated with turbines that have already shipped.
Consequently, our restructuring should not have an impact on the long-term
service agreement commitments disclosed above.

FUEL COMMITMENTS

      In April 2002, Mirant Mid-Atlantic entered into a long-term fuel purchase
agreement. The fuel supplier will convert coal feedstock received at the
Company's Morgantown facility into a synthetic fuel. Under the terms of the
agreement, Mirant Mid-Atlantic is required to purchase a minimum of 2.4 million
tons of fuel per annum through December 2007. Minimum purchase commitments
became effective upon the commencement of the synthetic fuel plant operation at
the Morgantown facility in July 2002. The purchase price of the fuel will vary
with the delivered cost of the coal feedstock. Based on current coal prices, it
is expected that the annual purchase commitment will be approximately $100
million. At July 1, 2002, total estimated minimum commitments under the
agreement were $546 million. In July 2002, Mirant Mid-Atlantic sold its coal
inventory at the Morgantown facility to the synthetic fuel supplier for
approximately $10 million.

      Effective July 1, 2002, the Company and Mirant Americas Energy Marketing
amended the services and risk management agreement with regard to the provision
of the residual fuel oil requirements at the Company's Bowline, Lovett, Canal,
Chalk Point and certain other facilities. The revised agreement is an
all-requirements contract with pricing based on the daily Platts New York Harbor
mean index for residual fuel oil plus a delivery charge. Pursuant to the revised
agreement, Mirant Americas Energy Marketing will also manage the fuel oil
storage associated with these facilities. The Company believes that its fuel
price risk can be more effectively managed because the forward fuel oil hedge
instruments frequently purchased by the Company typically settle against the New
York Harbor index. The new arrangement is expected to lower the working capital
requirements for the Company, as Mirant Americas Energy Marketing will now own
the majority of fuel oil inventory. Under the new arrangement, the generating
facilities will be obligated to purchase residual fuel oil at the index price on
the day it is utilized at the facility. Previously, these facilities ordered
residual fuel oil at market prices in advance of its use. Fuel will be purchased
by the facilities as burned. In July 2002, the Company sold fuel oil inventory
at its book value of approximately $15 million to Mirant Americas Energy
Marketing.

                                       47

<PAGE>

      The Company has also entered into a fuel supply agreement with an
independent third party to provide a minimum of 90% of the coal burned at one of
the New York facilities through 2007. The Company has entered into a related
transportation agreement for that coal through March of 2004.

      Mirant Americas Generation has total minimum commitments under the fuel
purchase and transportation agreements noted above of $116 million at March 31,
2002. These agreements will continue to be in effect through 2007.

OPERATING LEASES

      On December 19, 2000, in conjunction with the purchase of the PEPCO
assets, the Company, through Mirant Mid-Atlantic, entered into multiple
sale-leaseback transactions totaling $1.5 billion relating to the Dickerson and
the Morgantown baseload units and associated property. The terms of each lease
vary between 28.5 and 33.75 years. Mirant Mid-Atlantic is accounting for these
leases as operating leases. The Company's expenses associated with the
commitments under the Dickerson and Morgantown operating leases totaled
approximately $24 million for both the three months ended March 31, 2002 and
2001. As of March 31, 2002, the total notional minimum lease payments for the
remaining life of the leases was approximately $2.9 billion. The lease
agreements contain covenants that restrict Mirant Mid-Atlantic's ability to,
among other things, make dividend distributions, incur indebtedness, or sublease
the facilities.

      Mirant Mid-Atlantic is not permitted to make any dividend distributions
unless, at the time of such distribution, each of the following conditions is
satisfied:

      -     Mirant Mid-Atlantic's fixed charge coverage ratio for the most
            recently ended four full fiscal quarters equals at least:

            (1) 1.7 to 1.0; or

            (2) 1.6 to 1.0, 1.45 to 1.0, 1.3 to 1.0 or 1.2 to 1.0 if, as of the
      last day of the most recently completed fiscal quarter, Mirant
      Mid-Atlantic and its designated subsidiaries have entered into power sales
      agreements (meeting certain criteria, including investment grade rating
      criteria) covering, in the aggregate, at least 25%, 50%, 75% or 100%,
      respectively of the projected total consolidated operating revenue for the
      consecutive period of eight full fiscal quarters following that date; and

      -     the projected fixed charge coverage ratio (determined on a pro forma
            basis after giving effect to any such dividend) for each of the two
            following periods of four fiscal quarters commencing with the fiscal
            quarter in which the restricted payment is proposed to be made
            equals at least:

            (1) 1.7 to 1.0; or

            (2) 1.6 to 1.0, 1.45 to 1.0, 1.3 to 1.0 or 1.2 to 1.0, if, as of the
      last day of the most recently completed fiscal quarter, Mirant
      Mid-Atlantic and its designated subsidiaries have entered into power sales
      agreements (meeting certain criteria, including investment grade rating
      criteria) covering, in the aggregate, at least 25%, 50%, 75% or 100%,
      respectively, of the projected total consolidated operating revenue for
      the consecutive period of eight full fiscal quarters following that date;
      and

      -     no significant lease default or event of default has occurred and is
            continuing.

       In accordance with the terms of the lease documentation, Mirant
Mid-Atlantic calculates the projected fixed charge coverage ratios based on
projections prepared in good faith based upon assumptions consistent in all
material respects with the relevant contracts and agreements, historical
operations, and Mirant Mid-Atlantic's good faith projections of future revenues
and projections of operating and maintenance expenses in light of then existing
or reasonably expected regulatory and market environments in the markets in
which the

                                       48

<PAGE>

leased facilities or other assets owned by it will be operated. Mirant
Mid-Atlantic also assumes that there will be no early redemption or prepayment
of Indebtedness, and that any Indebtedness which matures within such projected
periods will be refinanced on reasonable terms.

      The reclassification of the capital contribution received pursuant to the
ECSA will reduce Mirant Mid-Atlantic's fixed charge coverage ratios for purposes
of determining its ability to make dividend payments.

      These leases are part of a leveraged lease transaction. Three series of
certificates were issued and sold pursuant to a Rule 144A offering by Mirant
Mid-Atlantic. These certificates are interests in pass through trusts that hold
the lessor notes issued by the owner lessors. Mirant Mid-Atlantic pays rent to
an indenture trustee, who in turn makes payments of principal and interest to
the pass through trusts and any remaining balance to the owner lessors for the
benefit of the owner participants. According to the registration rights
agreement dated December 18, 2000, Mirant Mid-Atlantic must maintain its status
as a reporting company under the Exchange Act. Mirant Mid-Atlantic was also
obliged to consummate an exchange offer pursuant to an effective registration
statement under the Securities Act. On July 6, 2001, Mirant Mid-Atlantic's
registration statement became effective and the exchange offer was completed in
August 2001.

      Mirant Mid-Atlantic has an option to renew the lease for a period that
would cover up to 75% of the economic useful life of the facility, as measured
near the end of the lease term. However, the extended term of the lease will
always be less than 75% of the revised economic useful life of the facility.

      Upon an event of default by Mirant Mid-Atlantic, the lessors are entitled
to a termination value payment as defined in the agreements which, in general,
decreases over time. At March 31, 2002, the termination value was approximately
$1.5 billion. Upon expiration of the original lease term, the termination value
will be $300 million.

      The Company has additional commitments under operating leases with various
terms and expiration dates. Expenses associated with these additional operating
leases totaled approximately $300 thousand for each of the three month periods
ended March 31, 2002 and 2001. The total notional minimum lease payments for the
remaining life of these leases as of March 31, 2002 was approximately $5
million.


LITIGATION AND OTHER CONTINGENCIES

     Reference is made to Note G to the financial statements filed as part of
this quarterly report on Form 10-Q/A relating to the following litigation
matters and other contingencies:

Litigation:

-     California Attorney General Litigation
-     Defaults by SCE and Pacific Gas and Electric and the Bankruptcies of
      Pacific Gas and Electric and the PX
-     Reliability-Must-Run Agreements
-     Western Power Markets Price Mitigation and Refund Proceedings
-     California Rate Payer Litigation
-     Enron Bankruptcy Proceedings
-     State Line
-     PEPCO Asbestos Litigation
-     Environmental Information Requests
-     Western Power Market Investigations
-     DWR Power Purchases
-     New York Property Tax


                                       49

<PAGE>

Other Contingencies:

      None

     Additionally, for recent events occurring after March 31, 2002 reference is
made to Note G to the financial statements filed as part of this quarterly
report on Form 10-Q/A.

     In addition to the proceedings described above, we experience routine
litigation from time to time in the normal course of our business, which is not
expected to have a material adverse effect on our consolidated financial
condition, cash flows or results of operations.

CRITICAL ACCOUNTING ESTIMATES

     The accounting policies described in the Company's Form 10-K and below are
viewed by management as "critical" because their correct application requires
the use of material estimates and because they have a material impact on its
financial results and position. To aid in the Company's application of these
critical accounting policies, management invests substantial human and financial
capital in the development and maintenance of models and other forecasting tools
and operates a robust environment of internal controls surrounding these areas
in particular. These tools, in part, facilitate the measurement of less liquid
financial instruments accounted for at fair value and ensure that such
measurements are applied consistently across periods.

     Additionally, in 2002, the Company adopted SFAS Nos. 141, 142 and 144.
These new pronouncements, among other things, change the accounting model for
impairing the balance sheet value of assets held for use and held for sale, as
well as the book value of goodwill and other intangible assets. The overall
conditions affecting the Company and its sector, may materially impact the
carrying values of its property plant and equipment, its construction work in
progress, its investment in suspended construction, its goodwill and its other
intangible assets. Currently, the Company does not believe that the suspended
"Construction work in progress" is subject to an impairment loss under SFAS No.
144.

     As discussed above, the Company adopted SFAS No. 142 effective January 1,
2002. SFAS No. 142 requires a two-step impairment analysis process. The first
step of the test compares the estimated fair value of a reporting unit to its
net book value to determine if there is potential goodwill impairment. If no
impairment is indicated in step one the test is complete. If the net book value
of the reporting unit exceeds the fair value in step one, the second step of the
impairment test is required. Step two measures the amount of the impairment
charge by comparing the estimated fair value of the reporting unit goodwill to
its book value. The excess of the book value of goodwill to its estimated fair
value is recognized as an impairment charge. Subsequent to March 31, 2002, there
may be an impairment of goodwill at Mirant Americas Generation as a result of
the overall conditions impacting the energy sector. Mirant Americas Generation
cannot currently estimate the potential goodwill impairment charge, if any,
until completion of its assessment of the book values of long-lived assets,
estimated future cash flows associated with such assets as well as the
completion of the 2003 planning process. The Company expects to complete its
analysis prior to reporting its 2002 results. As of March 31, 2002, Mirant
Americas Generation's goodwill was $1.6 billion.

AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES

      The Board of Managers of Mirant Americas Generation is responsible for
approving all audit and audit related services performed by its independent
auditor, KPMG, for Mirant Americas Generation and its subsidiaries. In addition,
the Board has delegated to its Chair the ability to pre-approve other non-audit
services by KPMG.

                                       50

<PAGE>



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

     Market risk is the potential loss that we may incur as a result of changes
in the fair value of a particular instrument or commodity. All financial and
commodities-related instruments, including derivatives, are subject to market
risk. We are exposed to market risks, including changes in commodity prices and
interest rates. Through various hedging mechanisms, including contractual
arrangements with Mirant Americas Energy Marketing, we attempt to mitigate some
of the impact of changes in commodity prices and interest rates on our results
of operations.

      We engage in commodity-related marketing and price risk management
activities, through Mirant Americas Energy Marketing, in order to hedge market
risk and exposure to electricity generated and to natural gas, coal and other
fuels utilized by our generation assets. These financial instruments primarily
include fixed rate power sale agreements, forwards, futures and swaps.
Subsequent to the adoption of SFAS No. 133 on January 1, 2001, these derivative
instruments are recorded in the consolidated balance sheet as either assets or
liabilities measured at fair value, and changes in the fair value are recognized
currently in earnings, unless specific hedge accounting criteria are met. If the
criteria for hedge accounting are met, changes in the fair value are recognized
in other comprehensive income until such time as the underlying physical
transaction is settled and the gains and losses related to these derivatives are
recognized in earnings.

      We maintain clear policies for undertaking risk-mitigating actions that
may become necessary when measured risks temporarily exceed limits as a result
of market conditions. To the extent an open position exists, fluctuating
commodity prices can impact financial results and financial position, either
favorably or unfavorably. As a result, we cannot predict with precision the
impact that our risk management decisions may have on our businesses, operating
results or financial position. Mirant Americas Energy Marketing manages market
price risk for us through formal oversight groups, which include senior
management, mechanisms that independently verify transactions and measure risk
and the use of a Value-at-Risk ("VaR") methodology on a daily basis. We bear all
gains and losses of the market price risk mitigation activities conducted by
Mirant Americas Energy Marketing on our behalf.

     For those commodity contracts for which hedge accounting criteria are met,
any changes in the fair value of these contracts reflect essentially offsets to
changes in the value of the underlying physical asset positions. Therefore, we
have minimal exposure to market risk on the portion of our portfolio of
commodity contracts in which we are effectively hedging the exposure of our
physical assets to changes in market prices.

     For those derivative instruments in which hedge criteria are not met, we
employ a systematic approach to the evaluation and management of risk associated
with these commodity contracts, including VaR. VaR is defined as the maximum
loss that is not expected to be exceeded with a given degree of confidence and
over a specified holding period. We use a 95% confidence interval and holding
periods that vary by commodity and tenor to evaluate our VaR exposure. Based on
a 95% confidence interval and employing a one-day holding period for all
positions, our portfolio of positions had a VaR of $4 million at March 31, 2002.
During the three months ended March 31, 2002, the actual daily change in fair
value exceeded the corresponding daily VaR calculation three times, which falls
well within our 95% confidence interval. We also utilize additional risk control
mechanisms such as commodity position limits and stress testing of the total
portfolio and its components.

CREDIT RISK

      For all derivative financial instruments, we are exposed to losses in the
event of nonperformance by counterparties to these derivative financial
instruments. Through Mirant Americas Energy Marketing, we have established
controls to determine and monitor the creditworthiness of counterparties to
mitigate our exposure to counterparty credit risk. Concentrations of credit risk
from financial instruments, including contractual

                                       51

<PAGE>

commitments, exist when groups of counterparties have similar business
characteristics or are engaged in like activities that would cause their ability
to meet their contractual commitments to be adversely affected, in a similar
manner, by changes in the economy or other market conditions. Mirant Americas
Energy Marketing monitors credit risk for us on both an individual basis and a
group counterparty basis. Our overall exposure to credit risk may be impacted,
either positively or negatively, because our counterparties may be similarly
affected by changes in economic, regulatory or other conditions.

      Under Mirant's cash management program, the available cash of certain
subsidiaries was loaned to Mirant on a daily basis and kept in a Mirant account.
Participation in Mirant's cash management program exposed such subsidiaries to
Mirant credit risk as unsecured creditors in the full amount of cash held by
Mirant pursuant to the cash management loan agreements. Repayment by Mirant of
any advances under the cash management program was subordinated to the repayment
of the senior obligations of Mirant. Effective December 19, 2002, the Company
discontinued its participation in Mirant's cash management program. Furthermore,
Mirant Americas Energy Marketing makes substantially all of our sales on our
behalf and collects all cash receipts from sales made on our behalf. As such, we
are also subject to the risk of collection from Mirant Americas Energy Marketing
of substantially all of our outstanding accounts receivable at any point in
time.


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<PAGE>



ITEM 4.   CONTROLS AND PROCEDURES

      Mirant's independent auditors assessed Mirant's internal controls of its
North American energy marketing and risk management operations as part of the
interim review for the second quarter. Mirant has received detailed process
improvement recommendations during October 2002 from its independent auditors
which address internal control deficiencies in existence at June 30, 2002, the
most significant of which relate to Mirant's North American energy marketing and
risk management operation systems and processes.

     Mirant's independent auditors have advised Mirant's Audit Committee that
these internal control deficiencies constitute reportable conditions and,
collectively, a material weakness as defined in Statement on Auditing Standards
No. 60 ("SAS No. 60"). Mirant has assigned the highest priority to the
short-term and long-term correction of these internal control deficiencies.
Mirant has discussed its proposed actions with its Audit Committee and its
independent auditors. There has been no indication that control deficiencies
present in Mirant's North American energy marketing and risk management
operations directly impact the Company or its financial statements; however,
Mirant Americas Energy Marketing personnel prepare certain entries to the
Company's accounts. Mirant has implemented corrective actions to mitigate the
risk that these deficiencies could lead to material misstatements in Mirant's or
the Company's current financial statements. In addition, the Company has
performed additional procedures to enable the completion of the independent
auditors' review of the Company's interim financial statements, despite the
presence of control weaknesses at Mirant noted above.

      No significant changes have been made in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation. The Company continues to evaluate the
effectiveness of its overall controls and procedures and will take such further
actions as dictated by such continuing reviews.

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<PAGE>


PART II     OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

      The discussions concerning the following legal matters are hereby
incorporated by reference from Note G in the consolidated financial statements
that are a part of this quarterly report on Form 10-Q/A:

-     Western Power Markets Mitigation and Refund Proceedings
-     California Attorney General Litigation
-     Defaults by SCE and Pacific Gas and Electric, and the Bankruptcies of
      Pacific Gas and Electric and the PX
-     Reliability-Must-Run Agreements
-     California Rate Payer Litigation
-     Environmental Information Requests

     With respect to each of the preceding matters, we cannot currently
determine the outcome of the proceedings or the amounts of any potential losses
from such proceedings.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits.
      None.

(b)   Reports on Form 8-K.

       During the quarter ended March 31, 2002, we filed a Current Report on
Form 8-K dated March 11, 2002. Items 5 and 7 were reported and financial
statements were filed.


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<PAGE>



                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.

    MIRANT AMERICAS GENERATION, LLC




    By  /s/ Stephen G. Gillis
        ---------------------------
          Stephen G. Gillis
         Vice President and Controller
         (Principal Accounting Officer)

                                                         Date: December 20, 2002

<PAGE>

================================================================================



                                 CERTIFICATIONS

I, Richard Pershing, certify that:

1.    I have reviewed this quarterly report on Form 10-Q/A of Mirant Americas
      Generation, LLC;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report; and

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report.




Date: December 20, 2002                 /s/ Richard J. Pershing
                                        -----------------------------
                                        Richard J. Pershing
                                        President, Chief Executive Officer
                                        (Principal Executive Officer)


--------------------------------------------------------------------------------


I, William Holden, certify that:

1.    I have reviewed this quarterly report on Form 10-Q/A of Mirant Americas
      Generation, LLC;

2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report; and

3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report.


Date: December 20, 2002                 /s/ J. William Holden
                                        --------------------------
                                        J. William Holden
                                        Senior Vice President, Finance
                                        And Accounting
                                        (Principal Financial Officer)