<PAGE>

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

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

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

                                  FORM 10-Q/A
                                AMENDMENT NO. 2

<Table>
<C>        <S>
(Mark One)
   [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
</Table>

                       COMMISSION FILE NUMBER: 333-63240

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

                        MIRANT AMERICAS GENERATION, LLC
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      51-0390520
       (State or other jurisdiction of                         (IRS Employer
        incorporation or organization)                     Identification Number)

    1155 PERIMETER CENTER WEST, SUITE 100,                         30338
               ATLANTA, GEORGIA                                  (Zip code)
   (Address of principal executive offices)

                (678) 579-5000                                 WWW.MIRANT.COM
(Registrant's telephone number, including area                   (Web Page)
                    code)
</Table>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE

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

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes [ ]     No [X]

     All of our outstanding membership interests are held by our parent, Mirant
Americas, Inc., so we have no classes of membership interests held by
non-affiliates.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                         PAGE
                                                                         ----
  <S>     <C>                                                            <C>
  DEFINITIONS.........................................................     3
  CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...........     4

                    PART I -- FINANCIAL INFORMATION
  Item 1  Interim Financial Statements
          Condensed Consolidated Statements of Income.................     6
          Condensed Consolidated Balance Sheets.......................     7
          Condensed Consolidated Statements of Member's Equity........     8
          Condensed Consolidated Statements of Cash Flows.............     9
          Notes to the Unaudited Condensed Consolidated Financial
          Statements..................................................    11
  Item 2  Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................    56
  Item 3  Quantitative and Qualitative Disclosures about Market
          Risk........................................................    72
  Item 4  Controls and Procedures.....................................    74

                      PART II -- OTHER INFORMATION
  Item 1  Legal Proceedings...........................................    76
  Item 6  Exhibits and Reports on Form 8-K............................    76
          Signatures..................................................    77
</Table>

                                        1
<PAGE>

     This Quarterly Report on Form 10-Q/A is being filed as Amendment No. 2 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, to correct certain errors. The errors relate to the accounting for
derivative financial instruments designated as hedging instruments, which did
not qualify for hedge accounting treatment, an adjustment to the valuation of
assets acquired and liabilities assumed by Mirant Americas Energy Marketing,
L.P. ("Mirant Americas Energy Marketing") in applying purchase accounting to the
acquisition of certain assets from Potomac Electric Power Company ("PEPCO"),
adjustments to record changes in fair value of certain commodity financial
instruments in the proper period and adjustments to various accruals.

     The Company has restated its previously reported financial statements as of
March 31, 2002 and for the three months ended March 31, 2002 and 2001 by:

     - increasing its originally reported current assets by $27 million,
       increasing noncurrent assets by $124 million, increasing current
       liabilities by $52 million, increasing noncurrent liabilities by $29
       million and increasing member's equity by $70 million as of March 31,
       2002;

     - changing its previously reported results of operations for the three
       months ended March 31, 2002 from previously reported net income of $77
       million to net income of $40 million, changing its previously reported
       results of operations for the three months ended March 31, 2001 from
       previously reported net income of $77 million to a net loss of $66
       million;

     - increasing cash provided by operating activities by $3 million,
       increasing cash used in investing activities by $9 million and increasing
       cash provided from financing activities by $7 million for the three
       months ended March 31, 2002; and

     - increasing cash provided by operating activities by $47 million,
       increasing cash used in investing activities by $38 million and
       decreasing cash used in financing activities by $9 million for the three
       months ended March 31, 2001.

     The nature of the errors and the adjustments that the Company has made to
its financial statements for the three months ended March 31, 2002 and 2001 is
set forth in Note C of Notes to the Unaudited Condensed Consolidated Financial
Statements in Item 1 of this report. Additional changes also have been made to
reflect the corresponding changes that result from the above restatement
adjustments and to update the document to the time of filing. Please note that
disclosures of events subsequent to the original filing of our Form 10-Q for
March 31, 2002 on May 13, 2002, are provided for the benefit of the users of
this amended Form 10-Q and are not a required element of this amendment.

                                        2
<PAGE>

                                  DEFINITIONS

<Table>
<Caption>
TERM                                                               MEANING
----                                                               -------
<S>                                             <C>
Mirant.......................................   Mirant Corporation and its subsidiaries
Mirant Americas..............................   Mirant Americas, Inc.
Mirant Americas Development..................   Mirant Americas Development, Inc.
Mirant Americas Energy Marketing.............   Mirant Americas Energy Marketing, L.P.
Mirant Americas Generation or the Company....   Mirant Americas Generation, LLC and its
                                                subsidiaries
MAGL.........................................   Mirant Americas Generation, LLC (excluding
                                                subsidiaries)
Mirant California............................   Mirant California, LLC
Mirant Chalk Point...........................   Mirant Chalk Point, LLC
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
Mirant Services..............................   Mirant Services, LLC
Mirant Texas.................................   Mirant Texas Investments, Inc. and Mirant
                                                Texas Management, Inc., collectively
Mirant Wisconsin.............................   Mirant Wisconsin Investments, Inc.
Neenah.......................................   Mirant Americas Generation's Neenah
                                                generating facility
</Table>

                                        3
<PAGE>

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     The information presented in this Form 10-Q/A includes forward-looking
statements in addition to historical information. These statements involve known
and unknown risks and relate to future events, our future financial performance
or our projected business results. In some cases, you can identify forward-
looking statements 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:

GENERAL FACTORS

     - legislative and regulatory initiatives regarding deregulation, regulation
       or restructuring of the electric utility industry; changes in state,
       federal and other regulations (including rate and other regulations);
       changes in, or application of, environmental and other laws and
       regulations to which we and our subsidiaries and affiliates are subject;

     - the failure of our assets to perform as expected;

     - our pursuit of potential business strategies, including the disposition
       of assets, termination of construction of certain projects or internal
       restructuring;

     - changes in market conditions, including developments in energy and
       commodity supply, demand, volume and pricing or the extent and timing of
       the entry of additional competition in the markets of our subsidiaries
       and affiliates;

     - weather and other natural phenomena;

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

     - deterioration in the financial condition of our counterparties and the
       resulting failure to pay amounts owed to us or perform obligations or
       services due to us; and

     - the disposition of the pending litigation described in this Form 10-Q as
       well as the Company's Form 10-K filed on April 30, 2003;

BANKRUPTCY-RELATED FACTORS

     - the actions and decisions of creditors of the Company and Mirant and of
       other third parties with interests in the voluntary petitions for
       reorganization filed on July 14, 2003 by Mirant Corporation and
       substantially all of its wholly-owned U.S. subsidiaries (including Mirant
       Americas Generation) under Chapter 11 of the Bankruptcy Code;

     - the ability of the Company and Mirant to reach agreements with lenders,
       creditors and other stakeholders regarding a comprehensive restructuring
       and to continue as a going concern;

     - the effects of the Chapter 11 filings on our liquidity and results of
       operations;

     - the instructions, orders and decisions of the bankruptcy court and other
       effects of legal and administrative proceedings, settlements,
       investigations and claims;

     - the ability of the Company and Mirant to operate pursuant to the
       committed debtor-in-possession financing;

     - the ability of the Company and Mirant to obtain and maintain normal terms
       with vendors and service providers and to maintain contracts that are
       critical to our or Mirant's operations; and

     - the direct or indirect effects on our business of a lowering of our
       credit rating or that of Mirant or Mirant Americas Energy Marketing (or
       actions taken by us or our affiliates in response to changing

                                        4
<PAGE>

       credit ratings criteria), including, increased collateral requirements to
       execute our business plan, demands for increased collateral by our
       current counterparties, curtailment of certain business operations in
       order to reduce the amount of required collateral, refusal by our current
       or potential counterparties or customers to enter into transactions with
       us and our inability to obtain credit or capital in amounts needed or on
       terms favorable to us.

     The ultimate results of the forward looking statements and the terms of any
reorganization plan ultimately confirmed, can affect the value of our various
pre-petition liabilities, common stock and/or other securities. No assurance can
be given as to what values, if any, will be ascribed in the bankruptcy
proceedings to each of these constituencies. A plan of reorganization could
result in holders of the liabilities and/or securities of the Company and Mirant
receiving no value for their interests. Because of such possibilities, the value
of these liabilities and/or securities is highly speculative. Accordingly, we
urge that caution be exercised with respect to existing and future investments
in any of these liabilities and/or securities.

     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.

                                        5
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<Table>
<Caption>
                                                               FOR THE THREE MONTHS
                                                                  ENDED MARCH 31,
                                                              -----------------------
                                                                 2002         2001
                                                              ----------   ----------
                                                                    (RESTATED)
                                                                   (IN MILLIONS)
<S>                                                           <C>          <C>
OPERATING REVENUES:
Affiliate...................................................     $487        $1,096
Non-affiliates..............................................       75            38
                                                                 ----        ------
     Total operating revenues...............................      562         1,134
                                                                 ----        ------
OPERATING EXPENSES:
Cost of fuel, electricity and other
  products -- affiliates....................................      281           937
Cost of fuel, electricity and other
  products -- non-affiliates................................        2            10
Depreciation and amortization...............................       28            39
Generation facilities rent..................................       24            24
Maintenance -- affiliates...................................       11            13
Maintenance -- non-affiliates...............................       23            19
Selling, general and administrative -- affiliates...........       14            14
Selling, general and administrative -- non-affiliates.......       10           108
Other -- affiliates, including restructuring charges of $1
  in the three months ended March 31, 2002..................       19            20
Other -- non-affiliates, including restructuring charges of
  $3 in the three months ended March 31, 2002...............       36            29
                                                                 ----        ------
     Total operating expenses...............................      448         1,213
                                                                 ----        ------
OPERATING INCOME (LOSS).....................................      114           (79)
                                                                 ----        ------
OTHER INCOME (EXPENSE), NET:
Interest income -- affiliates...............................       14             7
Interest income -- non-affiliates...........................       --             4
Interest expense -- affiliates..............................       (4)           --
Interest expense -- non-affiliates..........................      (53)          (46)
Other, net..................................................        2             1
                                                                 ----        ------
     Total other expense, net...............................      (41)          (34)
                                                                 ----        ------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
  TAXES.....................................................       73          (113)
PROVISION FOR (BENEFIT FROM) INCOME TAXES...................       35           (41)
                                                                 ----        ------
INCOME (LOSS) FROM CONTINUING OPERATIONS....................       38           (72)
                                                                 ----        ------
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX PROVISION OF
  $3 AND $4 FOR 2002 AND 2001, RESPECTIVELY.................        2             6
                                                                 ----        ------
NET INCOME (LOSS)...........................................     $ 40        $  (66)
                                                                 ====        ======
</Table>

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

                                        6
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

               CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<Table>
<Caption>
                                                              MARCH 31,    DECEMBER 31,
                                                                 2002          2001
                                                              ----------   ------------
                                                                     (RESTATED)
                                                                    (IN MILLIONS)
<S>                                                           <C>          <C>
                                        ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................    $    3        $   15
Receivables:
  Customer accounts.........................................        14            10
  Affiliates, less allowance for uncollectibles of $123 for
     2002 and 2001..........................................       232           223
Notes receivable from affiliates............................       627           253
Derivative financial instruments............................       314           348
Prepaid rent and other prepayments..........................       148           163
Deferred tax assets.........................................        94           119
Assets held for sale........................................       190           194
Other.......................................................       229           333
                                                                ------        ------
     Total current assets...................................     1,851         1,658
                                                                ------        ------
PROPERTY, PLANT AND EQUIPMENT, NET..........................     2,996         2,860
                                                                ------        ------
OTHER NONCURRENT ASSETS:
Goodwill, net...............................................     1,645         1,482
Other intangible assets, net................................       472           697
Notes receivable from affiliates............................       223           223
Derivative financial instruments............................       160            71
Prepaid rent................................................        11            35
Other, less allowance for uncollectibles of $53 and $49 for
  2002 and 2001, respectively...............................        36            39
                                                                ------        ------
     Total other noncurrent assets..........................     2,547         2,547
                                                                ------        ------
     TOTAL ASSETS...........................................    $7,394        $7,065
                                                                ======        ======
                           LIABILITIES AND MEMBER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable and accrued liabilities....................    $  155        $  129
Payable to affiliates.......................................        81           112
Notes payable to affiliates.................................       220           333
Derivative financial instruments............................       284           314
Revenues subject to refund..................................       270           242
Liabilities related to assets held for sale.................        25            25
Accrued income taxes........................................        13             8
Accrued interest............................................        93            44
                                                                ------        ------
     Total current liabilities..............................     1,141         1,207
                                                                ------        ------
NONCURRENT LIABILITIES:
Notes payable and long-term debt............................     2,567         2,567
Derivative financial instruments............................       116            26
Other noncurrent liabilities................................       123           246
                                                                ------        ------
     Total noncurrent liabilities...........................     2,806         2,839
                                                                ------        ------
COMMITMENTS AND CONTINGENCIES
MEMBER'S EQUITY:
Member's interest...........................................     3,555         3,008
Capital contribution receivable from affiliate pursuant to
  ECSA......................................................      (124)          (91)
Retained earnings...........................................        83           177
Accumulated other comprehensive loss........................       (67)          (75)
                                                                ------        ------
     Total member's equity..................................     3,447         3,019
                                                                ------        ------
     TOTAL LIABILITIES AND MEMBER'S EQUITY..................    $7,394        $7,065
                                                                ======        ======
</Table>

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

                                        7
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

        CONDENSED CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (UNAUDITED)

<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 (AS
  RESTATED).............................   $3,008        $ (91)        $ 177         $(75)
Net income (as restated)................       --           --            40           --             $40
Other comprehensive income (as
  restated).............................       --           --            --            8               8
                                                                                                      ---
Comprehensive income (as restated)......                                                              $48
                                                                                                      ===
Dividends...............................       --           --          (134)          --
Capital contributions -- cash (as
  restated).............................       27           --            --           --
Capital contributions -- noncash (as
  restated).............................      504           --            --           --
Capital contributions receivable
  pursuant to ECSA......................       53          (53)           --           --
Capital contribution received pursuant
  to ECSA...............................       --           20            --           --
Push down of tax effects of the
  implementation of SFAS No. 142........      (37)          --            --           --
                                           ------        -----         -----         ----
BALANCE, MARCH 31, 2002 (AS RESTATED)...   $3,555        $(124)        $  83         $(67)
                                           ======        =====         =====         ====
</Table>

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

                                        8
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<Table>
<Caption>
                                                               FOR THE THREE MONTHS
                                                                  ENDED MARCH 31,
                                                              -----------------------
                                                                 2002         2001
                                                              ----------   ----------
                                                                    (RESTATED)
                                                                   (IN MILLIONS)
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...........................................    $  40        $ (66)
                                                                -----        -----
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
  Depreciation and amortization.............................       31           43
  Amortization of loss on interest rate swap................        2           --
  Unrealized losses on derivative financial instruments,
     net....................................................       18          223
  Deferred income taxes.....................................       (4)        (175)
  Restructuring charges, net of amounts paid................        3           --
  Other, net................................................       --            1
  Changes in certain assets and liabilities:
     Accounts receivable, affiliates........................       11          (46)
     Accounts receivable, non-affiliates....................        3         (187)
     Other current assets...................................       66           17
     Other noncurrent assets................................       24            3
     Accounts payable and accrued liabilities...............        8           82
     Payables to affiliates.................................      (87)         150
     Accrued income taxes...................................       13          110
     Other current liabilities..............................       49           (5)
     Other noncurrent liabilities...........................       (1)          11
                                                                -----        -----
       Total adjustments....................................      136          227
                                                                -----        -----
       Net cash provided by operating activities............      176          161
                                                                -----        -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................      (81)        (100)
Advances to affiliates......................................       (1)        (114)
Repayments of advances to affiliates........................        1          171
Increase in notes receivable from affiliates................     (246)        (109)
Repayments of notes receivable from affiliates..............      128           --
Insurance proceeds received.................................        2            9
                                                                -----        -----
     Net cash used in investing activities..................     (197)        (143)
                                                                -----        -----
</Table>

                                        9
<PAGE>

<Table>
<Caption>
                                                               FOR THE THREE MONTHS
                                                                  ENDED MARCH 31,
                                                              -----------------------
                                                                 2002         2001
                                                              ----------   ----------
                                                                    (RESTATED)
                                                                   (IN MILLIONS)
<S>                                                           <C>          <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt..............................      200           --
Repayment of debt...........................................     (200)          --
Advances from affiliates....................................        5           21
Repayments of advances from affiliates......................       (5)         (12)
Proceeds from issuance of notes payable to affiliate........      128           --
Repayment of notes payable to affiliate.....................      (32)          --
Capital contributions.......................................       20            5
Payment of dividends........................................     (134)         (21)
Capital contributions received from affiliate pursuant to
  ECSA......................................................       20           --
Cash received from contribution of Mirant New England,
  LLC.......................................................        7           --
                                                                -----        -----
     Net cash provided by (used in) financing activities....        9           (7)
                                                                -----        -----
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........      (12)          11
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..............       15           68
                                                                -----        -----
CASH AND CASH EQUIVALENTS, END OF PERIOD....................    $   3        $  79
                                                                =====        =====
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amounts capitalized..........    $   5        $  41
                                                                =====        =====
Cash paid for income taxes..................................    $  --        $  27
                                                                =====        =====
NONCASH FINANCING ACTIVITIES:
Contribution of notes payable to Mirant Americas to
  equity....................................................    $ 217        $  --
                                                                =====        =====
Capital contribution of Mirant New England, LLC.............    $ 287        $  --
                                                                =====        =====
Capital contributions receivable from affiliate pursuant to
  ECSA......................................................    $  53        $  --
                                                                =====        =====
</Table>

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

                                        10
<PAGE>

                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

       NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 2002 AND 2001

A.  BACKGROUND AND DESCRIPTION OF BUSINESS

  PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

     On July 14, 2003 ("Petition Date"), Mirant Corporation and substantially
all of its wholly-owned subsidiaries in the United States (collectively, the
"Mirant Debtors"), including Mirant Americas Generation, LLC, (the "Company" or
"Mirant Americas Generation") and all of its subsidiaries filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S.
Bankruptcy Court for the Northern District of Texas, Fort Worth Division
("Bankruptcy Court"). The Chapter 11 cases are being jointly administered for
procedural purposes only under case caption In re Mirant Corporation et al.,
Case No. 03-46590 (DML). Additionally, certain of Mirant's Canadian subsidiaries
have filed an application for creditor protection under the Companies Creditors'
Arrangement Act in Canada, which, like Chapter 11, allows for reorganization
under the protection of the court system. Mirant Canada Energy Marketing, Ltd.,
Mirant Canada Marketing Investments, Inc., and Mirant Canada Energy Trading
Partnership are included in the application. Mirant's operations in the
Philippines and the Caribbean were not included in the Chapter 11 filings.

     The Mirant Debtors are continuing to operate their businesses as
debtors-in-possession under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code, the Federal
Rules of Bankruptcy Procedure, applicable court orders, as well as other
applicable laws and rules. In general, a debtor-in-possession is authorized
under the Bankruptcy Code to continue to operate as an ongoing business, but may
not engage in transactions outside the ordinary course of business without the
prior approval of the Bankruptcy Court.

     Subject to certain exceptions in the Bankruptcy Code, the Chapter 11
filings automatically stayed the initiation or continuation of most actions
against the Mirant Debtors, including most actions to collect pre-petition
indebtedness or to exercise control over the property of the bankruptcy estates.
As a result, absent an order of the Bankruptcy Court, creditors are precluded
from collecting pre-petition debts and substantially all pre-petition
liabilities are subject to compromise under the plan of reorganization.

     Under the Bankruptcy Code, the Company and Mirant also have the right to
assume, assume and assign, or reject certain executory contracts and unexpired
leases, subject to the approval of the Bankruptcy Court and certain other
conditions. Generally, the assumption of an executory contract or unexpired
lease requires a debtor to cure certain existing defaults under the contract,
including the payment of accrued but unpaid pre-petition liabilities. Rejection
of an executory contract or unexpired lease is typically treated as a breach of
the contract or lease, as of the moment immediately preceding the Chapter 11
filing. Subject to certain exceptions, this rejection relieves the debtor of
performing its future obligations under that contract but entitles the other
party to the contract to assert a pre-petition general unsecured claim for
damages. Parties to executory contracts or unexpired leases rejected by the
debtor may file proofs of claim against the estate for damages. Due to the
uncertain nature of many of the potential claims for damages, Mirant is unable
to project the magnitude of these claims at this time.

     On the Petition Date, the Bankruptcy Court granted Mirant permission to
implement a Counterparty Assurance Program. The Counterparty Assurance Program
approved by the Bankruptcy Court supports Mirant's ability to continue its asset
optimization and risk management operations without interruption. The program is
designed to minimize the number of counterparties that will exercise their early
termination rights under existing trading contracts as a result of the Chapter
11 filings and provide counterparties with sufficient security and certainty to
continue to transact with Mirant Americas Energy Marketing prospectively. The
Bankruptcy Court order authorizes immediate relief to honor any and all
obligations under existing and future trading contracts (i.e., safe harbor
contracts).

                                        11
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     Historically, Mirant Americas Energy Marketing, one of Mirant's U.S.
subsidiaries that has filed a voluntary petition for reorganization under
Chapter 11, has engaged in asset optimization and risk management activities
from which the Company has derived substantial value, as well as proprietary
trading activities for its own account. The Company currently contemplates the
continued generation of revenue from the risk management services for the
procurement of fuel and sale of energy provided by Mirant Americas Energy
Marketing as well as the recognition of value from existing trading positions
previously entered into on the Company's behalf.

     Mirant Americas Energy Marketing conducts a substantial portion of its
business through the use of derivative contracts that may fall within the
"safe-harbor" protections set forth in Sections 556 and 560 as well as other
sections of the Bankruptcy Code. The safe harbor provisions permit non-debtor
parties to, among other things, exercise certain contractual termination rights
and remedies notwithstanding the commencement of a Chapter 11 case. Although
case law surrounding the scope of the Bankruptcy Code's safe harbor provisions
remains unsettled, if a contract qualifies for safe harbor protection, a
non-debtor party may be permitted to terminate or liquidate the contract upon a
commencement of a bankruptcy proceeding. In addition, in certain circumstances,
commencement of a bankruptcy proceeding may cause automatic termination or
liquidation of the contract in accordance with the contractual terms.

     Pursuant to the general terms of Mirant Americas Energy Marketing's
derivative trading contracts, upon early termination, settlement payments are
determined by the non-defaulting counterparty generally based on either the
mark-to-market valuations or the actual replacement cost of the positions. Given
the inherent uncertainties in mark-to-market valuation, the Company may not be
able to realize the net current value of any existing derivative trading
contracts that are terminated early as a result of the Chapter 11 filings or
other event of default due to a potential increase in mark-to-market liabilities
and a potential decrease in mark-to-market assets upon settlement. A number of
counterparties have exercised early termination rights which will result in a
loss of value to Mirant. The ultimate impact of these early terminations is not
known at this time. In addition, although the terms of most of Mirant Americas
Energy Marketing's derivative contracts do not relieve the non-defaulting party
of the obligation to pay settlement amounts owing, some of Mirant Americas
Energy Marketing's counterparties owing settlement payments may refuse to make
such payments absent litigation, further reducing the value of Mirant Americas
Energy Marketing's existing trading positions.

     In connection with the Chapter 11 filings, the Mirant Debtors, including
the Company, have secured a commitment, subject to approval of the Bankruptcy
Court and documentation, for $500 million in debtor-in-possession financing.
This commitment expires on September 5, 2003. The Company is currently working
with the lender to finalize the facility, however, there can be no assurance
that Mirant will be able to close this facility by the expiration date. As of
August 15, 2003, Mirant had approximately $1.29 billion in total cash,
approximately $351 million of which was legally restricted and $125 million of
which was held for operating, working capital or other purposes at various
subsidiaries.

     At this time, it is not possible to accurately predict the effect of the
Chapter 11 reorganization process on our business or the business of Mirant or
the timing of our or Mirant's potential emergence from Chapter 11. In addition,
since the plan of reorganization has not been prepared, our future results and
the future results of Mirant may differ significantly from historical results.
The terms of any reorganization plan ultimately confirmed, can affect the value
of our various pre-petition liabilities, common stock and/or other securities.
No assurance can be given as to what values, if any, will be ascribed in the
bankruptcy proceedings to the interests of each of these constituencies. A plan
of reorganization could result in holders of the liabilities and/or securities
of the Company and Mirant receiving no value for their interests. Because of
such possibilities, the value of these liabilities and/or securities is highly
speculative. If no plan of reorganization is approved, it is possible that our
assets and/or the assets of Mirant may be liquidated.

                                        12
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company's unaudited condensed consolidated financial statements
do not reflect adjustments that might be required if the Company is unable to
continue as a going concern.

  OVERVIEW

     Mirant Americas Generation (formerly Mirant Americas Generation, Inc. and
Southern Energy North America Generating, Inc.) is a national independent power
provider and an indirect wholly owned subsidiary of Mirant Corporation
("Mirant"). Prior to April 2, 2001, Mirant was a subsidiary of Southern Company
("Southern"). The Company produces and sells electricity in the United States
under fixed price contracts and on the spot market to utilities and energy
merchants. The Company uses derivative financial instruments, such as forwards,
futures, options and swaps to manage its exposure to fluctuations in electric
energy and fuel prices. Mirant Americas Generation is a Delaware limited
liability company and owns or leases approximately 12,000 megawatts ("MW") of
electric generation capacity in the United States. The Company operates 92
generating units at 22 plants serving customers located near major metropolitan
load centers in Maryland, Virginia, California, New York, Massachusetts and
Texas.

     The Company sells substantially all of the output from its generating
facilities in the forward and spot markets through its energy marketing
affiliate, Mirant Americas Energy Marketing, and the remainder under long-term
contracts with Mirant Americas Energy Marketing and third parties. In addition,
Mirant Americas Energy Marketing arranges for the supply of substantially all of
the fuel used by the Company's generating units and procures emissions credits
which are utilized in connection with the business.

     The Company has entered into a number of service agreements with
subsidiaries of Mirant for sales of its electric power, procurement of fuel,
labor and administrative services essential to operating its business. These
related parties are primarily Mirant, Mirant Americas Energy Marketing and
Mirant Services. The arrangements with these companies are discussed in Note E.

  CONVERSION TO A LIMITED LIABILITY COMPANY

     Effective November 1, 2001, the Company changed its form of organization
from a corporation to a limited liability company, and changed its name to
Mirant Americas Generation, LLC.

B.  ACCOUNTING AND REPORTING POLICIES

  BASIS OF PRESENTATION

     The unaudited condensed consolidated financial statements of the Company
are presented in conformity with accounting principles generally accepted in the
United States. These financial statements should be read in conjunction with the
Company's audited 2002 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, 2002. The financial statements
include the accounts of Mirant Americas Generation and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform to the current year financial statement presentation.

  ACCOUNTING FOR REORGANIZATION

     The Company has not made any adjustments or reclassifications that may be
required in future consolidated financial statements related to the American
Institute of Certified Public Accountants'

                                        13
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

Statement of Position 90-7 (SOP 90-7), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." Under SOP 90-7, the Company will
report separately pre-petition liabilities that are subject to compromise,
pre-petition liabilities that are not subject to compromise, and post-petition
liabilities. In addition, the Chapter 11 filings represent a triggering event
that will require an evaluation of long-lived assets, goodwill, intangibles and
other assets that may be impaired in a post-petition operating environment.
Asset and liability carrying amounts do not purport to represent realizable or
settlement values as contemplated by the Bankruptcy Code.

  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Significant estimates used in the preparation of these financial statements
include estimates of the fair value the Company used in assessing its recorded
goodwill for impairment, estimates of future cash flows to be generated from the
Company's long-lived assets used in assessing those assets for impairment,
estimates of the fair value of derivative financial instruments, and estimates
used in determining the allowance for uncollectibles and the amount of revenue
subject to refund.

  DERIVATIVE FINANCIAL INSTRUMENTS

     The Company accounts for derivative financial instruments at fair value as
required by Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended
("SFAS No. 133").

     The fair values of forward contracts, swap agreements, options, and caps
and floors in a net receivable position, as well as options held, are reported
as derivative financial instruments assets in the accompanying unaudited
condensed consolidated balance sheets. Similarly, derivative financial
instruments and contractual commitments in a net payable position, as well as
options written, are reported as derivative financial instrument liabilities in
the accompanying unaudited condensed consolidated balance sheets. Derivative
financial instrument assets and liabilities are reported net by counterparty,
provided a master netting agreement exists.

     For derivative financial instruments that qualify and are designated as
hedges of future cash flows, changes in the fair value of the derivatives are
recorded in other comprehensive income ("OCI") until the related hedged items
affect earnings. Any ineffective portion of the change in the fair value of
contracts designated as cash flow hedges is reported in earnings currently. The
Company may also enter into derivative instruments that qualify as fair value
hedges. For derivatives that qualify and are designated as fair value hedges,
changes in the fair value of the derivative and changes in the fair value of the
related asset or liability are recorded in earnings currently. Certain of the
financial instruments that the Company enters into to manage market risks,
either are not designated as hedges or do not qualify for hedge accounting
because the expected changes in their fair value do not adequately correlate to
changes in the fair value or the cash flow of the exposure being hedged. Changes
in the fair value of these derivative instruments are reflected in earnings
currently as unrealized gains or losses on derivative financial instruments.
Unrealized gains or losses as well as settlements of amounts receivable or
payable under all derivative financial instruments utilized to manage the price
risk of energy sold or fuel purchased are recorded as an adjustment of revenue
or the cost of fuel purchased, as applicable.

                                        14
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

  CAPITALIZATION OF INTEREST COST

     Mirant Americas Generation capitalizes interest on projects during the
advanced stages of development and during the construction period, in accordance
with SFAS No. 34 "Capitalization of Interest Cost". 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 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 the following interest costs
on debt payable to non-affiliates (in millions):

<Table>
<Caption>
                                                               THREE MONTHS
                                                                  ENDED
                                                                MARCH 31,
                                                               ------------
                                                               2002    2001
                                                               ----    ----
<S>                                                            <C>     <C>
Total interest costs........................................   $62     $50
Interest capitalized and included in construction work in
  progress..................................................     9       4
                                                               ---     ---
INTEREST EXPENSE............................................   $53     $46
                                                               ===     ===
</Table>

     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.

  IMPAIRMENT OF LONG-LIVED ASSETS

     Mirant Americas Generation evaluates long-lived assets, such as property,
plant, and equipment, and purchased intangible assets subject to amortization,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are separately presented in the accompanying
unaudited condensed consolidated balance sheets and are reported at the lower of
the carrying amount or fair value less costs to sell, and are not depreciated.
The assets and liabilities of a disposal group classified as held for sale are
presented separately in the appropriate asset and liability sections of the
unaudited condensed consolidated balance sheets.

     Prior to the adoption of SFAS No. 144, the Company accounted for the
impairment of long-lived assets in accordance with SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of."

  GOODWILL AND INTANGIBLE ASSETS

     Goodwill represents the excess of the cost over the fair value of the net
assets of businesses acquired. The Company adopted the provisions of SFAS No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), as of January 1,
2002. Goodwill and intangible assets acquired in a purchase business combination
and determined to have an indefinite useful life are not amortized, but instead
are tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable
useful lives be amortized over their respective useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144.

                                        15
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     SFAS No. 142 requires that a goodwill impairment evaluation be performed
upon adoption of the standard, annually, and between annual tests upon the
occurrence of certain events. Upon adoption of SFAS No. 142, the Company was
required to identify its reporting units and determine the carrying value of
each reporting unit by assigning the assets and liabilities, including existing
goodwill and intangible assets, to those reporting units as of January 1, 2002.
The Company determined that its operations constituted a single reporting unit.
In performing the impairment evaluation, the Company estimates the fair value of
the reporting unit and compares it to the carrying amount of that reporting
unit. To the extent the carrying amount of the reporting unit exceeds the fair
value of that reporting unit, the Company is required to perform the second step
of the impairment test. In this step, the Company compares the implied fair
value of the reporting unit goodwill with the carrying amount of the reporting
unit goodwill. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141, "Business
Combinations" ("SFAS No. 141"). The residual fair value after this allocation is
the implied fair value of the reporting unit goodwill. Upon the adoption of SFAS
No. 142, the fair value of the Company's reporting unit exceeded the carrying
amount of the reporting unit in the transition test and no impairment charge was
recognized.

     Prior to the adoption of SFAS No. 142, goodwill was amortized on a
straight-line basis over the expected periods to be benefited, generally 30-40
years, and assessed for recoverability by determining whether the goodwill
balance could be recovered based on undiscounted future operating cash flows.
The amount of goodwill impairment, if any, was measured based on discounted
future operating cash flows.

     Mirant Americas Generation recognizes specifically identifiable intangible
assets when specific rights or contracts are acquired. Intangible assets are
amortized on a straight-line basis over the lesser of their contractual or
estimated useful lives, ranging from 23 to 40 years. The cost of certain rights
acquired, such as operating permits, are included in property, plant and
equipment in the accompanying unaudited condensed consolidated balance sheets as
they are considered an integral part of the tangible assets.

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires the disclosure of the fair value of all financial instruments that are
not otherwise recorded at fair value in the financial statements. At March 31,
2002 and December 31, 2001, financial instruments recorded at contractual
amounts that approximate market or fair value include cash and cash equivalents,
accounts and current notes receivable, accounts payable and short term debt. The
market values of such items are not materially sensitive to shifts in market
interest rates because of the short term to maturity of these instruments and/or
their variable interest rates. The fair value of Mirant Americas Generation's
senior long-term debt is estimated based on market quotes.

     Because of the intercompany nature of the long-term notes receivable from
affiliates of $223 million, it is not practical to determine their fair value.

  REVENUE RECOGNITION

     Revenues derived from power generation are recognized when the service is
provided based on the contractual terms of agreements with customers.

  RENT EXPENSE

     Rent expense related to the Company's operating leases is recognized on a
straight-line basis over the terms of the leases. Rent expense for generation
facilities is included in generation facilities rent expenses

                                        16
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

in the accompanying unaudited condensed consolidated statements of income.
Payments made under the terms of the lease agreements in excess of the amount of
lease expense recognized are recorded as prepaid rent in the accompanying
unaudited condensed consolidated balance sheets. Prepaid rent attributable to
periods beyond one year is included in other non-current assets in the
accompanying unaudited condensed consolidated balance sheets.

  INCOME TAXES

     Effective November 1, 2001, Mirant Americas Generation, LLC converted to a
limited liability company, and thereafter is treated as a branch for income tax
purposes. As such, Mirant Americas, Inc. ("Mirant Americas"), the Company's
immediate parent, is subject to federal and state taxes attributable to the
income and expenses of the Company, and the Company is not subject to federal
and state income taxation. For those subsidiaries of the Company that are
subject to federal and state income taxes, the Company uses the asset and
liability method to account for income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

  NEW ACCOUNTING STANDARDS

     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. SFAS No. 143 is
effective for the Company's 2003 fiscal year. Mirant Americas Generation adopted
this statement effective January 1, 2003. The adoption of SFAS No. 143 did not
have a material effect on the Company's financial position, results of
operations or cash flows.

     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 activities. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS No. 146 has not had a material impact on the Company's financial position,
results of operations or cash flows.

     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN No. 45"). This interpretation
requires certain disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also requires a guarantor to recognize a liability for the fair value
of the obligation undertaken in issuing certain guarantees. The initial
recognition and initial measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in this interpretation are
effective for financial statements of interim or annual periods after December
15, 2002. The adoption of FIN No. 45 in 2003 has not had a material impact on
the Company's financial position, results of operations or cash flows.

                                        17
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51" ("FIN No. 46"). FIN
No. 46 addresses the consolidation by business enterprises of variable interest
entities, as defined in the interpretation. FIN No. 46 expands existing
accounting guidance regarding when a company should include in its financial
statements the assets, liabilities and activities of another entity. The
consolidation requirements of FIN No. 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
variable interest entities created before February 1, 2003 in the first fiscal
year or interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003.
The application of this Interpretation has not had a material effect on the
Company's financial position, results of operations or cash flows.

C.  RESTATEMENTS AND RECLASSIFICATIONS

     The unaudited condensed consolidated financial statements of the Company as
of March 31, 2002 and for the three months ended March 31, 2002 and March 31,
2001 and the unaudited condensed consolidated balance sheet of the Company as of
December 31, 2001 have been restated to correct certain accounting errors made
in preparing those financial statements as well as other reclassifications and
adjustments. In addition, the Company has reclassified certain amounts in the
2002 and 2001 unaudited condensed consolidated financial statements to reflect
the adoption of new accounting standards.

  DISCONTINUED OPERATIONS

     The financial statements for prior years have been reclassified to report
the revenues and expenses of the components of the Company that were disposed of
as discontinued operations pursuant to SFAS No. 144. Income from discontinued
operations for the three months ended March 31, 2002 and 2001 includes the State
Line generating facility in Indiana. In June 2002, the Company completed the
sale of its State Line generating facility for approximately $180 million plus
an adjustment for working capital. The asset was sold at approximately book
value.

     A summary of operating results for State Line for the three months ended
March 31, 2002 and 2001 follows (in millions):

<Table>
<Caption>
                                                              2002   2001
                                                              ----   ----
<S>                                                           <C>    <C>
Operating revenues..........................................  $15    $14
Operating expenses, including other (expense) income, net...   10      4
                                                              ---    ---
Income before income taxes..................................    5     10
Income taxes................................................    3      4
                                                              ---    ---
     NET INCOME.............................................  $ 2    $ 6
                                                              ===    ===
</Table>

                                        18
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     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,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
<S>                                                           <C>         <C>
CURRENT ASSETS:
Accounts and notes receivable...............................    $  5          $  6
Fuel stock..................................................       3             3
Prepayments.................................................       1             1
Property, plant and equipment...............................     173           175
Intangibles.................................................       8             9
                                                                ----          ----
     TOTAL CURRENT ASSETS HELD FOR SALE.....................    $190          $194
                                                                ====          ====
CURRENT LIABILITIES:
Taxes and other payables....................................    $ 10          $ 10
Deferred taxes..............................................      15            15
                                                                ----          ----
     TOTAL CURRENT LIABILITIES RELATING TO ASSETS HELD FOR
       SALE.................................................    $ 25          $ 25
                                                                ====          ====
</Table>

     In July 2002, the Company entered into an agreement to sell the Company's
Neenah, Wisconsin generating facility for approximately $109 million. The
Company began reporting the revenues and expenses of Neenah as discontinued
operations pursuant to SFAS No. 144 during the third quarter of 2002, and the
sale closed in January 2003. The asset was sold at approximately book value.

  RECLASSIFICATIONS

     The Company has changed its classification, on the accompanying unaudited
condensed consolidated statements of income, of realized and unrealized gains
and losses related to derivative financial instruments. Under the new
classification, gains and losses, both realized and unrealized, for electricity
related derivative financial instruments are included in operating revenues.
Gains and losses, both realized and unrealized, for fuel related derivative
financial instruments are included in cost of fuel, electricity and other
products. Prior period amounts have been reclassified to conform to the current
period presentation. These reclassifications reduced revenues and cost of fuel,
electricity and other products by corresponding amounts but did not impact the
Company's gross margin or net income. The Company has also recorded
reclassifications to balances of affiliate receivables, current portion of
prepaid rent, goodwill and other intangible assets, net, other assets and
payables to affiliates in the March 31, 2002 and December 31, 2001 balance
sheets.

  Three Months Ended March 31, 2002

     Operating revenues decreased by $104 million due to the reclassifications
of net gains and losses on derivative financial instruments.

     Cost of fuel, electricity and other products decreased by $103 million due
to the reclassifications of gains and losses on derivative financial instruments
discussed above totaling $104 million offset by a $1 million reclassification of
labor costs.

     Other expense decreased by $28 million primarily due to a $24 million
reclassification of generation facilities rent to a separate caption.

                                        19
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     Due to the reclassification of various labor costs, maintenance expense
increased by $10 million, selling, general and administrative expense decreased
by $7 million, and other expense decreased by $4 million.

  Three Months Ended March 31, 2001

     Operating revenues decreased by $65 million due to the reclassifications of
net gains and losses on derivative financial instruments, discussed above,
offset by a $2 million reclassification of interest expense.

     Cost of fuel, electricity and other products decreased by $65 million due
to the reclassifications of gains and losses on derivative financial instruments
offset by a $1 million reclassification of labor costs.

     Other expense decreased by $32 million primarily due to a $24 million
reclassification of generation facilities rent to a separate caption.

     Due to the reclassification of various labor costs, maintenance expense
increased by $13 million, selling, general and administrative expense decreased
by $6 million, and other expense decreased by $8 million.

  RESTATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     In addition to the changes to the Company's previously issued financial
statements required by the adoption of SFAS No. 144 for discontinued operations
and certain other reclassifications, management has identified certain errors
which necessitated a restatement of the Company's unaudited condensed
consolidated financial statements for the three months ended March 31, 2002 and
2001.

                                        20
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The following tables and discussion highlight the effects of the
restatement adjustments and reclassifications on the previously reported
unaudited condensed consolidated statements of income for the three months ended
March 31, 2002 and 2001 (in millions).

<Table>
<Caption>
                                                   FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                                          INCREASE (DECREASE) DUE TO:
                                           ----------------------------------------------------------
                                           AS PREVIOUSLY                       RESTATEMENT      AS
                                             REPORTED      RECLASSIFICATIONS   ADJUSTMENTS   RESTATED
                                           -------------   -----------------   -----------   --------
<S>                                        <C>             <C>                 <C>           <C>
Operating Revenues.......................      $716              $(104)           $(50)        $562
Operating Expenses:
Cost of fuel, electricity and other
  products...............................       386               (103)             --          283
Depreciation and amortization............        30                 --              (2)          28
Generation facilities rent...............        --                 24              --           24
Maintenance..............................        24                 10              --           34
Selling, general and administrative......        34                 (7)             (3)          24
Other....................................        79                (28)              4           55
                                               ----              -----            ----         ----
     Total operating expenses............       553               (104)             (1)         448
                                               ----              -----            ----         ----
Operating Income.........................       163                 --             (49)         114
                                               ----              -----            ----         ----
     Other (expense) income, net.........       (44)                --               3          (41)
                                               ----              -----            ----         ----
Income From Continuing Operations Before
  Income Taxes...........................       119                 --             (46)          73
Provision for (Benefit from) Income
  Taxes..................................        44                 --              (9)          35
                                               ----              -----            ----         ----
Income From Continuing Operations........        75                 --             (37)          38
Income from Discontinued Operations, net
  of tax.................................         2                 --              --            2
                                               ----              -----            ----         ----
     Net Income..........................      $ 77              $  --            $(37)        $ 40
                                               ====              =====            ====         ====
</Table>

     Operating revenues for the three months ended March 31, 2002 were adjusted
by $50 million primarily as a result of the following restatement adjustments:

     - a $25 million decrease to reflect the fair value of certain commodity
       financial instruments previously accounted for as cash flow hedges under
       SFAS No. 133, and

     - a $16 million decrease to reflect accrual accounting for certain
       commodity financial instruments previously accounted for under mark to
       market accounting.

     - a $6 million decrease to reflect changes in fair value of certain
       commodity financial instruments in the proper period.

     Provision for income taxes decreased by $9 million due to tax effects of
the restatement adjustments.

                                        21
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                   FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                                          INCREASE (DECREASE) DUE TO:
                                           ----------------------------------------------------------
                                           AS PREVIOUSLY                       RESTATEMENT      AS
                                             REPORTED      RECLASSIFICATIONS   ADJUSTMENTS   RESTATED
                                           -------------   -----------------   -----------   --------
<S>                                        <C>             <C>                 <C>           <C>
Operating Revenues:......................     $1,427             $(63)            $(230)      $1,134
Operating Expenses:
Cost of fuel, electricity and other
  products...............................      1,014              (64)               (3)         947
Depreciation and amortization............         39               --                --           39
Generation facilities rent...............         --               24                --           24
Maintenance..............................         20               13                (1)          32
Selling, general and administrative......        122               (6)                6          122
Other....................................         81              (32)               --           49
                                              ------             ----             -----       ------
     Total operating expenses............      1,276              (65)                2        1,213
                                              ------             ----             -----       ------
Operating Income (Loss)..................        151                2              (232)         (79)
                                              ------             ----             -----       ------
     Other (expense) income, net.........        (32)              (2)               --          (34)
                                              ------             ----             -----       ------
Income (Loss) From Continuing Operations
  Before Income Taxes....................        119               --              (232)        (113)
Provision for (Benefit from) Income
  Taxes..................................         48               --               (89)         (41)
                                              ------             ----             -----       ------
Income (Loss) From Continuing
  Operations.............................         71               --              (143)         (72)
Income from Discontinued Operations, net
  of tax.................................          6               --                --            6
                                              ------             ----             -----       ------
     Net Income (loss)...................     $   77             $ --             $(143)      $  (66)
                                              ======             ====             =====       ======
</Table>

     Operating revenues for the three months ended March 31, 2001 were adjusted
by $230 million as a result of the following restatement adjustments:

     - a $175 million decrease to reflect the fair value of certain commodity
       financial instruments previously accounted for as cash flow hedges under
       SFAS No. 133, and

     - a $55 million decrease to reflect changes in fair value of certain
       commodity financial instruments in the proper period.

     Cost of fuel, electricity and other products decreased by $3 million
primarily to reflect changes in fair value of certain commodity financial
instruments in the proper period.

     Provision for income taxes decreased by $89 million due to tax effects of
the restatement adjustments.

                                        22
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The following tables and discussion summarizes the effects of the
reclassifications and restatement adjustments on the unaudited condensed
consolidated balance sheet as of March 31, 2002 and the condensed consolidated
balance sheet as of December 31, 2001 (in millions).

<Table>
<Caption>
                                                                    AT MARCH 31, 2002
                                                ----------------------------------------------------------
                                                                  INCREASE (DECREASE) DUE TO:
                                                                -------------------------------
                                                AS PREVIOUSLY                       RESTATEMENT      AS
                                                  REPORTED      RECLASSIFICATIONS   ADJUSTMENTS   RESTATED
                                                -------------   -----------------   -----------   --------
<S>                                             <C>             <C>                 <C>           <C>
                                                  ASSETS
Current Assets:
Cash and cash equivalents.....................     $    2             $ --             $  1        $    3
Receivables:
  Customer accounts...........................         14               --               --            14
  Affiliates, less allowance for
     uncollectibles of $123...................        332              (97)              (3)          232
  Notes receivable from affiliates............        627               --               --           627
  Assets from risk management activities......         71               --              (71)           --
  Derivative financial instruments............        140               --              174           314
  Prepaid rent and other prepayments..........        158              (11)               1           148
  Deferred income taxes.......................        111               --              (17)           94
  Assets held for sale........................        191               --               (1)          190
  Other.......................................        178               51               --           229
                                                   ------             ----             ----        ------
       Total current assets...................      1,824              (57)              84         1,851
                                                   ------             ----             ----        ------
  Property, plant and equipment, net..........      2,993               --                3         2,996
                                                   ------             ----             ----        ------
  Other Noncurrent Assets:
  Goodwill, net...............................      1,599               --               46         1,645
  Other intangible assets, net................        470               --                2           472
  Notes receivable from affiliates............        223               --               --           223
  Assets from risk management activities......         15               --              (15)           --
  Derivative financial instruments............         79               --               81           160
  Prepaid rent................................         --               11               --            11
  Other, less allowances for uncollectibles of
     $53......................................         40               --               (4)           36
                                                   ------             ----             ----        ------
       Total other noncurrent assets..........      2,426               11              110         2,547
                                                   ------             ----             ----        ------
       Total assets...........................     $7,243             $(46)            $197        $7,394
                                                   ======             ====             ====        ======
</Table>

                                        23
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                                    AT MARCH 31, 2002
                                                ----------------------------------------------------------
                                                                  INCREASE (DECREASE) DUE TO:
                                                                -------------------------------
                                                AS PREVIOUSLY                       RESTATEMENT      AS
                                                  REPORTED      RECLASSIFICATIONS   ADJUSTMENTS   RESTATED
                                                -------------   -----------------   -----------   --------
<S>                                             <C>             <C>                 <C>           <C>
                                     LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Accounts payable and accrued liabilities......     $  151             $ --             $  4        $  155
Payable to affiliates.........................        132              (46)              (5)           81
Notes payable to affiliates...................        220               --               --           220
Liabilities from risk management activities...         82               --              (82)           --
Derivative financial instruments..............         98               --              186           284
Revenues subject to refund....................        269               --                1           270
Liabilities related to assets held for sale...         25               --               --            25
Accrued income taxes..........................         --               11                2            13
Accrued interest..............................         --               93               --            93
Other.........................................        112             (104)              (8)           --
                                                   ------             ----             ----        ------
       Total current liabilities..............      1,089              (46)              98         1,141
                                                   ------             ----             ----        ------
Noncurrent Liabilities:
Notes payable and long-term debt..............      2,567               --               --         2,567
Liabilities from risk management activities...         16               --              (16)           --
Derivative financial instruments..............         19               --               97           116
Other noncurrent liabilities..................        175               --              (52)          123
                                                   ------             ----             ----        ------
       Total noncurrent liabilities...........      2,777               --               29         2,806
                                                   ------             ----             ----        ------
Member's Equity:
Member's interest.............................      3,499               --               56         3,555
Capital contribution receivable from affiliate
  pursuant to ECSA............................       (124)              --               --          (124)
Retained earnings.............................         51               --               32            83
Accumulated other comprehensive loss..........        (49)              --              (18)          (67)
                                                   ------             ----             ----        ------
       Total member's equity..................      3,377               --               70         3,447
                                                   ------             ----             ----        ------
       Total liabilities and member's
          equity..............................     $7,243             $(46)            $197        $7,394
                                                   ======             ====             ====        ======
</Table>

  RECLASSIFICATIONS

     Affiliate accounts receivable and accounts payable were previously reported
gross. The restated balances reflect these on a net basis.

     Prepaid rent, both current and noncurrent, was reclassified to reflect
their respective proper amounts.

     Affiliate interest receivable was previously reported in affiliate
receivables and was reclassified as other current assets.

                                        24
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     Accrued income taxes and accrued interest were previously reported as other
current liabilities and were reclassified to separate captions.

  RESTATEMENTS

     Goodwill increased by $46 million, net of amortization, primarily as a
result of the following restatement adjustments:

     - a $70 million increase due to an increase to the value of certain
       obligations acquired in the PEPCO acquisition,

     - a $12 million decrease due to an adjustment to the original purchase
       price allocation to record the deferred tax assets associated with out of
       market contracts assumed in the New York and New England acquisitions,
       and

     - a $14 million decrease due to a reduction in the goodwill recorded upon
       the contribution of Mirant New England, LLC to the Company, which was
       adjusted to record the deferred tax assets associated with out of market
       contracts.

     The previously reported balance sheet has been restated to reflect
derivative financial instruments as current and non-current assets and
liabilities related to the fair value of certain commodity instruments
previously accounted for as cash flow hedges under SFAS No. 133.

     The various deferred tax accounts have been restated to reflect the tax
effect of the adjusting entries described above.

                                        25
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                              AT DECEMBER 31, 2001
                                    -------------------------------------------------------------------------
                                                             INCREASE (DECREASE) DUE TO:
                                                    ----------------------------------------------
                                    AS PREVIOUSLY   DISCONTINUED                       RESTATEMENT      AS
                                     REPORTED(1)     OPERATIONS    RECLASSIFICATIONS   ADJUSTMENTS   RESTATED
                                    -------------   ------------   -----------------   -----------   --------
<S>                                 <C>             <C>            <C>                 <C>           <C>
                                                   ASSETS
Current Assets:
Cash and cash equivalents.........     $   15          $  --             $ --              $--        $   15
Receivables:
  Customer accounts...............          8              2               --               --            10
  Affiliates, less allowance for
     uncollectibles of $123.......        223             --               --               --           223
Notes receivable from
  affiliates......................        253             --               --               --           253
Derivative financial
  instruments.....................        348             --               --               --           348
Prepaid rent and other
  prepayments.....................        161              2               --               --           163
Deferred income taxes.............        119             --               --               --           119
Assets held for sale..............        301           (107)              --               --           194
Other.............................        332              1               --               --           333
                                       ------          -----             ----              ---        ------
       Total current assets.......      1,760           (102)              --               --         1,658
                                       ------          -----             ----              ---        ------
Property, plant and equipment,
  net.............................      2,758            102               --               --         2,860
                                       ------          -----             ----              ---        ------
Other Noncurrent Assets:
Goodwill, net.....................      1,479             --               --                3         1,482
Other intangible assets, net......        697             --               --               --           697
Notes receivable from
  affiliates......................        223             --               --               --           223
Derivative financial
  instruments.....................         71             --               --               --            71
Prepaid rent......................         35             --               --               --            35
Other, less allowances for
  uncollectibles of $49...........         45             --               --               (6)           39
                                       ------          -----             ----              ---        ------
Total other noncurrent assets.....      2,550             --               --               (3)        2,547
                                       ------          -----             ----              ---        ------
Total assets......................     $7,068          $  --             $ --              $(3)       $7,065
                                       ======          =====             ====              ===        ======
</Table>

                                        26
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                              AT DECEMBER 31, 2001
                                    -------------------------------------------------------------------------
                                                             INCREASE (DECREASE) DUE TO:
                                                    ----------------------------------------------
                                    AS PREVIOUSLY   DISCONTINUED                       RESTATEMENT      AS
                                     REPORTED(1)     OPERATIONS    RECLASSIFICATIONS   ADJUSTMENTS   RESTATED
                                    -------------   ------------   -----------------   -----------   --------
<S>                                 <C>             <C>            <C>                 <C>           <C>
                                       LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Accounts payable and accrued
  liabilities.....................     $  126          $   3             $ --              $--        $  129
Payable to affiliates.............        112             --               --               --           112
Notes payable to affiliates.......        333             --               --               --           333
Derivative financial
  instruments.....................        314             --               --               --           314
Revenues subject to refund........        242             --               --               --           242
Liabilities related to assets held
  for sale........................         33             (8)              --               --            25
Accrued income taxes..............          5              2               --                1             8
Accrued interest..................         44             --               --               --            44
                                       ------          -----             ----              ---        ------
       Total current
          liabilities.............      1,209             (3)              --                1         1,207
                                       ------          -----             ----              ---        ------
Noncurrent Liabilities:
Notes payable and long-term
  debt............................      2,567             --               --               --         2,567
Derivative financial
  instruments.....................         26             --               --               --            26
Other noncurrent liabilities......        241              3               --                2           246
                                       ------          -----             ----              ---        ------
       Total noncurrent
          liabilities.............      2,834              3               --                2         2,839
                                       ------          -----             ----              ---        ------
Member's Equity:
Member's interest.................      3,009             --               --               (1)        3,008
Capital contribution receivable
  from affiliate pursuant to
  ECSA............................        (91)            --               --               --           (91)
Retained earnings.................        182             --               --               (5)          177
Accumulated other comprehensive
  loss............................        (75)            --               --               --           (75)
                                       ------          -----             ----              ---        ------
       Total member's equity......      3,025             --               --               (6)        3,019
                                       ------          -----             ----              ---        ------
       Total liabilities and
          member's equity.........     $7,068          $  --             $ --              $(3)       $7,065
                                       ======          =====             ====              ===        ======
</Table>

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

(1) As previously reported in the Company's 2002 Form 10-K filed on April 30,
    2003.

  DISCONTINUED OPERATIONS

     Components of the balance sheet of the Company's Neenah, Wisconsin
generating facility, which were reflected as discontinued operations in the
Company's 2002 Form 10-K, have been reclassified to their respective separate
captions.

                                        27
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

  RESTATEMENTS

     Goodwill increased by $3 million as a result of an increase in the deferred
tax liability recorded upon the PEPCO acquisition.

     Other noncurrent assets decreased by $6 million as a result of an increase
in the long-term provision for uncollectable accounts at Mirant New England,
Inc., which was previously reported at Mirant New England, LLC, a
non-consolidated affiliate of the Company at December 31, 2001.

     The various deferred tax accounts have been restated to reflect the tax
effect of the adjusting entry described above.

                                        28
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The following table and discussion summarizes the effects of the
reclassifications and restatement adjustments on the unaudited condensed
statement of cash flows for the three months ended March 31, 2002 (in millions):

<Table>
<Caption>
                                                                FOR THE THREE MONTHS
                                                                ENDED MARCH 31, 2002
                                                              ------------------------
                                                              AS PREVIOUSLY      AS
                                                                REPORTED      RESTATED
                                                              -------------   --------
<S>                                                           <C>             <C>
Cash Flows From Operating Activities:
Net income..................................................      $  77        $  40
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................         33           31
  Amortization of loss on interest rate swap................         --            2
  Unrealized gains and losses on derivative financial
    instruments.............................................         (4)          18
  Deferred income taxes.....................................          5           (4)
  Restructuring charges, net of amounts paid................          3            3
  Changes in certain assets and liabilities:
    Accounts receivable, affiliates.........................          9           11
    Accounts receivable, non-affiliates.....................         20            3
    Other current assets....................................         45           66
    Other noncurrent assets.................................         --           24
    Accounts payable and accrued liabilities................         56            8
    Payables to affiliates, net.............................        (81)         (87)
    Accrued income taxes....................................          8           13
    Other current liabilities...............................         --           49
    Other noncurrent liabilities............................          2           (1)
                                                                  -----        -----
  Total adjustments.........................................         96          136
                                                                  -----        -----
  Net cash provided by operating activities.................        173          176
                                                                  -----        -----
Cash Flows From Investing Activities:
Capital expenditures........................................        (79)         (81)
Advances to affiliates......................................         --           (1)
Repayments of advances to affiliates........................         --            1
Increase in notes receivable from affiliates................       (246)        (246)
Repayments of notes receivable from affiliates..............        128          128
Cash received from contribution of Mirant New England,
  LLC.......................................................          7           --
Insurance proceeds received.................................          2            2
                                                                  -----        -----
  Net cash used in investing activities.....................       (188)        (197)
                                                                  -----        -----
Cash Flows From Financing Activities:
Proceeds from issuance of debt..............................        200          200
Repayment of debt...........................................       (200)        (200)
Advances from affiliates....................................         --            5
Repayments of advances from affiliates......................         --           (5)
Proceeds from issuance of notes payable to affiliate........        128          128
Repayment of notes payable to affiliate.....................        (32)         (32)
Capital contributions.......................................         20           20
Payment of dividends........................................       (134)        (134)
Capital contribution received from affiliate pursuant to
  ECSA......................................................         20           20
Cash received from contribution of Mirant New England,
  LLC.......................................................         --            7
                                                                  -----        -----
  Net cash provided by financing activities.................          2            9
                                                                  -----        -----
Net (Decrease) in Cash and Cash Equivalents.................        (13)         (12)
Cash and Cash Equivalents, beginning of period..............         15           15
                                                                  -----        -----
Cash and Cash Equivalents, end of period....................      $   2        $   3
                                                                  =====        =====
</Table>

                                        29
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The statement of cash flows for the three months ended March 31, 2002 has
been restated primarily to report the proceeds received from the contribution of
Mirant New England, LLC in the amount of $7 million as a financing activity
rather than an investing activity, as well as disclose gross amounts of
affiliate advances and repayments and reflect the effects of certain
reclassifications within cash flows from operating activities.

                                        30
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The following table and discussion summarizes the effects of the
reclassifications and restatement adjustments on the unaudited condensed
statement of cash flows for the three months ended March 31, 2001 (in millions):

<Table>
<Caption>
                                                                FOR THE THREE MONTHS
                                                                ENDED MARCH 31, 2001
                                                              ------------------------
                                                              AS PREVIOUSLY      AS
                                                                REPORTED      RESTATED
                                                              -------------   --------
<S>                                                           <C>             <C>
Cash Flows From Operating Activities:
Net income (loss)...........................................      $  77        $ (66)
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
  Depreciation and amortization.............................         41           43
  Unrealized gains and losses on derivative financial
     instruments............................................         (9)         223
  Deferred income taxes.....................................       (117)        (175)
  Other, net................................................         --            1
  Changes in certain assets and liabilities:
     Accounts receivable, affiliates........................       (208)         (46)
     Accounts receivable, non-affiliates....................        (48)        (187)
     Other current assets...................................          7           17
     Other noncurrent assets................................         15            3
     Accounts payable and accrued liabilities...............         89           82
     Payables to affiliates, net............................        125          150
     Accrued income taxes...................................        141          110
     Other current liabilities..............................          1           (5)
     Other noncurrent liabilities...........................         --           11
                                                                  -----        -----
  Total adjustments.........................................         37          227
                                                                  -----        -----
  Net cash provided by operating activities.................        114          161
                                                                  -----        -----
Cash Flows From Investing Activities:
Capital expenditures........................................        (99)        (100)
Advances to affiliates......................................         --         (114)
Repayments of advances to affiliates........................         --          171
Increase in notes receivable from affiliates................        (15)        (109)
Insurance proceeds received.................................          9            9
                                                                  -----        -----
  Net cash used in investing activities.....................       (105)        (143)
                                                                  -----        -----
Cash Flows From Financing Activities:
Advances from affiliates....................................         --           21
Repayment of advances from affiliates.......................         --          (12)
Capital contributions.......................................          5            5
Payment of dividends........................................        (21)         (21)
                                                                  -----        -----
  Net cash used in financing activities.....................        (16)          (7)
                                                                  -----        -----
Net (Decrease) Increase in Cash and Cash Equivalents........         (7)          11
Cash and Cash Equivalents, beginning of period..............         83           68
                                                                  -----        -----
Cash and Cash Equivalents, end of period....................      $  76        $  79
                                                                  =====        =====
</Table>

                                        31
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The statement of cash flows for the three months ended March 31, 2001 has
been restated to reflect certain advances and repayments by the Company and its
subsidiaries to Mirant Corporation and its affiliates which were previously
reported as receivable and payable from affiliate activity within operating cash
flows, although not of a "trade" nature. In the restated statement of cash
flows, this activity has been reclassified from operating activities to
investing and financing activities.

     In addition, the statement of cash flows for the three months ended March
31, 2001 has been restated to disclose gross amounts of affiliate advances and
repayments.

     As a result of these reclassifications, net cash provided by operating
activities increased by $47 million, net cash used in investing activities
increased by $38 million and net cash used in financing activities decreased by
$9 million.

D.  ACQUISITION OF PEPCO ASSETS

     On December 19, 2000, Mirant Mid-Atlantic and its affiliates, together with
third-party lessors in a leveraged lease transaction, purchased PEPCO's
generating facilities in Maryland and Virginia, consisting of four electric
generating stations, Morgantown, Chalk Point, Dickerson and Potomac River, with
a combined generating capacity of 5,256 MW. Mirant Mid-Atlantic and its
affiliates paid an aggregate of $1.255 billion in cash and transaction expenses
for the generating facilities and related assets, except for the baseload
facilities at Morgantown and Dickerson, which were purchased by the third-party
lessors for $1.5 billion in cash. Mirant Mid-Atlantic simultaneously entered
into agreements with the lessors to lease the Morgantown (1,244 MW) and
Dickerson (546 MW) baseload facilities for terms of 33.75 years and 28.5 years,
respectively (see Note J). These leases have been accounted for as operating
leases.

     Mirant Potomac River and Mirant Peaker, other subsidiaries of Mirant,
purchased the 482 MW Potomac River facility and the 438 MW Chalk Point peaking
facility for $370 million. Mirant Mid-Atlantic advanced Mirant Potomac River and
Mirant Peaker an aggregate of $223 million to finance their acquisition of these
facilities. Furthermore, Mirant Mid-Atlantic entered into a contribution
agreement with Mirant in connection with these acquisitions (see Note E). The
remaining $147 million was funded by Mirant and treated as a capital
contribution to Mirant Potomac River and Mirant Peaker. Mirant Peaker also
assumed the obligations related to a lease for the 84 MW combustion turbine
owned by SMECO at the Chalk Point facility. This lease has been accounted for as
a capital lease by Mirant Peaker.

     Mirant Mid-Atlantic acquired the baseload and cycling units at the Chalk
Point facility (1,907 MW), the peaking units at the Morgantown facility (248
MW), and the peaking units at the Dickerson facility (307 MW). In addition to
these generating facilities, Mirant Mid-Atlantic acquired three coal ash storage
facilities, a 51.5 mile oil pipeline serving the Chalk Point and Morgantown
facilities, an engineering and maintenance service facility, and other related
assets.

     As part of the acquisition, Mirant Americas Energy Marketing entered into
two transition power agreements ("TPAs") to provide power to PEPCO, and assumed
PEPCO's obligations under existing power purchase agreements ("PPAs") with third
parties, representing obligations with an estimated fair value of approximately
$1.7 billion and $0.7 billion, respectively, at the date of the acquisition.

     As part of the acquisition, Mirant Services also assumed obligations for
pension benefits, other post employment benefits and vacation accruals
associated with the 950 former PEPCO personnel that became employees of Mirant
Services, aggregating $107 million at the date of the acquisition.

                                        32
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     The acquisition was accounted for under the purchase method of accounting.
The acquisition was recorded by Mirant Mid-Atlantic and its affiliates as
follows (in millions):

<Table>
<Caption>
                                                                   MIRANT
                                                                  AMERICAS                 OTHER
                                   MIRANT      MIRANT    MIRANT    ENERGY      MIRANT      MIRANT
                                MID-ATLANTIC   POTOMAC   PEAKER   MARKETING   SERVICES   AFFILIATES     TOTAL
                                ------------   -------   ------   ---------   --------   ----------   ----------
                                 (RESTATED)                                                           (RESTATED)
<S>                             <C>            <C>       <C>      <C>         <C>        <C>          <C>
Current assets................     $   49       $  4      $ --     $    --     $  --        $ --       $    53
Property, plant and
  equipment...................      1,015        266       148          --        --          --         1,429
Goodwill......................      1,279         --        --          --        --          --         1,279
Other intangible assets.......        285         --        --          --        --          --           285
Other liabilities.............        (20)        --       (48)         --      (107)         --          (175)
Deferred tax assets resulting
  from the acquisition........         --         --        --          --        --         822           822
Obligations under TPAs/PPAs...         --         --        --      (2,438)       --          --        (2,438)
                                   ------       ----      ----     -------     -----        ----       -------
     Net assets acquired......     $2,608       $270      $100     $(2,438)    $(107)       $822       $ 1,255
                                   ======       ====      ====     =======     =====        ====       =======
</Table>

     The impact of the liabilities assumed by Mirant Americas Energy Marketing,
the liabilities assumed by Mirant Services, and the deferred tax assets
resulting from the acquisition which were recorded at other Mirant affiliates,
have been recorded as adjustments to Member's Equity. The goodwill recorded in
the acquisition has been allocated entirely to Mirant Mid-Atlantic since it owns
or leases substantially all of the facilities, and because it benefits from the
Capital Contribution Agreement with Mirant regarding Mirant Peaker and Mirant
Potomac River (see Note E).

E.  RELATED PARTY ARRANGEMENTS AND TRANSACTIONS

  CASH MANAGEMENT PROGRAM

     During the pendency of the Chapter 11 proceeding, Mirant and the debtor
subsidiaries, including the Company and Mirant Mid-Atlantic, will participate in
an inter-company cash management program pursuant to which cash balances at
Mirant and its participating subsidiaries will be transferred to central
concentration accounts and, if necessary, lent to Mirant and its participating
subsidiaries to fund working capital and other needs. Such inter-company
transfers will be recorded as inter-company loans. The Company also notes that,
during the pendency of the Chapter 11 proceedings, it is not anticipated that
any of the debtor subsidiaries of Mirant will declare or pay dividends or
distributions.

  MIRANT MID-ATLANTIC POWER SALES AGREEMENT WITH MIRANT AMERICAS ENERGY
MARKETING

     From August 1, 2001 to December 31, 2002, Mirant Mid-Atlantic supplied the
capacity and energy of its facilities to Mirant Americas Energy Marketing under
the terms of the fixed price Energy and Capacity Sales Agreement ("ECSA"). For
the period from August 1, 2001 to December 31, 2001, Mirant Americas Energy
Marketing contracted to purchase 100% of the output of Mirant Mid-Atlantic's
facilities. For 2002 and 2003, Mirant Americas Energy Marketing exercised its
option to purchase 100% of the output of Mirant Mid-Atlantic's facilities. For
the period from January 1, 2004 to June 30, 2004 extendable to through December
31, 2004, Mirant Americas Energy Marketing had the option to purchase up to 100%
(in increments of 25%) of the output of the Company's facilities, with no
minimum commitment. Mirant Americas Energy Marketing is a party to transition
power agreements with PEPCO under which PEPCO has an option to purchase energy
with respect to PEPCO's load requirements at fixed rates.

                                        33
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     In November 2002, Mirant Americas Energy Marketing exercised its option to
purchase 100% of the output of Mirant Mid-Atlantic's facilities for 2003. Mirant
Mid-Atlantic subsequently agreed to cancel the ECSA effective May 1, 2003 and
sell all of its capacity and energy to Mirant Americas Energy Marketing under a
new power sales, fuel supply and services agreement (the "Power and Fuel
Agreement") at market prices.

     Prior to entering into the ECSA effective 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 Interconnection
Market ("PJM") at the time the energy was delivered. Mirant Mid-Atlantic also
sold power to Mirant Americas Energy Marketing under short-term fixed price
contracts. The short-term fixed price contracts were terminated in connection
with the ECSA.

     Mirant Mid-Atlantic's affiliated companies, Mirant Potomac River and Mirant
Peaker, LLC ("Mirant Peaker"), also entered into power purchase agreements with
Mirant Americas Energy Marketing in August 2001 on the same terms and effective
over the same period as the agreement outlined above. Mirant Potomac River and
Mirant Peaker also subsequently terminated these agreements effective May 1,
2003. These affiliates have also entered into new power sales, fuel supply and
services agreements on the same terms and for the same period as the Mirant
Mid-Atlantic Power and Fuel Agreement with Mirant Americas Energy Marketing.
Under the terms of the capital contribution agreement between Mirant Mid-
Atlantic and Mirant, excess cash available from the operations of these
affiliated companies is required to be paid as a dividend to Mirant, which in
turn is required to make a capital contribution to Mirant Mid-Atlantic for the
same amount. During the pendency of the Chapter 11 proceedings, the Company does
not anticipate Mirant Potomac River and Mirant Peaker distributing dividends.

     At the inception date of the ECSA, the pricing under the ECSA 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 the Company believed, at
the time, to be temporary anomalies in the quoted market prices based on
projected demand growth and other factors expected to affect demand and supply
in the PJM market through 2002. The market had experienced unusual fluctuations
in market prices because of low prices for natural gas which is generally the
fuel used to set prices in the PJM. The Company did not believe that natural gas
prices would remain depressed through the end of 2002.

     At inception of the ECSA, the aggregate value to Mirant Mid-Atlantic and
its affiliates attributable to the favorable pricing variance was approximately
$167 million. The amount related specifically to Mirant Mid-Atlantic's owned or
leased facilities of $120 million was accounted for as both an addition to
member's interest and an offsetting capital contribution receivable pursuant to
the ECSA in its unaudited condensed consolidated financial statements. 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 and that in 2003 and 2004 Mirant
Americas Energy Marketing would not elect to purchase output from the Company's
facilities, since the contract provided for no minimum commitment for these
years.

     In January 2002, Mirant Americas Energy Marketing exercised its option to
increase its committed capacity from 75% to 100% of the total output of Mirant
Mid-Atlantic's facilities for 2002. Therefore, the Company 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% of capacity
and energy that Mirant Americas Energy Marketing committed to take in 2002. This
adjustment amount was based on estimated market

                                        34
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

rates in the PJM. This adjustment is reflected as both an addition to member's
interest and an offsetting capital contribution receivable pursuant to the ECSA.

     In November 2002, Mirant Americas Energy Marketing exercised its option to
purchase 100% of the output of Mirant Mid-Atlantic's facilities for 2003.
Accordingly, an adjustment of $121 million to member's equity and an offsetting
capital contribution receivable pursuant to the ECSA was recorded in the fourth
quarter of 2002 to reflect the favorable pricing terms of this agreement. This
adjustment amount was also based on estimated market rates in the PJM as
adjusted upwards by approximately 9% for management's consideration of the value
available to a purchaser of Mirant Mid-Atlantic's capacity and energy,
incremental to the quoted spot market prices. This incremental value is
comprised mainly of the option available to Mirant Americas Energy Marketing to
extend its commitment to 2004, the capabilities associated with load management
and with power and fuel trading and the value of fixed transmission rights.

     The contractual amount payable under the ECSA in excess of the amount of
revenue recognized due to the favorable pricing terms of the ECSA 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 subsequent to March 31, 2002
related to the revenue recognized prior to that date and $112 million represents
the favorable pricing variance over the remaining nine months of 2002.

     The favorable pricing variance accounted for as a capital contribution
receivable was not adjusted for subsequent changes in energy prices after Mirant
Americas Energy Marketing entered into, or extended, its commitment under the
ECSA. As a result, amounts recognized as revenue under the ECSA did not
necessarily reflect market prices at the time the energy was delivered. Amounts
recognized as revenue for capacity and energy delivered under the ECSA exceeded
the revenues that would have been recognized based on market prices by
approximately $97 million for the three months ended March 31, 2002.

     Effective May 1, 2003, Mirant Mid-Atlantic agreed to terminate the ECSA and
sell all of its capacity and energy under the Power and Fuel Agreement to Mirant
Americas Energy Marketing at market prices. Under this agreement, Mirant
Americas Energy Marketing resells Mirant Mid-Atlantic's energy products in the
PJM spot and forward markets and to other third parties. Mirant Mid-Atlantic is
paid the amount received by Mirant Americas Energy Marketing for such capacity
and energy. As was true with the ECSA, under the Power and Fuel Agreement,
Mirant Mid-Atlantic has credit exposure to Mirant Americas Energy Marketing for
essentially all of its revenues. Mirant Mid-Atlantic will pay Mirant Americas
Energy Marketing a fee of $7 million per year under the Power and Fuel
Agreement, the same amount as had previously been payable under the services and
risk management agreement, which was terminated at the same date as the ECSA.
Following the termination of the ECSA effective May 1, 2003, Mirant Mid-Atlantic
will reverse the remaining capital contribution receivable pursuant to the ECSA
that is attributable to periods after April 30, 2003.

  MIRANT TEXAS TOLLING ARRANGEMENTS WITH MIRANT AMERICAS ENERGY MARKETING

     Mirant Texas Investments, Inc. and Mirant Texas Management, Inc.
(collectively "Mirant Texas"), wholly owned subsidiaries of the Company, and
Mirant Americas Energy Marketing entered into two tolling agreements, under
which Mirant Americas Energy Marketing pays Mirant Texas annual capacity based
payments on the guaranteed capacity of Mirant Texas' generating units in Texas.
Mirant Americas

                                        35
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

Energy Marketing also pays Mirant Texas a fee for each megawatt-hour ("MWh") of
energy generated. One agreement expires on December 31, 2003 and the other
expires on May 31, 2005, but each may be extended by mutual agreement. For the
three months ended March 31, 2002 and 2001, revenues under the two tolling
agreements were approximately $9 million and $4 million, respectively.

  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 (in
millions):

<Table>
<Caption>
                                                                FOR THE
                                                                 THREE
                                                                MONTHS
                                                                 ENDED
                                                               MARCH 31,
                                                              -----------
                                                              2002   2001
                                                              ----   ----
                                                              (RESTATED)
<S>                                                           <C>    <C>
Management, personnel and services agreement................  $35    $42
Services agreements.........................................    5      5
Other.......................................................    5      1
                                                              ---    ---
     TOTAL..................................................  $45    $48
                                                              ===    ===
</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 Management, Personnel and Services
Agreement with Mirant Services have been included in the accompanying unaudited
condensed consolidated statements of income for the three months ended March 31,
2002 and 2001 as follows (in millions):

<Table>
<Caption>
                                                                FOR THE
                                                                 THREE
                                                                MONTHS
                                                                 ENDED
                                                               MARCH 31,
                                                              -----------
                                                              2002   2001
                                                              ----   ----
                                                              (RESTATED)
<S>                                                           <C>    <C>
Cost of fuel, electricity and other products................  $ 1    $ 1
Maintenance expense.........................................   11     13
Selling, general and administrative expense.................    4      8
Other operating expense.....................................   19     20
                                                              ---    ---
     TOTAL..................................................  $35    $42
                                                              ===    ===
</Table>

                                        36
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

  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 has been terminated effective May 1, 2003.

     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 covering
the period through December 31, 2002. The terms of these new agreements are
similar to the terms under the agreements in effect during 2001 and the first
quarter of 2002 except that the new agreements do not contain a bonus provision.
The previous agreements provided that Mirant Americas Energy Marketing was to be
paid a bonus based on the percentage by which revenues exceeded costs under the
agreement. There was no bonus expense during the three months ended March 31,
2002 and March 31, 2001. These amounts are included in selling, general and
administrative expenses -- affiliates in the accompanying unaudited condensed
consolidated statements of income. Under the new agreements, the various
operating subsidiaries of Mirant Americas Generation, except for Mirant
Mid-Atlantic, paid Mirant Americas Energy Marketing a fixed administrative fee
of approximately $10 million for the period from April 1, 2002 through December
31, 2002. These new agreements expired December 31, 2002.

     During the three months ended March 31, 2002 and 2001, the Company incurred
approximately $5 million in costs under the power sales, fuel supply and
services agreements it has with Mirant Americas Energy Marketing. 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 Mirant Americas Energy
Marketing 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 also
manages the fuel oil storage associated with these facilities. In connection
with this agreement, the Company sold fuel oil inventory at its book value of
approximately $15 million to Mirant Americas Energy Marketing.

     Effective January 1, 2003, Mirant Americas Generation's operating
subsidiaries, except Mirant Mid-Atlantic, renewed the power sales, fuel supply
and services agreements with Mirant Americas Energy Marketing under similar
terms as the agreements in effect beginning April 1, 2002. For 2003, the various
operating subsidiaries of the Company, except for Mirant Mid-Atlantic, will pay
Mirant Americas Energy Marketing a fixed administrative fee of approximately $19
million.

  Administration Arrangements 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 information technology services, regulatory support, consulting, legal
and accounting and financial services. The fixed charge was approximately $2.7
million per month over the initial term of the agreement. The agreement was
automatically extended through December 31, 2003, and the fixed charge was
increased to $2.8 million per month. Prior to May 2002, similar administrative
services were charged

                                        37
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

by Mirant Services to the Company based on incremental costs directly
attributable to the Company as part of the management, personnel and services
agreement described above.

  RESTRUCTURING CHARGES

     In 2002, Mirant adopted a restructuring plan in response to constrained
access to capital markets that resulted from Moody's December 2001 downgrade of
Mirant's credit rating, the Enron bankruptcy, and other changes in market
conditions. This plan was designed to restructure operations by exiting certain
business operations, canceling and suspending planned power plant developments,
closing business development offices and severing employees. During the three
months ended March 31, 2002, the Company recorded restructuring charges of $4
million for severance costs and costs related to suspending planned power plant
developments, which amounts are included in other operating
expenses -- affiliates and non-affiliates in the accompanying unaudited
condensed consolidated statements of income. The severance costs and other
employee termination-related charges associated with the restructuring at the
Company's locations were paid by Mirant Services and billed to the Company.
Management cannot determine at the filing date the extent to which additional
restructuring by Mirant will impact the Company.

  NOTES PAYABLE TO AND NOTES RECEIVABLE FROM AFFILIATES

     Mirant Peaker and Mirant Potomac River borrowed funds in December 2000 from
Mirant Mid-Atlantic in order to finance their respective acquisitions of
generation facilities. At March 31, 2002 and December 31, 2001, unsecured
noncurrent 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>

     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% per annum. Subject to certain exceptions in the Bankruptcy Code, the
Chapter 11 filing automatically stayed the continuation of most actions against
the Mirant Debtors, including most actions to collect pre-petition indebtedness
or to exercise control over the property of the bankruptcy estate. Interest
earned by Mirant Mid-Atlantic from Mirant Potomac River and Mirant Peaker was $6
million for each of the three months ended March 31, 2002 and 2001.

     During 2001, the various operating subsidiaries of Mirant Americas
Generation entered into separate cash management agreements with Mirant, whereby
any excess cash was transferred to Mirant pursuant to a note agreement which was
payable upon demand with interest payable monthly. These advances, which at
March 31, 2002 and December 31, 2001 totaled approximately $185 million and $253
million, respectively, are reflected in current notes receivable from affiliates
in the accompanying unaudited condensed consolidated balance sheets. Similarly,
Mirant advanced funds to various subsidiaries for working capital purposes. Such
advances, which totaled approximately $109 million at March 31, 2002 and $49
million at December 31, 2001, are included in current notes payable to
affiliates in the accompanying unaudited condensed consolidated balance sheets.
Interest on these advances was payable monthly. During the fourth quarter of
2002, these cash management agreements were terminated and all outstanding
advances were repaid.

                                        38
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     Included in current notes payable to affiliates at December 31, 2001 is
approximately $284 million in advances from Mirant Americas primarily related to
various construction projects. These advances were due on demand, accrued
interest at 8.7% with interest due monthly, and were unsecured.

     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 respective intermediate and ultimate operating subsidiaries
that were obligated with respect to such notes payable.

  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 $287 million,
respectively, to Mirant Americas Generation in the first quarter of 2002. The
assets and liabilities of Mirant New England, LLC were transferred 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, derivative
financial instrument assets of $16 million, goodwill of $14 million and other
current assets of $27 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 $44 million, deferred tax
liabilities of $11 million and other current liabilities of $10 million.

     Mirant New England, LLC's revenue is primarily derived from a power sales
contract pursuant to which Mirant New England, LLC sells electricity at fixed
prices to two unaffiliated utilities in order for these utilities to meet their
supply requirements. This sales contract expires in February 2005. The
electricity sold by Mirant New England, LLC under this contract was purchased
from Mirant Americas Energy Marketing at current market prices. During 2002,
this sales contract was transferred to Mirant Canal, LLC, one of the Company's
subsidiaries, which sells electricity generated by its facilities directly to
the two utilities. In addition, Mirant New England, LLC sells energy and
capacity, which it purchases from Mirant Americas Energy Marketing, into the New
England energy market at current market prices.

  MIRANT MID-ATLANTIC CAPITAL CONTRIBUTION AGREEMENT WITH MIRANT

     The purchases of the Potomac River generating facility and the Chalk Point
combustion turbines by Mirant Potomac River and Mirant Peaker, respectively,
were funded by a capital contribution from Mirant and loans from Mirant
Mid-Atlantic. Under a capital contribution agreement, Mirant Potomac River and
Mirant Peaker are required to make distributions to Mirant at least once per
quarter, if funds are available. Distributions are equal to cash available after
taking into account projected cash requirements, including mandatory debt
service, prepayments permitted under the Mirant Potomac River and the Mirant
Peaker notes, and maintenance reserves, as reasonably determined by Mirant.
Mirant is required to contribute or cause these amounts to be contributed to
Mirant Mid-Atlantic. For the three months ended March 31, 2002 and 2001, capital
contributions received by Mirant Mid-Atlantic under this agreement totaled $14
million and $0, respectively. During the pendency of the Chapter 11 proceedings,
we do not anticipate that Mirant Potomac River or Mirant Peaker will distribute
dividends.

                                        39
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

  MIRANT GUARANTEES

     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 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.

     Through March 31, 2002, Mirant guaranteed up to $50 million of accrued
interest in the event that the Company is unable to pay accrued interest on its
two credit facilities (see Note I).

     Mirant has entered into letters of credit on behalf of subsidiaries of
Mirant Americas Generation relating to the Company's debt obligations and power
sales agreements totaling $120 million and $11 million, respectively, as of
March 31, 2002. None of these letters of credit were drawn on at March 31, 2002.
In the event of a draw on such letters of credit, Mirant Corporation would be
obligated to repay the amounts drawn. In January 2003, the letter of credit
related to the power sales agreements was terminated in conjunction with the
sale of the Neenah generating facility. The remaining letters of credit expire
in 2003. Unless the credit facilities are amended, Mirant will be unable to
renew these letters of credit when they expire.

F.  GOODWILL AND OTHER INTANGIBLE ASSETS

  GOODWILL

     Following is a summary of the changes in goodwill for the three months
ended March 31, 2002 (in millions):

<Table>
<S>                                                            <C>
Goodwill, beginning of period (as restated).................   $1,482
Goodwill acquired...........................................       14
Adoption of SFAS No. 141....................................      149
                                                               ------
Goodwill, end of period (as restated).......................   $1,645
                                                               ======
</Table>

     In connection with the adoption of SFAS No. 141 effective January 1, 2002,
Mirant Americas Generation reclassified to goodwill a portion of its intangible
assets relating to trading rights acquired in business combinations. The
reclassification increased goodwill by $149 million, net of accumulated
amortization of $13 million, and decreased intangible assets by a corresponding
amount. Since Mirant Americas Generation is not a taxable entity in most
jurisdictions, most of the deferred income taxes related to book/tax differences
of the assets and liabilities of Mirant Americas Generation are recorded by
Mirant Americas. A deferred tax liability was not recognized by Mirant Americas
as part of the purchase accounting for the non-deductible goodwill attributed to
the Company. A deferred tax liability was recognized for the book/tax basis
difference related to the trading rights attributed to the Company. 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
previously recorded by Mirant Americas attributable to the trading rights. The
reduction in the deferred tax liability at Mirant Americas resulted in a
corresponding reduction in the amount of goodwill attributed to the Company.

                                        40
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     Upon the adoption of SFAS No. 142, the Company discontinued amortization of
goodwill effective January 1, 2002. Net loss for the three months ended March
31, 2001 has been adjusted to exclude amortization related to goodwill and
trading rights recognized in business combinations (in millions).

<Table>
<Caption>

<S>                                                            <C>
Net loss (as restated)......................................   $(66)
Amortization of goodwill and trading rights.................     11
                                                               ----
     NET LOSS, AS ADJUSTED..................................   $(55)
                                                               ====
</Table>

     During the first quarter of 2002, Mirant Americas Generation recorded $14
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.

     In the fourth quarter of 2002, the Company performed the first step of its
annual goodwill impairment evaluation as required by SFAS No. 142. The Company
determined that the carrying value of that reporting unit exceeded its fair
value. The Company recognized an impairment charge in the fourth quarter of 2002
of $20 million. The impairment was primarily attributable to the loss of future
cash flows associated with generation development that has been deferred and
certain assets planned to be sold during the upcoming year.

 OTHER INTANGIBLE ASSETS

     Following is a summary of intangible assets as of March 31, 2002 and
December 31, 2001 (in millions):

<Table>
<Caption>
                                                   MARCH 31, 2002                 DECEMBER 31, 2001
                               WEIGHTED              (RESTATED)                      (RESTATED)
                               AVERAGE      -----------------------------   -----------------------------
                             AMORTIZATION   GROSS CARRYING   ACCUMULATED    GROSS CARRYING   ACCUMULATED
                                LIVES           AMOUNT       AMORTIZATION       AMOUNT       AMORTIZATION
                             ------------   --------------   ------------   --------------   ------------
<S>                          <C>            <C>              <C>            <C>              <C>
Trading rights.............    30 years          $207            $(27)           $406            $(40)
Development rights.........    33 years           160              (7)            199              (9)
Emissions allowances.......    32 years           131              (5)            131              (4)
Other intangibles..........    30 years            14              (1)             18              (4)
                                                 ----            ----            ----            ----
     TOTAL OTHER INTANGIBLE
       ASSETS..............                      $512            $(40)           $754            $(57)
                                                 ====            ====            ====            ====
</Table>

     All of Mirant Americas Generation's other intangible assets are subject to
amortization and are being amortized on a straight-line basis over their
estimated useful lives, ranging from 23 to 40 years. Amortization expense for
both the three months ended March 31, 2002 and 2001 was approximately $4
million. Assuming no future acquisitions, dispositions or impairments of
intangible assets, amortization expense is estimated to be $17 million for the
year ended December 31, 2002 and $17 million for each of the following four
years.

     Trading rights represent intangible assets recognized in connection with
asset purchases that represent the Company's ability to generate additional cash
flows by incorporating Mirant's trading activities with the acquired generating
facilities.

     Development rights represent the right 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 the Company provide the opportunity to expand or
repower certain generation facilities. This ability to expand or repower is
expected to be at significant cost savings compared to greenfield construction.

                                        41
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     Mirant Mid-Atlantic acquired emission allowances for both SO(2) and NOx
emissions, as well as the right to future allowances related to certain leased
generating facilities in connection with the acquisition of the PEPCO assets.

     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.

G.  DERIVATIVE FINANCIAL INSTRUMENTS

     Mirant Americas Generation uses derivative financial instruments to manage
cash flow exposures arising from changes in commodity market prices, principally
for energy sales and fuel requirements, and in the past has used derivative
instruments to manage these exposures arising from variable interest rates.
Mirant Americas Generation's objective for holding derivative financial
instruments is to provide a degree of stability to the Company's cash flows
during periods of significant volatility in commodity prices. All price risk
management activities are performed for the Company by Mirant Americas Energy
Marketing under an affiliate agreement (Note E).

 INTEREST RATE HEDGING

     Mirant Americas Generation's policy is to manage interest expense using a
combination of fixed- and variable-rate debt. From time to time Mirant Americas
Generation also 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 interest
rate swaps are designated to hedge the variable interest rate risk in the
underlying debt obligations. For swaps that qualify as cash flow hedges, the
changes in the fair value of the swaps are deferred in OCI, and reclassified
from OCI as an adjustment to interest expense over the term of the swaps. Gains
and losses resulting from the termination of qualifying hedges prior to their
stated maturities are recognized ratably over the remaining term of the hedged
instruments. At March 31, 2002, the Company was not a party to any interest rate
swaps. During the three months ended March 31, 2002, the Company reclassified $1
million in interest rate hedging losses from OCI to earnings. Mirant Americas
Generation estimates that $6 million of interest rate hedging losses included in
OCI as of March 31, 2002 will be reclassified from OCI into earnings within the
next twelve months as certain forecasted interest payments are made. The Company
expects that as a result of the Chapter 11 filings, interest payments will cease
and the remaining interest rate hedging losses included in OCI will be
reclassified from OCI into earnings in the third quarter of 2003.

 PRICE RISK MANAGEMENT ACTIVITIES

     Through Mirant Americas Energy Marketing, Mirant Americas Generation enters
into commodity forward physical transactions as well as derivative financial
instruments to manage market risk and exposure to market prices for electricity
and natural gas, oil and other fuels utilized by its generation assets. The
physical transactions include forward contracts for physical sales and purchases
of electricity and natural gas. The derivative financial instruments primarily
include forwards, futures, options and swaps, and may include instruments whose
underlying commodity is highly correlated to the electricity produced or to the
fuels utilized by the Company's generation facilities, although the underlying
fuel commodity itself is not a component fuel used to produce electricity.

     Power sales agreements, such as the ECSA, 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 financial instruments in the accompanying
unaudited condensed consolidated balance sheets.

                                        42
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     As discussed in Note C, the Company determined that certain derivative
financial instruments previously accounted for as cash flow hedges under SFAS
No. 133 do not qualify for cash flow hedge accounting. Accordingly, all realized
and unrealized gains and losses associated with these derivative transactions
have been recognized in earnings in 2001 (in the period incurred).

     At March 31, 2002, our derivative financial instruments have terms
extending through 2010. The net notional amount, or net long (short) position,
of our derivative financial instruments at March 31, 2002 was approximately (5)
million equivalent megawatt-hours. The following table presents a summary of the
units, equivalent megawatt-hours and duration by commodity of our derivative
financial instruments at March 31, 2002:

<Table>
<Caption>
                                        NOMINAL UNITS       EQUIVALENT MWH   AVERAGE DURATION
                                         LONG (SHORT)        LONG (SHORT)        (YEARS)
                                     --------------------   --------------   ----------------
<S>                                  <C>                    <C>              <C>
Electricity........................  (18) million MWh        (18) million           .99
Natural gas........................   65  million mmbtu       6.5 million          1.28
Crude oil..........................  1.1  million barrel      0.5 million           .73
Residual fuel......................  9.4  million barrels     5.9 million          1.07
</Table>

H.  OTHER COMPREHENSIVE LOSS

     Other comprehensive loss includes unrealized gains and losses on certain
derivatives that qualify as cash flow hedges. Changes in accumulated other
comprehensive loss, net of tax are as follows (in millions):

<Table>
<S>                                                            <C>
BALANCE, DECEMBER 31, 2001 (AS RESTATED)....................   $(75)
                                                               ----
Other comprehensive income for the period:
  Reclassification to earnings, net of tax effect of $(6)...      8
                                                               ----
Other comprehensive income (as restated)....................      8
                                                               ----
BALANCE, MARCH 31, 2002 (AS RESTATED).......................   $(67)
                                                               ====
</Table>

     The $67 million in accumulated other comprehensive loss at March 31, 2002
is associated with deferred interest rate swap hedging losses.

     Mirant Americas Generation estimates that $6 million of interest rate
hedging losses included in other comprehensive loss as of March 31, 2002 will be
reclassified to earnings within the next twelve months as certain forecasted
interest payments are made. The Company expects that as a result of the Chapter
11 filings, interest payments will cease and the remaining interest rate hedging
losses included in OCI will be reclassified from OCI into earnings in the third
quarter of 2003.

I.  DEBT

     The Company is in default on approximately $2.8 billion of currently
outstanding debt. Subject to certain exceptions in the Bankruptcy Code, the
Chapter 11 filings automatically stayed the continuation of most actions against
the Mirant Debtors, including most actions to collect pre-petition indebtedness
or to exercise control over the property of the bankruptcy estate. As a result,
absent an order of the Bankruptcy Court, creditors are precluded from collecting
pre-petition debts, and substantially all pre-petition liabilities are subject
to compromise under a plan of reorganization.

                                        43
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     At March 31, 2002 and December 31, 2001, Mirant Americas Generation's debt
was as follows (in millions):

<Table>
<Caption>
                                                    MARCH 31,   DECEMBER 31,   SECURED/
                                                      2002          2001       UNSECURED
                                                    ---------   ------------   ---------
<S>                                                 <C>         <C>            <C>
SENIOR NOTES:
7.625% notes, due 2006............................   $  500        $  500      Unsecured
7.20% notes, due 2008.............................      300           300      Unsecured
8.30% notes, due 2011.............................      850           850      Unsecured
8.50% notes, due 2021.............................      450           450      Unsecured
9.125% notes, due 2031............................      400           400      Unsecured
BANK ARRANGEMENTS:
$250 million credit facility expiring October
  2004............................................       73            73      Unsecured
$50 million credit facility expiring October
  2004............................................       --            --      Unsecured
Unamortized debt discount.........................       (6)           (6)
                                                     ------        ------
  Total long-term debt............................   $2,567        $2,567
                                                     ======        ======
</Table>

 CREDIT FACILITIES

     At March 31, 2002, the Company had two credit facilities, each entered into
in August 1999, 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 at an interest rate of
3.12%. As of March 31, 2002, there were no borrowings under Credit Facility C.
Under each of the credit facilities, the Company pays interest and
facility/commitment fees (0.25% at March 31, 2002) in an amount determined by
reference to its then existing credit rating.

     Each of the Company's credit facilities include minimum debt service
coverage, a maximum leverage covenant and minimum debt service coverage tests
for restricted payments and incurrence of additional indebtedness. Under its
credit facilities, the Company is required to maintain a minimum of 1.75:1.0
ratio of Cash Available for Corporate Debt Service to Corporate Interest, based
on the last twelve months of available financial statements. In addition, the
Company is required to maintain a maximum of 0.60:1.0 ratio of Recourse Debt to
Recourse Capital, or 0.65:1.0 if rated investment grade. The Company may not
incur recourse debt unless (x) its ratio of Cash Available for Corporate Debt
Service to Corporate Interest is at least 2.75:1.00 (if not rated investment
grade) or 2.25:1.00 (if rated investment grade), and (y) if on the date such
incurrence (A) Moody's and S&P reaffirm an investment grade rating, or (B) if
not rated investment grade, the projected ratio of Cash Available for Corporate
Debt Service to Corporate Interest shall be at least 2.75:1.00 over the life of
the credit facilities. Further, the Company may not (i) declare or make dividend
payments or other distribution of assets, properties, cash, rights, obligations
or securities; (ii) make payments with respect to affiliate subordinated debt;
(iii) purchase, redeem or otherwise acquire shares of any class of capital
stock, unless its ratio of Cash Available for Corporate Debt Service to
Corporate Interest was at least 2.25:1.00 (if not rated investment grade) or
2.00:1.00 (if rated investment grade).

     The Company's credit facilities limit the ability of its designated
subsidiaries -- essentially the subsidiaries that hold its California, New
England and New York assets -- to incur indebtedness. Under the credit
facilities, the maximum debt at the designated subsidiaries is limited to $200
million (if

                                        44
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

investment grade) or $100 million (if non-investment grade). In addition, the
Company's credit facilities provide that, within 18 months of its receipt of the
proceeds of any sale of any asset, other than "Exempt Asset Sale Proceeds," the
Company (a) shall invest such proceeds in assets in a similar or related line of
business, and/or (b) shall apply such proceeds to the repayment of debt under
the credit facilities. "Exempt Asset Sale Proceeds" means (x) proceeds from the
sale of assets in the ordinary course, to conform to regulation or of short-term
marketable securities, (y) proceeds of any sale of an asset of Mirant Americas
Generation at the time the credit facilities were entered into ("Existing
Asset"), except proceeds from the sale of Existing Assets having a net book
value equal to the amount by which (a)(I) the aggregate net book value of all
Existing Assets sold after June 30, 1999, plus the principal amount of debt of
the designated generating subsidiaries outstanding at the time of such sale,
minus (II) the amounts reinvested or paid pursuant to the provision described
above after June 30, 1999, exceeds (b) 25% of the consolidated assets of Mirant
Americas Generation at June 30, 1999; and (z) proceeds of any sale of an asset
of Mirant Americas Generation, except proceeds from the sale of assets having a
net book value equal to the amount by which (a)(I) the aggregate net book value
of assets sold after June 30, 1999, plus the principal amount of debt of the
designated generating subsidiaries outstanding at the time of such sale, minus
(II) the amounts reinvested or paid pursuant to the provision described above
after June 30, 1999, exceeds (b) 25% of the consolidated assets of Mirant
Americas Generation at the date of its most recent balance sheet.

     In addition to these covenants and terms, the Credit Facility C has a
clean-up provision, which requires that at least once in each twelve month
period that there shall not be any advances outstanding for a period of 10
consecutive days. As a result, amounts outstanding under this facility are
deemed current obligations.

     Each of the Company's credit facilities includes certain events of default
typical of such credit facilities, including (a) a cross acceleration provision
pursuant to which a default under such facility would be triggered if the
Company failed to pay any principal, premium or interest in excess of $50
million on any outstanding debt obligation, and (b) a change of control default
triggered if the Company ceases to be controlled by Mirant.

     As of March 31, 2002, there were no events of default under such credit
facilities.

 SENIOR NOTES

     The Company has five series of Senior Notes: $500 million 7.625% Senior
Notes due 2006; $300 million 7.2% Senior Notes due 2008; $850 million 8.3%
Senior Notes due 2011; $450 million 8.5% Senior Notes due 2021; and $400 million
9.125% Senior Notes due 2031 (collectively the "Senior Notes"). The Senior Notes
are unsecured. It is an event of default under the Senior Notes if the Company
fails to pay any principal, premium or interest in excess of $50 million on any
outstanding debt obligation when it becomes due and payable. The Senior Notes
include restrictions on incurrence of additional indebtedness by the Company and
limitations on the Company's ability to sell assets. The Company may not incur
additional senior debt unless (a) the projected Senior Debt Service Coverage
Ratio for the next 24 months is at least 2.5:1.0, or (b) each rating agency
confirms the then existing rating on the Senior Notes after giving effect to
such incurrence. In addition, under the Senior Notes asset sales by the Company
are limited to 10% of the consolidated net assets of the Company during the most
recent 12 month period, except for asset sales where the proceeds are reinvested
within 18 months in related businesses, used to repay debt, or retained by the
Company or its subsidiaries. In addition, under the Senior Notes, the Company is
restricted in its ability to grant liens or encumbrance on or over its non-cash
assets to secure the payment of indebtedness, subject to certain exceptions.
There are no restrictions under the Senior Notes on the ability of subsidiaries
of the Company to incur secured or unsecured indebtedness.

                                        45
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

J.  COMMITMENTS AND CONTINGENCIES

  LITIGATION AND OTHER CONTINGENCIES

     As discussed in Item 3 of the Company's Form 10-K/A for the period ended
December 31, 2002 and footnote 12 to the financial statements included in that
Form 10-K/A, the Company is involved in a number of significant legal
proceedings. In certain cases, plaintiffs seek to recover large and sometimes
unspecified damages, and some matters may be unresolved for several years. The
Company cannot currently determine the outcome of the proceedings described
below and in its Form 10-K/A for the period ended December 31, 2002 or the
ultimate amount of potential losses. Pursuant to SFAS No. 5, "Accounting for
Contingencies," management provides for estimated losses to the extent
information becomes available indicating that losses are probable and that the
amounts are reasonably estimable. Additional losses resulting from these legal
proceedings could have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows. Reference is made to
the Company's Form 10-K/A for the period ended December 31, 2002, filed on April
30, 2003, for a complete description of the matters described below that were
initiated prior to April 30, 2003.

     As discussed above under Note A -- Proceedings under Chapter 11 of the
Bankruptcy Code, on the Petition Date, the Mirant Debtors, including Mirant
Americas Generation, LLC, filed voluntary petitions for relief under Chapter 11
of the Bankruptcy Code. As a debtor-in-possession, the Company is authorized
under Chapter 11 to continue to operate as an ongoing business, but may not
engage in transactions outside the ordinary course of business without the prior
approval of the Bankruptcy Court. As of the Petition Date, most pending
litigation (including some of the actions described below) is stayed, and absent
further order of the Bankruptcy Court, no party, subject to certain exceptions,
may take any action, again subject to certain exceptions, to recover on
pre-petition claims against the Company. One exception to this stay of
litigation is actions or proceedings by a governmental agency to enforce its
police or regulatory power. The claims asserted in litigation and proceedings to
which the stay applies may be fully and finally resolved in connection with the
administration of the bankruptcy proceedings and, to the extent not resolved,
will need to be addressed in the context of any plan or plans of reorganization.
At this time, it is not possible to predict the outcome of the Chapter 11
filings or their effect on the Company's business or litigation.

 California and Western Power Markets

     As discussed in Item 3 of the Company's Form 10-K/A for the period ended
December 31, 2002 and footnote 12 to the financial statements included in that
Form 10-K/A, the Company is subject to litigation related to its activities in
California and the western power markets and the high prices for wholesale
electricity experienced in the western markets during 2000 and 2001. Various
lawsuits and complaints have been filed by the California Attorney General, the
California Public Utility Commission ("CPUC"), the California Electricity
Oversight Board ("EOB") and various states' rate payers in state and federal
courts and with the Federal Energy Regulatory Commission (the "FERC"). In
addition, civil and criminal investigations have been initiated by the
Department of Justice, the General Accounting Office, the FERC and various
states' attorneys general.

     In an order issued July 25, 2001, the FERC initiated a proceeding to
determine whether there had been unjust and unreasonable charges for spot market
bilateral sales in the Pacific Northwest from December 25, 2000 through June 20,
2001. In an order issued June 25, 2003, the FERC ruled that no refunds were
required and terminated the proceeding. Certain parties to the proceeding have
filed a request for rehearing by the FERC.

                                        46
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     On July 9, 2003, the United Sates District Court for the Southern District
of California entered an order remanding the Millar suit to the California state
court.

     On May 19, 2003, the United States District Court for the Southern District
of California denied motions filed by the plaintiffs seeking to have the
Pastorino, RDJ Farms, Century Theatres, El Super Burrito, Leo's Day and Night
Pharmacy, J&M Karsant, and Bronco Don Holdings suits filed between April 23,
2002 and May 24, 2002 remanded to the California state courts in which they were
originally filed and from which they had been removed by the defendants. The
Mirant Americas Generation entities and the other defendants have filed motions
to dismiss in those cases.

     On July 8, 2003, the Superior Court for the County of Los Angeles dismissed
the Bustamante v. The McGraw-Hill Companies, Inc., et al. suit that had been
filed November 20, 2002, finding that the plaintiffs had failed to allege facts
sufficient to warrant relief. The court did grant the plaintiffs leave to file
an amended complaint. On August 13, 2003, the plaintiff filed an amended
complaint asserting claims under California's Unfair Competition Act and state
antitrust statute against gas distribution or marketing companies, owner of
electric generation facilities in California and energy marketers, including
various of the Company's subsidiaries. The amended complaint alleges that the
defendants engaged in a scheme to report false gas prices and volumes to
companies that published index prices for natural gas in order to manipulate the
price indices to benefit themselves. This conduct, the plaintiff asserts,
violated California Penal Code section 395 and caused the prices paid by
Californians for natural gas to be artificially inflated. The suit is brought as
a representative action on behalf of all similarly situated persons, the general
public and all taxpayers. The suit seeks, among other things, disgorgement of
profits, restitution, treble damages and injunctive relief.

     On May 5, 2003, the United States District Court for the District of Oregon
granted a motion filed by the plaintiff seeking to dismiss the Lodewick suit
without prejudice. On June 2, 2003, the United States District Court for the
Western District of Washington granted a motion filed by the plaintiff seeking
to dismiss without prejudice the Symonds suit.

     On April 28, 2003, a purported class action suit, Egger et al. v. Dynegy,
Inc. et al., was filed in the Superior Court for the County of San Diego,
California, against various owners of electric generation facilities in
California and marketers of electricity and natural gas, including Mirant
Americas Generation entities, on behalf of all persons who purchased electricity
in Oregon, Washington, Utah, Nevada, Idaho, New Mexico, Arizona and Montana from
January 1, 1999. The plaintiffs allege that the defendants engaged in unlawful,
unfair, and deceptive practices in the California and western wholesale
electricity markets, including withholding energy from the market to create
artificial shortages, creating artificial congestion over transmission lines,
selling electricity bought in California to out of state affiliates to create
artificial shortages and then selling the electricity back into the state at
higher prices. The plaintiffs contend that the defendants conspired among
themselves and with subsidiaries of Enron Corporation to withhold electricity
from the California Power Exchange Corporation ("PX") and the California
Independent System Operator ("CAISO") markets and to manipulate the price of
electricity sold at wholesale in the California and western markets. The
defendants' unlawful manipulation of the wholesale energy market, the plaintiffs
allege, resulted in supply shortages and skyrocketing energy prices in the
western United States, which in turn caused drastic rate increases for retail
consumers. The plaintiffs assert claims under California's antitrust statute and
its Unfair Competition Act. The plaintiffs contend that the defendants' alleged
wrongful conduct has caused damages in excess of one billion dollars and seek
treble damages, injunctive relief, restitution, and an accounting of the
wholesale energy transactions entered into by the defendants from 1998. The
defendants have removed the suit to the United States District Court for the
Southern District of California.

                                        47
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     California Receivables:  In 2001, Southern California Edison ("SCE") and
Pacific Gas and Electric ("PG&E") suspended payments to the PX and the CAISO for
certain power purchases, including purchases from Mirant Americas Energy
Marketing for which the Company bears the risk of recovery under the contractual
arrangements pursuant to which Mirant Americas Energy Marketing bought and
resold electricity produced by the Company's California generation assets. Both
the PX and PG&E filed for bankruptcy protection in 2001. As of March 31, 2002,
the Company has outstanding receivables for power sales made in California
totaling $305 million. The Company does not expect any payments to be received
for these sales until the FERC issues final rulings in the proceeding it
initiated in July 2001 to determine the amount of any refunds and amounts owed
for sales made to the CAISO or the PX from October 2, 2000 through June 20,
2001.

     FERC Show Cause Proceeding Relating to Trading Practices:  On June 25,
2003, the FERC issued a show cause order (the "Trading Practices Order") to more
than fifty parties, including Mirant Americas Generation entities and Mirant
Americas Energy Marketing, that a FERC Staff report issued on March 26, 2003
indicated may have engaged in one or more trading strategies of the type
employed by Enron Corporation and its affiliates ("Enron") and portrayed in the
Enron memos released by the FERC in May 2002. The Trading Practices Order
identifies certain specific trading practices that the FERC indicates could
constitute gaming or anomalous market behavior in violation of the CAISO and PX
tariffs. The order requires the CAISO to identify those transactions engaged in
by the parties that are the subject of the order between January 1, 2000 and
June 20, 2001 that potentially fall within the specified practices. Those
parties, including the Mirant Americas Generation entities and Mirant Americas
Energy Marketing, will then have to demonstrate why those transactions were not
violations of the PX and CAISO tariffs. The FERC also stated that the parties
could try to settle these issues with the FERC Trial Staff. If the FERC finds
that the Mirant Americas Generation entities or Mirant Americas Energy Marketing
engaged in transactions that violated the PX or CAISO tariffs between January 1,
2000 through June 20, 2001 or the issue is resolved pursuant to settlement, the
FERC could require the disgorgement of profits made on those transactions and
could impose other non-monetary penalties. Under the contractual arrangements
pursuant to which Mirant Americas Energy Marketing bought and resold electricity
produced by the Company's California generation assets, the Company could have
to reimburse Mirant Americas Energy Marketing for the amount of any disgorgement
of profits required or other remedy imposed by the FERC upon Mirant Americas
Energy Marketing.

     FERC Investigation Relating to Bidding:  The FERC on June 25, 2003 issued
an order (the "Bidding Order") initiating an investigation by its staff into
bidding practices in the PX and CAISO markets between May 1, 2000 and October 1,
2000 of more than fifty parties, including Mirant Americas Generation entities
and Mirant Americas Energy Marketing. These entities were previously identified
in the report issued by the FERC Staff on March 26, 2003 as having bid
generation resources to the PX and CAISO at prices unrelated to costs. The
Bidding Order requires those entities, including the Mirant Americas Generation
entities and Mirant Americas Energy Marketing, to demonstrate why bids in the PX
and CAISO markets from May 1, 2000 through October 1, 2000 that were in excess
of $250 per megawatt hour did not constitute a violation of the CAISO and PX
tariffs. If the FERC finds that the Mirant Americas Generation entities or
Mirant Americas Energy Marketing engaged in bidding practices that violated the
PX or CAISO tariffs between May 1, 2000 through October 1, 2000, the FERC could
require the disgorgement of profits made as a result of those bids and could
impose other non-monetary penalties. Under its contractual arrangements with
Mirant Americas Energy Marketing, the Company could be required to reimburse
Mirant Americas Energy Marketing for the amount of any disgorgement of profits
required or other remedy imposed by the FERC upon Mirant Americas Energy
Marketing with respect to Mirant Americas Energy Marketing's resale of
electricity produced by the Company's California generation assets. While the
Company believes its bidding practices were legitimate and that it did not

                                        48
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

violate the appropriate tariffs, the standards by which the FERC will ultimately
judge the Company's bidding practices are unclear. Depending on the standards
applied by the FERC and if Mirant Americas Generation entities or Mirant
Americas Energy Marketing are found by the FERC to have violated the PX or CAISO
tariffs, the amount of any disgorgement of profits required or other remedy
imposed by the FERC could have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

     DWR Power Purchases:  On June 26, 2003, the FERC issued an order dismissing
the complaints filed by the CPUC and the EOB against Mirant Americas Energy
Marketing alleging that the terms of the 19-month agreement Mirant Americas
Energy Marketing entered into with the DWR in May 2001 to provide the State of
California with approximately 500 MW of electricity during peak hours through
December 31, 2002 were unjust and unreasonable. Mirant Americas Generation bears
the risk of any abrogation of or revision to the terms of the May 2001 contract
between Mirant Americas Energy Marketing and the DWR. The CPUC and the EOB have
filed a motion seeking reconsideration by the FERC of this decision and have
stated that, if reconsideration is denied, they will appeal the FERC's decision
to the United States Court of Appeals.

     "Reliability-Must-Run" Agreements: Certain of the Company's generating
facilities acquired from PG&E are operated subject to "reliability-must-run"
("RMR") agreements. For those plants that are subject to the RMR agreements and
from which Mirant Americas Generation has exercised its right to also make
market sales, Mirant Americas Generation has been collecting from the CAISO
since April 1999 an amount equal to fifty percent of the annual fixed revenue
requirement of those plants. The amounts the Company collects from the CAISO are
subject to refund pending final review and approval by the FERC. In June 2000,
an ALJ issued a decision finding that the amount the Company should be allowed
to charge the CAISO for such plants was approximately three and one-half percent
of the annual fixed revenue requirement. In July 2000, Mirant Americas
Generation sought review by the FERC of the ALJ decision, and a decision is
pending at the FERC.

     The Company recognizes revenue related to these agreements based on the
rates ruled to be reasonable by the ALJ. If the Company is unsuccessful in its
appeal of the ALJ's decision, it will be required to refund amounts collected in
excess of those rates since June 1, 1999. Amounts collected in excess of those
rates, which totaled $244 million and $219 million as of March 31, 2002 and
December 31, 2001, respectively are deferred and included in revenues subject to
refund in the accompanying consolidated balance sheets. In addition, the Company
records accrued interest on such amounts, which amounted to $25 million and $22
million as of March 31, 2002 and December 31, 2001, respectively, and includes
such amounts in revenues subject to refund in the accompanying consolidated
balance sheets. If resolution of the proceeding results in refunds of that
magnitude and the Company were unable to arrange to make the refunds over a
multi-year period, it would have a material impact on the Company's liquidity;
however it would have no effect on net income for the periods under review as
adequate reserves have been recorded.

  Mirant Americas Generation Bondholder Suit

     On June 10, 2003, certain holders of senior Mirant Americas Generation
notes maturing after 2006 filed a complaint in the Court of Chancery of the
State of Delaware, California Public Employees' Retirement System, et al. v.
Mirant Corporation, et. al., that named as defendants Mirant, Mirant Americas,
Inc., Mirant Americas Generation, certain past and present Mirant directors, and
certain past and present Mirant Americas Generation managers. Among other
claims, the plaintiffs assert that the restructuring plan pursued by the Company
prior to its filing a petition for reorganization under Chapter 11 of the
Bankruptcy Code was in breach of fiduciary duties allegedly owed to them by
Mirant, Mirant

                                        49
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

Americas and Mirant Americas Generation managers. In addition, plaintiffs
challenge certain dividends and distributions allegedly made by Mirant Americas
Generation. Plaintiffs seek damages in excess of one billion dollars.

  Mirant Americas Generation Securities Class Action

     On June 25, 2003, the Company received notice that on June 11, 2003, a
purported class action lawsuit alleging violations of Sections 11 and 15 of the
Securities Act of 1933 was filed in the Superior Court of Fulton County, Georgia
entitled Wisniak v. Mirant Americas Generation, LLC, et al. The lawsuit names as
defendants Mirant Americas Generation and certain current and former officers
and managers of Mirant Americas Generation. The plaintiff seeks to represent a
putative class of all persons who purchased debt securities of Mirant Americas
Generation pursuant to or traceable to an exchange offer completed by Mirant
Americas Generation in May 2002 in which $750 million of bonds registered under
the Securities Act were exchanged for $750 million of previously issued senior
notes of Mirant Americas Generation. The plaintiff alleges, among other things,
that Mirant Americas Generation's recent restatement of prior financial
statements rendered the registration statement filed for the May 2002 exchange
offer materially false. The complaint seeks damages, interest and attorneys'
fees. The defendants have removed the suit to the United States District Court
for the Northern District of Georgia.

  Environmental Liabilities

     In 2000 the State of New York issued a notice of violation to the previous
owner of Mirant New York's Lovett facility concerning the air permitting and air
emission control implications under the Environmental Protection Agency's new
source review regulations promulgated under the Clean Air Act ("NSR") of the
operation of that plant prior to its acquisition by Mirant New York. On June 11,
2003, Mirant New York and the State of New York entered into, and filed for
approval with the United States District Court for the Southern District of New
York, a consent decree that releases Mirant New York from all potential
liability for matters addressed in the notice of violation previously issued by
the state to Orange and Rockland Utilities and for any other potential violation
of NSR or related New York air laws prior to and through the date of entry of
the consent decree by the court. The consent decree is subject to review and
final approval by the court. Under the decree, Mirant New York commits to
install on Lovett's two coal-fired units by 2007 to 2008 emission control
technology consisting of selective catalytic reduction technology to reduce
nitrogen oxide emissions, alkaline in-duct injection technology to reduce sulfur
dioxide emissions, and a baghouse. The cost of the emission controls prescribed
by the consent decree could approach $100 million over the approximately
five-year period covered by the consent decree. Such costs would generally be
capitalized and amortized as a component of property, plant and equipment. The
consent decree allows Mirant New York to shut down a unit rather than install
the prescribed emission controls on the unit. For one of the units, Mirant New
York also has the option to convert the unit to operate exclusively as a
gas-fired boiler and limit the hours of operation rather than install the
prescribed emission controls. Mirant New York also agreed, beginning 2009, to
retire annually 1,954 tons of sulfur dioxide emission allowances allocated to
the Lovett facility under the Clean Air Act Acid Rain Program, which allowances
will no longer be needed by Mirant New York for compliance as a result of the
sulfur dioxide emission reductions caused by the other actions required by the
consent decree. Mirant New York did not admit to any liability, and the consent
decree does not impose any penalty on Mirant New York for alleged past
violations. The Company intends to seek bankruptcy court approval of the terms
of the consent decree prior to its becoming effective.

                                        50
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

  New York Property Tax

     Mirant New York has filed a petition seeking to appeal to the New York
Court of Appeals, New York's highest court, the decision issued in April 2003 by
the New York Supreme Court, Appellate Division, reversing a judgment that Mirant
New York had obtained in January 2002 against the Town of Haverstraw, New York
and the Haverstraw Stony Point School District with regard to the Town's and
School District's failure to perform under a previously agreed to property tax
agreement.

  Dick Corporation Litigation Regarding Kendall Upgrade

     On January 7, 2003, Dick Corporation ("Dick") filed a suit against the
Company's subsidiary Mirant Kendall, L.L.C. in the Superior Court for Middlesex
County, Massachusetts, entitled Dick Corporation v. Southern Energy Kendall, LLC
aka Mirant Kendall, LLC (the "Dick Suit"). Mirant Kendall had contracted with
Dick for Dick to engineer, procure and construct an upgrade of an existing power
plant facility owned by Mirant Kendall in Cambridge, Massachusetts, to a
combined-cycle power plant. In its complaint, Dick asserts claims of breach of
contract, quantum meruit, unjust enrichment, and unfair business practices. Dick
is seeking damages in excess of $33 million, plus interest and attorneys' fees,
and is seeking to have these damages trebled under Massachusetts' unfair
business practices statute. The Company considers the likelihood of Dick
recovering the amount of damages it seeks to be remote. On January 13, 2003,
Mirant Kendall filed a breach of contract and declaratory judgment action
against Dick in the United States District Court for the District of
Massachusetts entitled Mirant Kendall, LLC v. Dick Corporation (the "Mirant
Suit"). Mirant Kendall is seeking to recover an unspecified amount of damages,
plus interest and attorneys' fees, and is seeking a declaration by the court of
its rights under the contract with Dick. Mirant Kendall removed the Dick Suit to
the federal district court, and on March 24, 2003 the district court issued an
order consolidating the Dick Suit with the Mirant Suit.

     On December 11, 2002, a related suit (the "St. Paul Suit") was filed by St.
Paul Mercury Insurance Company ("St. Paul") against Dick, Mirant Kendall, and
CNA Insurance Companies in the Superior Court for Middlesex County,
Massachusetts. St. Paul is the assignee and subrogee of the rights and remedies
of Harding and Smith Corporation, a subcontractor to Dick on the Kendall
project. St. Paul has included Mirant Kendall in the lawsuit for the purpose of
enforcing its mechanics' lien filed on the Kendall project in the approximate
amount of $10 million. Under its contract with Dick, Mirant Kendall is entitled
to be indemnified by Dick for the claim asserted by St. Paul against Mirant
Kendall. In the St. Paul Suit, Dick on February 24, 2003 filed a cross-claim
against Mirant Kendall asserting claims similar to those it made in the Dick
Suit. On June 19, 2003, the Middlesex Superior Court stayed those claims against
Mirant Kendall pending final resolution of the Dick Suit and the Mirant Suit by
the federal district court.

  Texas Commercial Energy Suit

     On July 7, 2003, Texas Commercial Energy announced that it had filed a
lawsuit in the United States District Court for the Southern District of Texas
against various parties that own generation or sell electricity at wholesale in
the Electric Reliability Council of Texas ("ERCOT"), including a Mirant Americas
Generation subsidiary. The suit, which is entitled Texas Commercial Energy v.
TXU Energy, Inc. et al., alleges that the defendants acting individually and in
concert with each other engaged in anti-competitive activities in the ERCOT
market in order to fraudulently inflate the price at which they could sell
electricity at wholesale and to drive the plaintiff out of the Texas retail
market. The wrongful conduct alleged includes such activities as economic
withholding of generation, physical withholding of generation and manipulative
bidding. The complaint asserts claims for, among other things, violation of
federal and Texas antitrust laws, fraud, price fixing, and negligent
misrepresentation. The plaintiff alleges it suffered

                                        51
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

damages in excess of $500 million and seeks treble damages and attorneys' fees.
On August 6, 2003, the plaintiff filed an amended complaint that continued to
allege wrongful conduct by Mirant Corporation and certain of its subsidiaries
but did not name them as defendants in the action.

  Other Legal Matters

     In addition to those discussed above and in the Company's Form 10-K for the
period ended December 31, 2002, the Company is involved in various other claims
and legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.

CONTINGENCIES

  Union Negotiations

     In June 2003, Mirant and International Brotherhood of Electrical Workers
Union 503 in New York entered into a new labor agreement that is effective from
June 1, 2003 until June 1, 2008.

     Effective August 10, 2003, Mirant Mid-Atlantic unilaterally implemented the
terms and conditions of a final labor agreement proposed to power plant
employees represented by Local Union 1900, I.B.E.W. at our Mirant Mid-Atlantic
plants in Washington D.C., Maryland, and Virginia. There is a risk that there
will be a strike or some other form of adverse collective action by the union.
If a strike does occur, there is a risk that such action could disrupt the
ability of these plants to produce energy.

COMMITMENTS

  Fuel Supply Agreements

     In April 2002, Mirant Mid-Atlantic entered into a long-term fuel purchase
agreement. The fuel supplier converts 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 varies with the
delivered cost of the coal feedstock. Based on current coal prices, as of July
1, 2002, total estimated minimum commitments under this 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, which approximated book value.

     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.

     Substantially all of the Company's fuel requirements are fulfilled through
these two agreements and its arrangements with Mirant Americas Energy Marketing
for fuel supply (Note E).

     Mirant Americas Generation has total minimum commitments under fuel
purchase and transportation agreements of $116 million at March 31, 2002.

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

                                        52
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

  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. At this time, the Company intends to
complete these construction related activities. Generally, these commitments may
be terminated at minimal cost to the Company.

  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, if the associated turbine is cancelled prior to
delivery, then these agreements may be terminated at little or no cost. 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 term.
The terms are projected to range from ten to twenty years. Some of these
agreements have terms that allow for potential cancellation of the contract at
mid-term. If the Company were to cancel these contracts at mid-term, the
estimated commitments for the remaining long-term service agreements would be
reduced to approximately $180 million. These projected commitments reflect
original contract pricing and 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 have been
or will 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.

  Operating Leases

     Subject to certain exceptions in the Bankruptcy Code, the Chapter 11
filings automatically stayed the continuation of most actions against the
Company and its subsidiaries, including Mirant Mid-Atlantic, including most
actions to collect pre-petition indebtedness or to exercise control over the
property of the bankruptcy estate. As a result, absent an order of the
Bankruptcy Court, creditors are precluded from collecting pre-petition debts,
and substantially all pre-petition liabilities are subject to compromise under a
plan of reorganization. Therefore, the amounts outstanding under the lease as
termination value or otherwise may not reflect actual cash outlays in the future
period.

     Although Mirant Mid-Atlantic has historically accounted for these leases as
operating leases, due to the Chapter 11 filings, the appropriate
characterization of Mirant Mid-Atlantic's obligations thereunder is subject to a
determination by the Bankruptcy Court. The Company cannot currently determine
the effect of a recharacterization of these obligations by the Bankruptcy Court.

     In conjunction with the purchase of the PEPCO assets, the Company, through
Mirant Mid-Atlantic, leased the Morgantown and the Dickerson baseload units and
associated property for terms of 33.75 years and 28.5 years, respectively.
Mirant Mid-Atlantic is accounting for these leases as operating leases. Rent
expenses associated with the Morgantown and Dickerson operating leases totaled
approximately $24 million for each of the three months ended March 31, 2002 and
2001 and are recorded as generation facilities rent expense in the accompanying
unaudited condensed consolidated statements of income. Because of the
variability in the scheduled payment amounts over the lease term, Mirant
Mid-Atlantic records rental expense for those leases on a straight line basis.
As of March 31, 2002 and December 31, 2001, the Company has paid approximately
$107 million and $131 million, respectively, of actual operating

                                        53
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

lease payments in accordance with the lease agreements in excess of rental
expense and has reported these amounts as prepaid rent in the accompanying
unaudited condensed consolidated balance sheets.

     As of March 31, 2002, the total notional minimum lease payments for the
remaining term 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 ratings 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 ratings 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, 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.

     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 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.

                                        54
<PAGE>
                MIRANT AMERICAS GENERATION, LLC AND SUBSIDIARIES
            (WHOLLY-OWNED INDIRECT SUBSIDIARY OF MIRANT CORPORATION)

            NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
                           STATEMENTS -- (CONTINUED)

     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 both three months ended March 31,
2002 and 2001. The aggregate minimum lease payments for the remaining life of
these leases as of March 31, 2002 was approximately $5 million.

                                        55
<PAGE>

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

     The following discussion should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and the notes thereto,
which are included elsewhere in this report.

CHAPTER 11 PROCEEDINGS

     On July 14, 2003, Mirant Corporation and substantially all of its
wholly-owned subsidiaries in the United States, including Mirant Americas
Generation, filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code. For further information regarding these petitions, see Note A
to the Unaudited Condensed Consolidated Financial Statements entitled
"Proceedings under Chapter 11 of the Bankruptcy Code."

     Under Chapter 11, we are continuing to operate our business without
interruption during the restructuring process as a debtor-in-possession under
the jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure,
applicable court orders, as well as other applicable laws and rules. In general,
a debtor-in-possession is authorized under Chapter 11 to continue to operate as
an ongoing business, but may not engage in transactions outside the ordinary
course of business without the prior approval of the Bankruptcy Court.

     At this time, it is not possible to accurately predict the effect of the
Chapter 11 reorganization process on our business or the business of Mirant or
the timing of their potential emergence from Chapter 11. In addition, since the
plan of reorganization has not been prepared, our future results and the future
results of Mirant may differ significantly from historical results. If no plan
of reorganization is approved, it is possible that our assets and/or the assets
of Mirant may be liquidated.

DESCRIPTION OF BUSINESS

     We are a national independent power provider and an indirect wholly owned
subsidiary of Mirant Corporation. We were incorporated in Delaware on May 12,
1999 and effective November 1, 2001, we changed our form of organization from a
corporation to a limited liability company. We own or lease approximately 12,000
MW of electricity generation capacity in the United States and operate 92
generating units at 22 plants located near major metropolitan load centers in
Maryland, Virginia, California, New York, Massachusetts and Texas, giving us
access to a wide variety of wholesale customers.

     We produce and sell electricity in the United States under fixed price
contracts and on the spot market to utilities and energy merchants. We use
derivative financial instruments, such as forwards, futures, options and swaps
to manage our exposure to fluctuations in electric energy and fuel commodity
prices. These transactions are executed on behalf of the Company by Mirant
Americas Energy Marketing. Our portfolio of generating facilities is diversified
by geographic regions, fuel types, power markets and dispatch types. In
addition, Mirant Americas Energy Marketing arranges for the supply of
substantially all of the fuel used by our generating units and procures
emissions credits which are utilized in connection with our operations.

     We and our subsidiaries have entered into a number of service agreements
with subsidiaries of Mirant for the sale of our electric power, procurement of
fuel, labor and administrative services essential to operating our business.
These agreements are primarily with Mirant, Mirant Americas Energy Marketing and
Mirant Services. See below under "ECSA with Mirant Americas Energy Marketing,"
"Power Sale, Fuel Supply and Services Agreement" and Note E to our unaudited
condensed consolidated financial statements for a further description of these
agreements.

RESTATEMENT OF FINANCIAL STATEMENTS

     This report contains restated unaudited condensed consolidated financial
statements of the Company as of March 31, 2002 and for each of the three months
ended March 31, 2002 and March 31, 2001 and the restated condensed consolidated
balance sheet as of December 31, 2001 to correct certain errors the

                                        56
<PAGE>

Company identified in its previously issued financial statements. The errors
relate to the accounting for derivative financial instruments designated as
hedging instruments, which did not qualify for hedge accounting treatment, an
adjustment to the valuation of assets acquired and liabilities assumed by Mirant
Americas Energy Marketing in applying purchase accounting to the PEPCO
acquisition, adjustments to record changes in fair value of certain commodity
financial instruments in the proper period and adjustments to various accruals.

     The Company has restated its previously reported financial statements as of
March 31, 2002 and for the three months ended March 31, 2002 and 2001 by:

     - increasing its originally reported current assets by $27 million,
       increasing noncurrent assets by $124 million, increasing current
       liabilities by $52 million, increasing noncurrent liabilities by $29
       million and increasing member's equity by $70 million as of March 31,
       2002;

     - changing its previously reported results of operations for the three
       months ended March 31, 2002 from previously reported net income of $77
       million to net income of $40 million, changing its previously reported
       results of operations for the three months ended March 31, 2001 from
       previously reported net income of $77 million to a net loss of $66
       million;

     - increasing cash provided by operating activities by $3 million,
       increasing cash used in investing activities by $9 million and increasing
       cash provided from financing activities by $7 million for the three
       months ended March 31, 2002; and

     - increasing cash provided by operating activities by $47 million,
       increasing cash used in investing activities by $38 million and
       decreasing cash used in financing activities by $9 million for the three
       months ended March 31, 2001.

     The nature of the errors and the adjustments that the Company has made to
its financial statements for the three months ended March 31, 2002 and 2001 is
set forth in Note C of Notes to the Unaudited Condensed Consolidated Financial
Statements in Item 1 of this report.

     In addition, the Company has reclassified the presentation of operations of
the State Line generating facility as discontinued operations pursuant to SFAS
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."

RESTRUCTURING CHARGES

     In 2002, Mirant adopted a restructuring plan in response to constrained
access to capital markets that resulted from Moody's December 2001 downgrade of
Mirant's credit rating, the Enron bankruptcy, and other changes in market
conditions. This plan was designed to restructure operations by exiting certain
business operations, canceling and suspending planned power plant developments,
closing business development offices and severing employees. During the three
months ended March 31, 2002, the Company recorded restructuring charges of $4
million for severance costs and costs related to suspending planned power plant
developments, which amounts are included in other operating
expenses -- affiliates and non-affiliates in the accompanying unaudited
condensed consolidated statements of income. The severance costs and other
employee termination-related charges associated with the restructuring at the
Company's locations were paid by Mirant Services and billed to the Company.
Management cannot determine at the filing date the extent to which additional
restructuring by Mirant will impact the Company.

REVENUES

     Our operating revenues and expenses are derived from the operations of our
controlled subsidiaries, which are consolidated for accounting purposes. Most of
our revenues are derived from sales of capacity and energy from our generating
facilities to our affiliate, Mirant Americas Energy Marketing. Mirant Americas
Energy Marketing in turn sells the energy under fixed price agreements or
markets the energy in the spot and forward markets or other competitive power
markets. The market for wholesale electric

                                        57
<PAGE>

energy in the United States is largely deregulated. Our other revenues, which
are not under fixed price agreements, and results of our operations will depend,
in part, upon prevailing market prices for energy and capacity in these
competitive markets.

     We retain the ultimate credit risk from the sales to third parties that
Mirant Americas Energy Marketing engages in on our behalf, except for sales
under Mirant Mid-Atlantic's Energy and Capacity Sales Agreement ("ECSA") under
which our credit risk is with Mirant Americas Energy Marketing. Under the Power
and Fuel Agreement, which became effective on May 1, 2003, our credit risk is
also with Mirant Americas Energy Marketing.

     During the three months ended March 31, 2002, our most significant fixed
price agreements were Mirant Mid-Atlantic's ECSA with Mirant Americas Energy
Marketing (see Note E of "Notes to the Unaudited Condensed Consolidated
Financial Statements") and our agreement with the DWR entered into on our behalf
by Mirant Americas Energy Marketing, which represented approximately 33% and
16%, respectively, of our operating revenues during the three months ended March
31, 2002.

  ECSA WITH MIRANT AMERICAS ENERGY MARKETING

     At the inception date of the ECSA, the pricing under the ECSA 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 the Company believed, at
the time, to be temporary anomalies in the quoted market prices based on
projected demand growth and other factors expected to affect demand and supply
in the PJM market through 2002. The market had experienced unusual fluctuations
in market prices because of low prices for natural gas, which is generally the
fuel used to set prices in the PJM. The Company did not believe that natural gas
prices would remain depressed through the end of 2002.

     At inception of the ECSA, the aggregate amount attributable to the
favorable pricing variance was approximately $167 million. The amount relating
specifically to Mirant Mid-Atlantic's owned or leased facilities of $120 million
was accounted for as both an addition to member's interest and an offsetting
capital contribution receivable pursuant to the ECSA in its unaudited condensed
consolidated financial statements. When Mirant Mid-Atlantic entered into the
agreement, it assumed that in 2002 Mirant Americas Energy Marketing would elect
to take the contracted minimum 75% of the capacity and output of the Mirant
Mid-Atlantic's facilities provided for in the ECSA. In January 2002, Mirant
Americas Energy Marketing exercised its option to increase the committed
capacity to 100% of the total output of the Company's facilities. As a result,
Mirant Mid-Atlantic recorded an additional equity contribution of $53 million in
the first quarter of 2002 attributable to the favorable pricing terms of this
additional 25% of the capacity and output. This adjustment is also reflected in
our unaudited condensed consolidated financial statements 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 terms of the ECSA 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 of 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 subsequent to March 31, 2002
related to the revenue recognized prior to that date and $112 million represents
the favorable pricing variance over the remaining nine months of 2002.

     The revenues recognized under the ECSA were not adjusted for subsequent
changes in market prices after Mirant Americas Energy Marketing entered into, or
extended, its commitment under the ECSA. As a result, amounts recognized as
revenue under the ECSA did not necessarily reflect market prices at the

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<PAGE>

time the energy was delivered. Amounts recognized as revenue for capacity and
energy delivered under the ECSA exceeded the revenues that would have been
recognized based on market prices by approximately $97 million for the three
months ended March 31, 2002.

     In November 2002, Mirant Americas Energy Marketing exercised its option
under the ECSA to purchase 100% of Mirant Mid-Atlantic's capacity and energy in
2003 at contracted rates in the ECSA. The pricing under the ECSA was favorable
to Mirant Mid-Atlantic when compared to estimated market rates in the PJM for
power to be delivered in 2003. As result, Mirant Mid-Atlantic recorded $121
million as an addition to member's interest and an offsetting capital
contribution receivable pursuant to the ECSA in the fourth quarter of 2002
attributable to the favorable pricing terms for 2003.

     Effective May 1, 2003, Mirant Mid-Atlantic agreed to terminate the ECSA and
sell all of its capacity and energy under the Power and Fuel Agreement. Under
this agreement Mirant Americas Energy Marketing purchases Mirant Mid-Atlantic's
energy products at market prices and resells them in the PJM spot and forward
markets and to other third parties. Mirant Mid-Atlantic is paid the amount
received by Mirant Americas Energy Marketing for such capacity and energy. As
was true with the ECSA, under the Power and Fuel Agreement, Mirant Mid-Atlantic
has credit exposure to Mirant Americas Energy Marketing for essentially all of
its revenues. Mirant Mid-Atlantic will pay Mirant Americas Energy Marketing a
fee of $7 million per year under the Power and Fuel Agreement, the same amount
as had previously been payable under the services and risk management agreement,
which was terminated at the same date as the ECSA.

     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.
However, as a result of higher spot prices in the PJM in the first quarter of
2003, had Mirant Mid-Atlantic received market prices for its energy, Mirant
Mid-Atlantic would have received approximately $71 million more in cash flows
than it received under the ECSA. For the remainder of 2003 as a whole, the
forward price curves at May 1, 2003, the termination date of the ECSA, indicated
that cash flows received under the Power and Fuel Agreement were expected to
exceed those that would have taken place under the ECSA. Following the
termination of the ECSA effective May 1, 2003, Mirant Mid-Atlantic will reverse
the remaining capital contribution receivable pursuant to the ECSA that is
attributable to periods after April 30, 2003.

POWER SALE, FUEL SUPPLY AND SERVICES AGREEMENT

     Effective May 1, 2003, Mirant Mid-Atlantic entered into the Power and Fuel
Agreement with Mirant Americas Energy Marketing. Mirant Mid-Atlantic's
subsidiary, Mirant Chalk Point, and its affiliates Mirant Peaker and Mirant
Potomac River also entered into power and fuel agreements on substantially
similar terms. Mirant Mid-Atlantic's Power and Fuel Agreement replaces its
master power sales agreement, including the ECSA, and its services and risk
management agreements with Mirant Americas Energy Marketing.

     The Power and Fuel Agreement provides that Mirant Americas Energy Marketing
purchases all of the energy and capacity of Mirant Mid-Atlantic's facilities and
pays Mirant Mid-Atlantic the amount received by Mirant Americas Energy Marketing
for the resale of such products, services or capacity. Mirant Americas Energy
Marketing is responsible for scheduling the output of Mirant Mid-Atlantic's
generating facilities.

     Mirant Americas Energy Marketing provides all fuel supply requirements,
including fuel oil, gas and coal, for Mirant Mid-Atlantic's generating
facilities, except for fuel supplied by third parties for the Morgantown
facility. Mirant Mid-Atlantic pays Mirant Americas Energy Marketing the market
price for natural gas, including transportation, used at any of its facilities.
Mirant Mid-Atlantic pays Mirant Americas Energy Marketing a price based on an
index price plus a transportation charge for fuel oil used at the Chalk Point
facility. For all other fuel oil, Mirant Mid-Atlantic pays Mirant Americas
Energy Marketing's actual cost. Mirant Mid-Atlantic reimburses Mirant Americas
Energy Marketing for coal, including transportation, at Mirant Americas Energy
Marketing's cost.

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<PAGE>

     Upon Mirant Mid-Atlantic's request, Mirant Americas Energy Marketing
procures all emissions credits necessary for the operation of Mirant
Mid-Atlantic's generating facilities and sells excess credits. Mirant Americas
Energy Marketing charges its actual cost of acquiring the credits and remits the
proceeds of any emission credit sales to Mirant Mid-Atlantic.

     Also, upon Mirant Mid-Atlantic's request, Mirant Americas Energy Marketing
procures or advises Mirant Mid-Atlantic to procure business interruption
insurance and forced outage insurance. The cost of insurance is charged to
Mirant Mid-Atlantic.

     Mirant Americas Energy Marketing enters into third party bilateral
contracts, forward sales, and financial products (including futures, swaps and
option contracts) for Mirant Mid-Atlantic. The costs, including third party
broker costs, transaction fees, and gains and losses related to the bilateral
contracts, forward sales and financial products are charged to or paid to Mirant
Mid-Atlantic.

     Mirant Mid-Atlantic pays Mirant Americas Energy Marketing a monthly service
fee. Mirant Americas Energy Marketing is not entitled to any bonus payments
under the Power and Fuel Agreement. The Power and Fuel Agreement expires
December 31, 2003.

  DWR AGREEMENT

     On May 22, 2001, Mirant Americas Energy Marketing entered into a 19-month
agreement with the DWR to provide the State of California with approximately 500
MW of electricity during peak hours through December 31, 2002. During the three
months ended March 31, 2002, the prices realized under our power sales agreement
with the DWR were based on the market prices at the time we entered into the
agreement. These prices were approximately $150 per MWh. In 2003, the Company
converted some of the units (approximately 1,700 out of 2,000 MW) that were
contracted under the California DWR agreement to RMR condition 2 units, which
provide revenue based on a fixed rate of return and the units' operating costs.
Under the RMR condition 2 contract, we will receive less revenue from our
California properties in 2003.

  SEASONALITY

     Our revenues are generally affected by seasonal changes in weather
conditions. Peak demand for electricity typically occurs during the summer
months, caused by the increased use of air-conditioning. Cooler than normal
temperatures during months that are normally warm may lead to reduced use of
air-conditioners, which would reduce the short-term demand for energy and result
in a reduction in wholesale prices. Although the fixed price Mirant Mid-Atlantic
received under the ECSA reduced the impact of seasonality on the price we
received for our energy from August 1, 2001 to April 30, 2003, our revenues
subsequent to April 30, 2003 are expected to be generally more affected by
seasonal changes now that Mirant Mid-Atlantic revenues are based on market
prices.

EXPENSES

     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. A significant
portion of our operating expenses result from transactions with related parties,
primarily Mirant Americas Energy Marketing, Mirant Americas, Inc. (Mirant
Americas), Mirant Services and Mirant.

     Cost of fuel, electricity and other products for our generating facilities
is our largest expense representing approximately 63% of our operating expenses
in the three months ended March 31, 2002. Most of our fuel cost results from
transactions with an affiliate. Most of our operating subsidiaries have entered
into fuel supply agreements with Mirant Americas Energy Marketing for the
majority of our fuel needs, the cost of which is charged to our subsidiaries
based upon actual costs incurred by them. Mirant Americas Energy Marketing also
provides fuel and procures emissions credits necessary for the operation

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<PAGE>

of our generating facilities through services and risk management agreements. We
also have agreements with third parties for our fuel needs.

     We have other related party agreements for labor and general and
administrative services. These services are essential to the operations of our
business. Management believes these costs are reasonable and substantially
similar to costs we would incur on a stand-alone basis.

     Our other operating expenses relate primarily to operating leases,
maintenance costs, depreciation and amortization of our long-lived assets and
certain general and administrative expenses, such as bad debt expense and audit
and legal fees.

SPARK SPREADS

     Lower power prices and higher natural gas prices resulted in reduced spark
spreads and resulted in lower gross margins in 2002 compared to unusually high
spark spreads in 2001 and 2000.

RESULTS OF OPERATIONS

     Our operating revenues and expenses from affiliates and non-affiliates
aggregated by classification are as follows (in millions):

THREE MONTHS ENDED MARCH 31, 2002 -- RESTATED

<Table>
<Caption>
                                                              AFFILIATES   NON-AFFILIATES   TOTAL
                                                              ----------   --------------   -----
<S>                                                           <C>          <C>              <C>
Operating Revenues..........................................     $487           $ 75        $562
Operating Expenses:
  Cost of fuel, electricity and other products..............      281              2         283
  Depreciation and amortization.............................       --             28          28
  Generation facilities rent................................       --             24          24
  Maintenance...............................................       11             23          34
  Selling, general and administrative.......................       14             10          24
  Other operating...........................................       19             36          55
                                                                                            ----
Operating income............................................                                 114
Other income (expense), net.................................       10            (51)        (41)
Provision for income taxes..................................       --             35          35
                                                                                            ----
Income from continuing operations...........................                                $ 38
                                                                                            ====
</Table>

                                        61
<PAGE>

THREE MONTHS ENDED MARCH 31, 2001 -- RESTATED

<Table>
<Caption>
                                                              AFFILIATES   NON-AFFILIATES   TOTAL
                                                              ----------   --------------   ------
<S>                                                           <C>          <C>              <C>
Operating Revenues..........................................    $1,096          $ 38        $1,134
Operating Expenses:
  Cost of fuel, electricity and other products..............       937            10           947
  Depreciation and amortization.............................        --            39            39
  Generation facilities rent................................        --            24            24
  Maintenance...............................................        13            19            32
  Selling, general and administrative.......................        14           108           122
  Other operating...........................................        20            29            49
                                                                                            ------
Operating loss..............................................                                   (79)
Other income (expense), net.................................         7           (41)          (34)
Provision for income taxes..................................        --           (41)          (41)
                                                                                            ------
Loss from continuing operations.............................                                $  (72)
                                                                                            ======
</Table>

  FIRST QUARTER 2002 VERSUS FIRST QUARTER 2001

     Operating revenues.  Our operating revenues for the three months ended
March 31, 2002 were $562 million, a decrease of $572 million, or 50%, from the
same period in 2001. The following factors were primarily responsible for the
decrease in operating revenues.

     - Our revenues decreased primarily due to unusually high market prices for
       power in the three months ended March 31, 2001, as compared to decreased
       market prices for power and reduced power sales volumes (both generation
       and purchased power) particularly in the California market during the
       first three months of 2002. California accounted for 32% of our operating
       revenues in the three months ended March 31, 2002 compared to 63% for the
       same period in 2001, a decline of $532 million. Market prices in
       California declined by nearly 65% from an average price of approximately
       $189/MWh in the three months ended March 31, 2001 to an average price of
       approximately $67/MWh in the three months ended March 31, 2002. Power
       sales volumes declined by approximately 29% in the three months ended
       March 31, 2002 as compared to the same period in 2001 due to decreased
       demand for power in California. Our power sales agreement with the
       California DWR expired in December 2002. In 2003, the Company converted
       some of the units (approximately 1,700 of our 2,000 MW) that were
       contracted under the California DWR agreement to RMR condition 2 units,
       which provide revenue based on a fixed rate of return and the units'
       operating costs. As a result, revenues will be lower than the previous
       DWR contract.

     - Revenues from our Mid-Atlantic operations were $192 million in the three
       months ended March 31, 2002 as compared to $280 million for the same
       period in 2001. This decrease of $88 million, or 31%, was primarily due
       to decreased prices for Mirant Mid-Atlantic's energy and reduced
       generation in the region. Also attributing to this decrease was Mirant
       Mid-Atlantic's termination of the use of certain short-term fixed price
       contracts with Mirant Americas Energy Marketing. As market prices
       declined in 2001, Mirant Mid-Atlantic began selling energy to Mirant
       Americas Energy Marketing through a long-term contract, the ECSA (see
       Note E of "Notes to the Unaudited Condensed Consolidated Financial
       Statements"), in August 2001.

     - These decreases were partially offset by operating revenues related to
       Mirant New England, LLC, which was contributed to us by our parent in
       January 2002. In addition, in the three months ended March 31, 2001, the
       Company recorded a $106 million provision related to receivables due from
       the PX, the CAISO and Pacific Gas and Electric. This provision was
       recorded as a reduction of operating revenues in the three months ended
       March 31, 2001.

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<PAGE>

     Operating expenses.  Our operating expenses for the three months ended
March 31, 2002 were $448 million, a decrease of $765 million, or 63%, from the
same period in 2001. The following factors were primarily responsible for the
decrease in operating expenses.

     - Cost of fuel, electricity and other products for the three months ended
       March 31, 2002 was $283 million, compared to $947 million for the same
       period in 2001. This decrease of $664 million, or 70%, was primarily
       attributable to decreased power sales volumes and lower prices for
       natural gas, particularly in California, during the first three months of
       2002. As noted above, power sales volumes in this region declined by
       approximately 29%. Prices for natural gas, the primary fuel used for
       margin-setting the market price for electricity in this region, declined
       by 76%. In addition, at Mirant Mid-Atlantic, a reduction in the portion
       of generation from less efficient cycling units reduced fuel costs per
       megawatt hour in the three months ended March 31, 2002, as compared to
       the same period in 2001. The decrease in cost of fuel, electricity and
       other products was partially offset by the purchased power costs of
       Mirant New England, LLC, which was contributed to us by our parent in
       January 2002.

     - Depreciation and amortization expenses for the three months ended March
       31, 2002 were $28 million, compared to $39 million for the same period in
       2001. This decrease of $11 million was primarily a result of the
       elimination of goodwill amortization from the implementation of SFAS No.
       142. Goodwill and trading rights amortization for the three months ended
       March 31, 2001 was $11 million.

     - Selling, general and administrative expenses for the three months ended
       March 31, 2002 were $24 million, compared to $122 million for the same
       period in 2001. This decrease of $98 million was primarily due to
       provisions taken in the three months ended March 31, 2001 related to
       uncertainties in the California power markets. In the three months ended
       March 31, 2001, the Company recorded bad debt expense of $73 million
       related to the California receivables described in Note J of "Notes to
       the Unaudited Condensed Consolidated Financial Statements".

     - Other operating expenses for the three months ended March 31, 2002 were
       $55 million, compared to $49 million for the same period in 2001. This
       increase of $6 million resulted primarily from higher property taxes
       resulting from increases in the assessed property values of our
       generating facilities.

     Other Expense, net.  Other expense, net for the three months ended March
31, 2002 was $41 million, an increase of $7 million from the same period in
2001. This increase 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 $35 million, compared to a benefit from income
taxes of $41 million for the same period in 2001. The change in the income tax
provision is primarily due to the change in income from continuing operations.
Furthermore, 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 parent, Mirant Americas. At that time, 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.

  CHANGES IN FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS

     Results of operations reflect changes in fair value of commodity derivative
financial instruments. These changes resulted in net unrealized losses on
derivative financial instruments of $18 million in the three months ended March
31, 2002, as compared to net unrealized losses of $223 million in the same
period in 2001. This decrease of $205 million is a result of changes in fair
value of commodity derivative financial instruments. Net unrealized losses in
the three months ended March 31, 2001 were due to

                                        63
<PAGE>

increases in forward electricity prices for the period. As a result of this
increase in electricity prices, the fair value of the commodity derivative
financial instruments to sell electricity decreased, and this change in fair
value was recognized in revenues. Partially offsetting these unrealized losses
were unrealized gains on fuel related derivative financial instruments due to
increases in fuel prices. While changes in fair value of commodity derivative
financial instruments may cause earnings volatility in the short-term, these
derivative financial instruments reduce exposure to market prices.

LIQUIDITY AND CAPITAL RESOURCES

     The matters described in "Liquidity and Capital Resources," to the extent
that they relate to future events or expectations, may be significantly affected
by the Chapter 11 filings. The Chapter 11 filings will involve, or may result
in, various restrictions on our activities, limitations on financing, the need
to obtain Bankruptcy Court approval for various matters, and uncertainty as to
relationships with vendors, suppliers, customers and others with whom we, Mirant
Americas Generation or Mirant may conduct or seek to conduct business.

     During the pendency of the Chapter 11 proceeding, Mirant and the debtor
subsidiaries, including the Company and Mirant Mid-Atlantic, will participate in
an inter-company cash management program pursuant to which cash balances at
Mirant and its participating subsidiaries will be transferred to central
concentration accounts and, if necessary, lent to Mirant and its participating
subsidiaries to fund working capital and other needs. Such inter-company
transfers will be recorded as inter-company loans.

  CASH FLOWS

     In connection with the Chapter 11 filings, Mirant and its debtor
subsidiaries, including the Company, have secured a commitment, subject to
approval of the Bankruptcy Court and final documentation, for $500 million in
debtor-in-possession financing. This commitment expires on September 5, 2003.
The Company is currently working with the lender to finalize the facility,
however, there can be no assurance that Mirant will be able to close this
facility by the expiration date. As of August 15, 2003, Mirant and its
subsidiaries had approximately $1.29 billion in total cash, approximately $351
million of which was legally restricted and $125 million of which was held for
operating, working capital or other purposes at various subsidiaries. Mirant
anticipates that the debtor-in-possession financing, together with its available
cash, will be sufficient to fund the operations of Mirant and its subsidiaries
during the restructuring process.

     Historically, we have obtained cash from operations, borrowings under
credit facilities, issuances of senior debt, borrowings and capital
contributions from Mirant and capital contributions pursuant to the ECSA.
Because our operations are conducted primarily by our subsidiaries, our cash
flows have been dependent upon cash dividends, distributions and other transfers
from our subsidiaries, including Mirant Mid-Atlantic. The cash flows received by
Mirant Mid-Atlantic from Mirant Americas Energy Marketing as a capital
contribution pursuant to the ECSA have been recorded in the accompanying
unaudited condensed consolidated statements of cash flows as a financing
activity. Effective May 1, 2003, Mirant Mid-Atlantic terminated the ECSA with
Mirant Americas Energy Marketing and entered into a Power and Fuel Agreement to
sell energy and capacity at market prices.

     Our cash flows related to revenues recognized from our affiliates and
non-affiliates, and the related capital contribution received pursuant to the
ECSA, generally were received in the month following recognition in the income
statement. Our cash payments related to services rendered by our affiliates and
non-affiliates generally are paid in the month following the month the services
are recorded as an expense.

     Net cash provided by operating activities totaled $176 million for the
three months ended March 31, 2002, as compared to $161 million for the same
period in 2001. This increase of $15 million was due primarily to an increase in
net income of $106 million and a change of $171 million in deferred income
taxes. These were partially offset by a change of $205 million in derivative
financial instruments and net increases in operating assets and decreases in
operating liabilities of $49 million.

                                        64
<PAGE>

     Net cash used in investing activities totaled $197 million for the three
months ended March 31, 2002, as compared to $143 million for the same period in
2001. This change was primarily due to a decrease in net repayments on advances
to affiliates which totaled $0 in the three months ended March 31, 2002 compared
to $57 million for the same period in 2001. Also contributing to this change
were net increases in notes receivable from affiliates totaling $118 million in
the three months ended March 31, 2002 compared to $109 million for the same
period in 2001. This was partially offset by a reduction in capital expenditures
of $19 million from $100 million in the three months ended March 31, 2001 to $81
million in the three months ended March 31, 2002.

     Net cash provided by financing activities totaled $9 million for the three
months ended March 31, 2002, as compared to $7 million used in financing
activities for the same period in 2001. This change was primarily due to net
proceeds received from notes payable to affiliates in the three months ended
March 31, 2002 of $96 million compared to $0 for the same period in 2001,
capital contributions of $20 million in the three months ended March 31, 2002
compared to $5 million for the same period in 2001 and capital contributions
received pursuant to the ECSA of $20 million in the three months ended March 31,
2002 compared to $0 for the same period in 2001. This increase was partially
offset by an increase in dividends paid from $21 million in the three months
ended March 31, 2001 to $134 million for the same period in 2002.

     Our liquidity could be impacted by changing prices resulting from abnormal
weather, excess generating capacity or reduced demand for electricity.

  NOTES RECEIVABLE FROM AND NOTES PAYABLE TO AFFILIATES

     In December 2000, Mirant Potomac River, LLC ("Mirant Potomac River") and
Mirant Peaker, LLC ("Mirant Peaker"), both wholly owned subsidiaries of Mirant,
borrowed approximately $223 million from Mirant Mid-Atlantic to finance their
acquisition of generation facilities from PEPCO (see Note E of "Notes to the
Unaudited Condensed Consolidated Financial Statements"). The notes receivable
are unsecured and are due on December 30, 2028 with 10% per annum interest
payable semiannually, in arrears, on June 30 and December 30. Any amount not
paid when due bears interest thereafter at 12% per annum. Up to $8 million per
year may be prepaid at the election of the borrower. Subject to certain
exceptions in the Bankruptcy Code, the Chapter 11 filing automatically stayed
the continuation of most actions against the Mirant Debtors, including most
actions to collect pre-petition indebtedness or to exercise control over the
property of the bankruptcy estate. Interest earned by Mirant Mid-Atlantic from
Mirant Potomac River and Mirant Peaker was $6 million for each of the three
months ended March 31, 2002 and 2001.

     During the three months ended March 31, 2002, the various operating
subsidiaries of Mirant Americas Generation participated in separate cash
management agreements with Mirant (see Note E of "Notes to the Unaudited
Condensed Consolidated Financial Statements"), whereby any excess cash was
transferred to Mirant pursuant to a note agreement which was payable upon
demand. In addition, the subsidiaries borrowed funds from Mirant under the
agreements. During the fourth quarter of 2002, these cash management agreements
were terminated and all outstanding advances were repaid.

  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) and its assets and liabilities to the Company (see Note E of "Notes to
the Unaudited Condensed Consolidated Financial Statements"). The transfer was
accounted for as cash and non-cash capital contributions of approximately $7
million and $287 million, respectively, to the Company in the first quarter of
2002. At January 1, 2002, Mirant New England, LLC's most significant asset was a
$255 million note receivable from Mirant Americas, Inc. The note receivable is
payable on demand and bears interest at 6%, which is payable monthly.

                                        65
<PAGE>

  MIRANT MID-ATLANTIC CAPITAL CONTRIBUTION AGREEMENT WITH MIRANT

     Under a capital contribution agreement, Mirant Potomac River and Mirant
Peaker are required to make distributions to Mirant at least once per quarter,
if funds are available. Distributions are equal to cash available after taking
into account projected cash requirements, including mandatory debt service,
prepayments permitted under the Mirant Potomac River and the Mirant Peaker
notes, and maintenance reserves, as reasonably determined by Mirant. Mirant is
required to contribute or cause these amounts to be contributed to Mirant
Mid-Atlantic. For the three months ended March 31, 2002 and 2001, total capital
contributions received by Mirant Mid-Atlantic under this agreement totaled $14
million and $0, respectively. During the pendency of the Chapter 11 proceedings,
we do not anticipate that Mirant Potomac River or Mirant Peaker will distribute
dividends.

  DEBT

     The Company is in default on approximately $2.8 billion of currently
outstanding debt. Subject to certain exceptions in the Bankruptcy Code, the
Chapter 11 filings automatically stayed the continuation of most actions against
the Mirant Debtors, including most actions to collect pre-petition indebtedness
or to exercise control over the property of the bankruptcy estate. As a result,
absent an order of the Bankruptcy Court, creditors are precluded from collecting
pre-petition debts, and substantially all pre-petition liabilities are subject
to compromise under a plan of reorganization.

     As of both March 31, 2002 and December 31, 2001, the Company had noncurrent
notes payable outstanding of $2.6 billion, including senior notes and bank
credit facilities (also refer to Note I of "Notes to the Unaudited Condensed
Consolidated Financial Statements"). In July 2002, the Company fully drew the
commitments under its two revolving credit facilities. The net proceeds from
additional borrowings of approximately $227 million were used to repay $131
million of notes payable to affiliates and 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.

  SUBSIDIARY GUARANTEES

     As the Company or its subsidiaries have entered into construction
contracts, some of the contracts have required a guarantee by the Company to
fulfill the obligation under the contract to pay the amount outstanding in the
event that the subsidiary is unable to pay. As of March 31, 2002, these
guarantees amounted to $15 million and expire upon completion of the
subsidiaries' obligations under the contracts in 2003.

  PARENT GUARANTEES

     Mirant New England, LLC is required to sell electricity at fixed prices to
Cambridge Electric Light Company ("Cambridge") and Commonwealth Electric Company
("Commonwealth") in order for them to meet their supply requirements to certain
retail customers. In April 2002, Mirant 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 and Commonwealth. Both the
guarantee and the agreement expire in February 2005.

     Mirant has provided letters of credit on behalf of Mirant Americas
Generation subsidiaries. Mirant has provided letters of credit for Mirant
Americas Generation's debt related obligations and power sales obligations
totaling $120 million and $11 million, respectively, as of March 31, 2002. None
of these letters of credit were drawn on at March 31, 2002. In the event of a
draw on such letters of credit, Mirant would be obligated to repay the amounts.
The letter of credit relating to the power sales obligations was terminated in
January 2003 in conjunction with the sale of the Neenah generating facility. The
remaining

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<PAGE>

letters of credit expire in 2003. Unless the credit facilities are amended,
Mirant will be unable to renew these letters of credit when they expire.

  MIRANT MID-ATLANTIC MORGANTOWN AND DICKERSON LEASES

     In connection with Mirant Mid-Atlantic's acquisition of PEPCO's generating
assets, several owner lessors each own undivided interests in the Morgantown and
Dickerson baseload 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
totaled $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 State
Street Bank and Trust Company of Connecticut, National Association, as pass
through trustee, and Mirant Mid-Atlantic.

     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 a letter of credit to support our obligation to maintain the rent
payment reserve required in connection with this lease transaction.

     The lease payment obligations of Mirant Mid-Atlantic are senior unsecured
obligations 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.

     Mirant Mid-Atlantic is in default under the leveraged lease transaction.
Subject to certain exceptions in the Bankruptcy Code, the Chapter 11 filings
automatically stayed the continuation of most actions against Mirant and its
subsidiaries, including Mirant Mid-Atlantic, including most actions to collect
pre-petition indebtedness or to exercise control over the property of the
bankruptcy estate. As a result, absent an order of the Bankruptcy Court,
creditors are precluded from collecting pre-petition debts, and

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<PAGE>

substantially all pre-petition liabilities are subject to compromise under a
plan of reorganization. Although Mirant Mid-Atlantic has historically accounted
for these leases as operating leases, due to the Chapter 11 filings, the
appropriate characterization of Mirant Mid-Atlantic's obligations thereunder is
subject to a determination of the Bankruptcy Court. The Company cannot currently
determine the effect of a recharacterization of these obligations by the
Bankruptcy Court.

 MIRANT MID-ATLANTIC'S RESTRICTIONS ON ADDITIONAL INDEBTEDNESS AND PAYMENT OF
 DIVIDENDS

     During the pendency of the Chapter 11 proceedings, it is not anticipated
that any of the debtor subsidiaries of Mirant, including Mirant Mid-Atlantic,
will declare or pay dividends.

     Pass through certificates related to the leveraged lease transactions
discussed above were issued in December 2000 in connection with the acquisition
by the owner lessors of the Morgantown and Dickerson generating facilities.
Mirant Mid-Atlantic has entered into long-term leases for these facilities. The
pass through certificates are not our, or Mirant Mid-Atlantic's, direct
obligations. However, because the operating lease payments made by Mirant
Mid-Atlantic for the Morgantown and Dickerson generating facilities support the
ultimate lessor notes for the facilities, the pass through certificates restrict
Mirant Mid-Atlantic's ability to incur further indebtedness in certain
circumstances. If the form or purpose of indebtedness is not specifically
permitted by the lease agreement, additional indebtedness cannot be incurred
unless each of Moody's and S&P confirms the then current rating for the pass
through certificates; provided, however, that if the certificates are rated by
either agency as below investment grade, the additional indebtedness may not be
incurred unless Mirant Mid-Atlantic meets certain coverage ratios. As of August
15, 2003, all ratings of the pass through certificates by S&P, Moody's and
Fitch, Inc. ("Fitch") were non-investment grade.

     The pass through certificates also restrict Mirant Mid-Atlantic's ability
to make certain payments. Among the limitations is a prohibition on dividend
payments, unless certain coverage ratios are met. Specifically, in order to make
a dividend distribution, Mirant Mid-Atlantic's fixed charge coverage ratio must
exceed 1.7 to 1.0 for the most recently ended four fiscal quarter period as well
as for each of the next two periods of four fiscal quarters (a total of eight
quarters).

  CONVERSION TO A LIMITED LIABILITY COMPANY

     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 will no longer be paid directly by us, 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
organization structure. As a result of these changes in organization structure,
we recognized income in the fourth quarter of 2001 totaling approximately $152
million related to the reversal of deferred income taxes, which have previously
been recognized, for which we are no longer directly obligated.

  NOX ALLOWANCES

     Our Mid-Atlantic, New York, and New England generating 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
purchase additional NOx allowances in addition to our allocation to cover our
emissions. Due to the NOx SIP Call Rule promulgated by the EPA, the number of
allowances allocated to our plants has decreased relative to 2002 and the market
price for NOx allowances that we need to purchase has increased. While we have
seen a significant increase in the volatility of the NOx allowance market during
2003, we expect that the market price of allowances that we need to

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<PAGE>

purchase will trend downward in subsequent years. There can be no assurance that
the additional cost we may incur will be recoverable from the revenues we
realize.

  UNION NEGOTIATIONS

     In June 2003, Mirant and International Brotherhood of Electrical Workers
Union 503 in New York entered into a new labor agreement that is effective from
June 1, 2003 until June 1, 2008.

     Effective August 10, 2003, Mirant Mid-Atlantic unilaterally implemented the
terms and conditions of a final labor agreement proposed to power plant
employees represented by Local Union 1900, I.B.E.W. at our Mirant Mid-Atlantic
plants in Washington D.C., Maryland, and Virginia. There is a risk that there
will be a strike or some other form of adverse collective action by the union.
If a strike does occur, there is a risk that such action could disrupt the
ability of these plants to produce energy. To mitigate and reduce the risk of
disruption as described above, we have engaged in contingency planning for
continuation of our generation activities during an adverse collective action by
the union.

  RESTRICTION OF NATURAL GAS SUPPLY

     On July 29, 2003 Dominion Transmission Inc. shut off gas to the lateral
line owned by Washington Gas which serves the Chalk Point facility. Dominion
Transmission plans to increase the operating pressure on the main natural gas
pipeline to a level greater than can be received by the lateral line owned by
Washington Gas. The Chalk Point facility, at least temporarily, cannot be fueled
by natural gas. The generating units affected are cycling units with a capacity
of 1,224 MW, owned by Mirant Chalk Point, and peaking units with a capacity of
522 MW, owned or leased by Mirant Peaker. Mirant Chalk Point is a subsidiary of
Mirant Mid-Atlantic and Mirant Peaker is an affiliate subject to a capital
contribution agreement. All of these units, however, are capable of operating on
fuel oil, although their operations can be subject to certain environmental
restrictions for some units. The potential impact of operating on fuel oil
rather than natural gas is difficult to determine as it is dependent upon a
number of factors, including energy prices and the price of natural gas relative
to the price of fuel oil, but it could be material. In the event that the impact
is significant, it may be possible to implement a technical solution to restore
the gas supply at Chalk Point.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     As discussed above under Note A to the Company's unaudited condensed
consolidated financial statements, on July 14, 2003, Mirant Corporation and
substantially all of its wholly-owned subsidiaries in the United States filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. We
believe our accounting policies related to commodity trading activities, asset
realization related to long-lived assets, goodwill and intangibles, income tax
accounting and litigation are critical to obtaining an understanding of Mirant
Americas Generation's unaudited condensed consolidated financial statements
because their application requires significant estimates and judgments by
management in preparing these unaudited condensed consolidated financial
statements. Because some of the estimates used in these policies are sensitive
to changes, the results of any change can have a dramatic impact in the future.
At this time, we believe the Chapter 11 filings will adversely impact each of
the areas noted above and others such as collectibility of receivables. At this
time we cannot predict the impact the Chapter 11 filings will have on our
assumptions related to growth rates, cost of capital, retained businesses,
markets served and how changes in those assumptions will impact the carrying
value of goodwill, other intangible assets, and long-lived assets.

  ACCOUNTING FOR DERIVATIVE INSTRUMENTS

     Derivative financial instruments used for economic hedging and commodity
price risk management purposes that do not meet the hedge accounting criteria
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended ("SFAS No. 133"), are recorded at fair value as an
adjustment to operating revenue or cost of fuel, electricity and other products.
The commodity related

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<PAGE>

derivatives we use are primarily valued through quoted market prices and
quantitative models. To the extent that quantitative models are used to value
the derivative instruments, we are required to estimate future prices, price
correlation, interest rates and market volatility. In addition, these estimates
reflect the potential impact of liquidating our position in an orderly manner
over a reasonable period of time under present market conditions. The amounts we
report as operating revenue or cost of fuel, electricity and other products
change as these estimates are revised to reflect actual results, changes in
market conditions or other factors, many of which are beyond our control. As of
March 31, 2002, the net fair value of all of our derivative financial
instruments, which are marked to market, was approximately $74 million.

  LONG-LIVED ASSETS

     We evaluate our long-lived assets (property, plant and equipment) and
definite-lived intangibles for impairment whenever indicators of impairment
exist or when we commit to sell the asset. The accounting standards require that
if the sum of the undiscounted expected future cash flows from a long-lived
asset or definite-lived intangible is less than the carrying value of that
asset, an asset impairment charge must be recognized. The amount of the
impairment charge is calculated as the excess of the asset's carrying value over
its fair value, which generally represents the discounted future cash flows from
that asset or in the case of assets we expect to sell, at fair value less cost
to sell. During 2002, our decisions to store, sell and abandon certain
investments and turbines, and to suspend construction at certain generation
facilities represent impairment indicators that required us to assess these
asset groups for impairment. To determine impairment for suspended projects, the
Company's best estimate of discounted expected cash flows which include
developing the project as originally planned are compared to the discounted
expected cash flows from delaying construction, incurring suspension costs and
later continuing development. No impairment charges resulted from the testing.

     We believe that the accounting estimates related to the impairment testing
are critical accounting estimates because they are highly susceptible to change
from period to period because determining the forecasted future cash flows
related to the assets requires management to make assumptions about future
revenues, competition, operating costs and forward commodity prices over the
life of the assets, and the impact that recognizing a larger impairment could
have on our compliance with certain debt covenant financial ratios. Our
assumptions about future sales, costs and forward prices require significant
judgment because such factors have fluctuated in the past and will continue to
do so in the future.

     In deriving our estimates of forecasted future cash flows, we use our
financial forecasts, which were developed based on forward price curves in the
near-term liquid period, up to 36 months, and long run marginal cost assumptions
for future periods in the plan. The financial forecast assumes asset sales
representing approximately 822 MWs of net dependable generating capacity and
deferred generation development of 1,330 MWs related to the Contra Costa and
Bowline expansions.

  GOODWILL AND INTANGIBLE ASSETS

     In accordance with SFAS No. 142, we evaluate our goodwill and
indefinite-lived intangible assets for impairment at least annually and
periodically if indicators of impairment are present. SFAS No. 142 requires that
if the fair value of a reporting unit is less than its carrying value including
goodwill (Step I), an impairment charge for goodwill must be recognized. The
impairment charge is calculated as the difference between the implied fair value
of the reporting unit goodwill and its carrying value (Step II).

     Upon adopting SFAS No. 142, Mirant Americas Generation defined its
reporting unit, as required by the Statement, for purposes of testing goodwill
for impairment. Mirant Americas Generation defined its reporting unit as the
Company as a whole. The reporting unit has specific management that is held
responsible for decision-making for a set of components representing the
reporting unit. This reporting unit reflects the way the Company manages its
business.

     Upon adoption of SFAS No. 142 on January 1, 2002, we reviewed our goodwill
for impairment at that date. We computed the fair value as the sum of the
discounted future cash flows applicable to our reportable segment's assets.
Based on that analysis, we determined that the fair value of our reportable

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<PAGE>

segment exceeded its carrying value including goodwill and accordingly concluded
that no impairment charge was required.

     In connection with our annual impairment assessment performed as of October
31, 2002, we tested our reporting unit for impairment and recorded an impairment
charge of $20 million in the fourth quarter of 2002. At March 31, 2002, $1.6
billion of goodwill was reported on our unaudited condensed consolidated balance
sheet. We believe that the accounting estimates related to determining the fair
value of goodwill and any resulting impairment are critical accounting estimates
because they are highly susceptible to change from period to period because
determining the forecasted future cash flows related to the assets requires
management to make assumptions about future revenues, operating costs and
forward commodity prices over the life of the assets and because of the impact
that recognizing a larger impairment could have on our compliance with certain
debt covenant financial ratios. Our assumptions about future sales, costs and
forward prices require significant judgment because such factors have fluctuated
in the past and will continue to do so in the future. Due to the subjective
nature of our goodwill impairment analysis we have provided certain critical
assumptions used in our analysis as follows:

     - Forward prices of electricity and natural gas -- We used the forward
       market curves that are used by Mirant for mark-to-market accounting and
       that are regularly checked by Mirant's Risk Control group against broker
       quotes and exchange closing prices. Typically, the liquidity of these
       forward markets decreases significantly as maturity increases. Liquid
       market data is generally available in the first 36-48 months for natural
       gas prices and 24-36 months for power prices. Since our forecast is a
       10-year estimate, for periods outside the liquid market we construct the
       forward prices using data available from third parties and our market
       knowledge. As such, our estimated future cash flows which contribute to
       the determination of the fair value of our reporting unit are highly
       sensitive to these price forecasts.

     - Terminal value -- We assume a terminal value based on the ability to
       continue plant operations and additional growth from plant expansion or
       new construction after 2010. Mirant Americas Generation employed a 4%
       terminal growth rate assumption in the discounted cash flow analysis.
       This rate was determined considering inflationary growth, historical and
       projected GDP growth, electricity demand and generation capacity growth.
       The sensitivity of the fair value of our projected future cash flows is
       such that a 100 basis point change in the terminal value growth rate
       would adjust the fair value of our projected future cash flows by
       approximately $870 million.

     - Asset sales -- Our financial plan assumes asset sales representing
       approximately 800 MWs of net dependable generating capacity.

     - Weighted average cost of capital -- The weighted average cost of capital
       rate significantly impacts the fair value of our projected future cash
       flows. We used a weighted average cost of capital of 9% in determining
       the present value of our projected future cash flows. The rate was
       determined based on a study of discount rates in the current market used
       to value similar cash flow streams, specific capital fundamentals related
       to Mirant and comparable industry group data. The sensitivity of the fair
       value of our projected future cash flows is such that a 100 basis point
       change in the rate would adjust the fair value of our projected future
       cash flows by approximately $1.3 billion.

     The above assumptions were critical to our arriving at fair values of the
physical assets and other intangible assets of the Company. We favored the
income approach in valuing our assets over a market approach, except in the case
of assets expected to be sold, because we believe the income approach provides
the best indicator of value that we expect to derive for our stakeholders over
time. We favored the market approach for expected asset sales. The combined
subjectivity and sensitivity of our assumptions and estimates used in our
goodwill impairment analysis could result in a reasonable person concluding
differently on those critical assumptions and estimates resulting in a different
impairment charge being derived.

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<PAGE>

  LITIGATION

     We are currently involved in certain legal proceedings. These legal
proceedings are discussed in Part II Item 1, Legal Proceedings and Note J of
"Notes to the Unaudited Condensed Consolidated Financial Statements" contained
elsewhere in this report. We estimate the range of liability through discussions
with applicable legal counsel and analysis of case law and legal precedents. We
record our best estimate of a loss when the loss is considered probable, or the
low end of our range if no estimate is better than another estimate within a
range of estimates. As additional information becomes available, we reassess the
potential liability related to our pending litigation and revise our estimates.
Revisions in our estimates of the potential liability could materially impact
our results of operations, and the ultimate resolution may be materially
different from the estimates that we make.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risks associated with commodity prices and
interest rates.

COMMODITY PRICE RISK

     In connection with our power generating business, we enter into a variety
of short and long-term agreements through Mirant Americas Energy Marketing to
acquire the fuel for generating electricity, as well as to sell the electricity
produced. A portion of our fuel is also purchased in the spot market and a
portion of the electricity we produce is sold in the spot market. As a result,
our financial performance varies depending on changes in prices of these
commodities.

     The financial performance of our power generating business is influenced by
the difference between the cost of converting source fuel, such as natural gas
or coal, into electricity, and the revenue we receive from the sale of that
electricity. The difference between the cost of a specific fuel used to generate
one megawatt hour of electricity and the market value of the electricity
generated is commonly referred to as a "spark spread." The operating margins
that we realize are equal to the difference between the spark spread and the
cost of operating the plants that produce the electricity sold.

     Spark spreads are dependent on a variety of factors that influence the cost
of fuel and the sales price of the electricity generated over the longer term,
including additional plant capacity in the regions in which we operate, plant
outages, weather and general economic conditions. As a result of these
influences, the cost of fuel and electricity prices do not always move in the
same direction, which results in spark spreads widening or narrowing. We attempt
to maximize the spark spreads we realize and mitigate our exposure to price
volatility for fuel purchases and electricity sales in the spot market by
securing fuel under short and long-term fixed price contracts, selling
electricity under short and long-term fixed price contracts or utilizing
derivative instruments to hedge the cost of fuel or the sales price of the
electricity we produce.

     Prior to the end of April 2003, all of Mirant Mid-Atlantic's energy and
capacity was sold at fixed prices under the ECSA. Under the new Power and Fuel
Agreement with Mirant Americas Energy Marketing, effective May 1, 2003, Mirant
Mid-Atlantic sells all of the energy it produces to Mirant Americas Energy
Marketing based on market prices. A significant portion of our anticipated fuel
requirements are covered by long-term, fixed price contracts.

     From time to time, we enter into derivative financial instruments to manage
the market risks associated with the fuel utilized or the electricity produced
by our power plants that are not covered by long-term, fixed price contracts. We
enter into a variety of contractual agreements, such as forward purchase and
sale agreements, and futures, swaps, and option contracts. Futures and certain
option contracts are traded on a national exchange and swaps and forward
contracts are traded in over-the-counter financial markets. These contractual
agreements have varying terms and durations, or tenors, which range from a few
days to a number of years, depending on the instrument.

     All derivative financial instruments are recorded in our balance sheet at
fair value. Unless designated as cash flow hedges in accordance with SFAS No.
133, changes in the fair value of these derivative instruments are reflected in
earnings currently, as unrealized gains or losses on derivative instruments. For

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<PAGE>

derivative financial instruments that qualify and are designated as cash flow
hedges, the effective portion of changes in the fair value of the derivative is
recorded in OCI until the related hedged item impacts earnings. Settlements of
amounts receivable or payable under all derivative instruments utilized to
manage the price risk of electricity sold or the fuel purchased are recorded as
an adjustment of revenue or the cost of fuel purchased, as applicable.

     In connection with the restatement of the Company's financial statements,
it was determined that all of the derivative financial instruments previously
designated as cash flow hedges under SFAS No. 133 do not qualify for hedge
accounting treatment. Accordingly, all realized and unrealized gains and losses
associated with all derivative transactions we entered into during the periods
presented are recognized in earnings in the period incurred.

VALUE AT RISK

     We use a systematic approach to managing risks associated with our
derivative financial instruments. For those transactions that are not designated
for cash flow hedge accounting under SFAS No. 133, we use a Value-at-Risk (VaR)
model to summarize in dollar terms the market price risk we have and the
potential loss in value of our portfolio due to adverse market movement over a
defined time horizon within a specified confidence interval. For those
transactions that are designated for cash flow hedge accounting, we manage the
market risks associated with these derivative financial instruments in
conjunction with the underlying asset positions they are designed to hedge.

     All of our positions, except those that are designated for cash flow hedge
accounting, combined with the similar positions of all of the other subsidiaries
of Mirant, are managed based on VaR limits that have been established by the
Board of Directors of Mirant. VaR is a statistical measure that is dependent
upon a number of assumptions and approximations. The Company uses recent
historical price volatility to predict how the value of the portfolio will move
in the future. Given its reliance on historical data, VaR is effective in
estimating risk exposures in markets in which there are not sudden fundamental
changes or shifts in market conditions. If future pricing patterns are not
similar to historical patterns, VaR could overstate or understate actual market
risks. As a result, even though the portfolio is within the established VaR
limit, actual gains or losses can exceed the reported VaR by a significant
amount.

     We assume a 95% confidence interval and holding periods that vary by
commodity to calculate our VaR exposure. By using a 95% confidence interval, we
are accepting a 5% probability that the actual market risk in the portfolio is
greater than what is indicated by the VaR calculation. The holding period
assumption relates to our estimate of how long it would take to liquidate our
commodity positions (i.e., how long our positions are subjected to market price
risk before mitigating the position). To determine our holding period by
commodity we analyze the relative liquidity of different commodity positions
across different time horizons and locations by assuming different holding
periods. For very liquid commodity positions, such as natural gas for delivery
within one year, we use a five-day holding period, whereas for a less liquid
commodity position, such as physical coal, we employ a sixty business day
holding period. As a result, the VaR that we measure, monitor and report on a
daily basis is larger than what would be obtained using a one-day holding period
for all positions, commodities and commitments.

     Another important assumption in VaR is the effect of multiple commodities
on risk. Our VaR calculation benefits from diversity; a variety of commodity
positions that individually present large potential risk, when combined, present
less risk. Our VaR calculation also takes into account very complex correlations
between commodities, regions and time to determine the portfolio VaR.

     The VaR calculation methodology we use is a variance covariance statistical
modeling technique. Although VaR is a common technique utilized in the industry
to measure and manage market risk, there is no uniform industry method of
estimating VaR, and therefore different assumptions or estimates could produce
significantly different VaR estimates for the same portfolio.

     The VaR, using our assumed holding periods and a 95% confidence interval,
was $12 million as of March 31, 2002. Assuming one-day holding periods for all
positions and commitments in our portfolio

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based on a 95% confidence interval, our portfolio VaR was $4 million at March
31, 2002. During the three months ended March 31, 2002, the actual daily loss on
a fair value basis exceeded the corresponding one-day VaR calculation three
times, which falls within our 95% confidence interval.

     The VaR data presented does not include the derivative financial
instruments that were initially designated as cash flow hedges under SFAS No.
133. We have subsequently determined that these transactions did not qualify for
hedge accounting treatment. It is not practical to recalculate the VaR data
presented above to include the effect of these derivative financial instruments.

     The following is a summary (as of March 31, 2002) of the units, equivalent
megawatt-hours average duration and estimated fair values, by commodity, of the
derivative financial instruments that were previously designated as cash flow
hedges.

<Table>
<Caption>
                 NOMINAL UNITS LONG      EQUIVALENT MWH   AVERAGE DURATION   ESTIMATED FAIR
                      (SHORT)             LONG (SHORT)        (YEARS)            VALUE
                 -------------------     --------------   ----------------   --------------
                                                                             (IN MILLIONS)
<S>              <C>                     <C>              <C>                <C>
Electricity....   (14) million MWh       (14) million           1.09              $96
Natural gas....     40 million mmbtu        4 million            .86               (3)
Crude oil......    0.6 million barrels    0.3 million            .45                1
Residual fuel..      9 million barrels      6 million           1.05               --
</Table>

     The following table represents the estimated cash flows of these derivative
financial instruments (based on market prices at March 31, 2002) by tenor (in
millions):

<Table>
<Caption>
                                    2002   2003   2004   2005   2006   2007   THEREAFTER   TOTAL
                                    ----   ----   ----   ----   ----   ----   ----------   -----
<S>                                 <C>    <C>    <C>    <C>    <C>    <C>    <C>          <C>
ENERGY COMMODITY INSTRUMENTS:
Electricity.......................  $50    $33     $ 5    $ 4    $ 4    $--       $--       $96
Natural gas.......................   (7)     1       1      1      1     --        --        (3)
Crude oil.........................    1     --      --     --     --     --        --         1
Residual fuel.....................   (3)     1       2     --     --     --        --        --
                                    ---    ---     ---    ---    ---    ---       ---       ---
     TOTAL........................  $41    $35     $ 8    $ 5    $ 5    $--       $--       $94
                                    ===    ===     ===    ===    ===    ===       ===       ===
</Table>

INTEREST RATE RISK

     Our policy is to manage interest expense using a combination of fixed- and
variable-rate debt. From time to time, we also enter into interest rate swaps in
which we agree to exchange, at specified intervals, the difference between
fixed- and variable-interest amounts calculated by reference to agreed-upon
notional principal amounts. These interest rate swaps are designated to hedge
the variable interest rate risk in certain underlying debt obligations. For
swaps that qualify as cash flow hedges, changes in the fair value of the swaps
are deferred in OCI and are reclassified from OCI as an adjustment to interest
expense over the term of the swaps. Gains and losses resulting from the
termination of qualifying hedges prior to their stated maturities are recognized
as interest expense ratably over the remaining term of the hedged debt
instruments.

     To assess our exposure to changes in interest rates, we determine the
amount of our variable rate debt that is not hedged by an interest rate swap
then adjust this number for the amount of cash and short-term investments having
an offsetting exposure. If we sustained a 100 basis point change in interest
rates for all variable rate debt and cash, the change would affect net income by
less than $1 million per year, based on floating rate balances outstanding at
March 31, 2002.

ITEM 4.  CONTROLS AND PROCEDURES

     During 2002, the Company's independent auditors identified significant
internal control deficiencies at Mirant which collectively constitute a material
internal control weakness, the most significant of which relate to its North
American commodity trading and risk management operations.

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<PAGE>

     In addition to the above noted internal control deficiencies at Mirant, the
Company and its auditors have identified certain other internal control
deficiencies at both the Company and Mirant which, if left uncorrected, could
result in a material internal control weakness. Such control deficiencies relate
generally to account reconciliation procedures, certain aspects of the financial
accounting and reporting process, and controls over certain complex areas of
accounting for derivatives and income taxation.

     The Company and Mirant have addressed these internal control deficiencies
through a combination of corrective actions and additional manual control
procedures and believe that the remedial action taken has mitigated the noted
internal control deficiencies.

     Within the 90-day period immediately preceding the filing of this amended
quarterly report, an evaluation was carried out under the supervision and with
the participation of the Company's management, including its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of the design and
operation of its disclosure controls and procedures (as defined by Rules
13a-14(c) and 15d-14(c) under the Exchange Act). Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that there
were no significant deficiencies or material weaknesses, other than those noted
above, in the Company's disclosure controls and procedures and that the design
and operation of these disclosure controls and procedures were effective, as
supplemented by the remedial action taken to mitigate identified deficiencies.

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<PAGE>

                                    PART II

                               OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     See Note J in the unaudited condensed consolidated financial statements
that are a part of this quarterly report on Form 10-Q/A for litigation and other
contingencies.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits.

<Table>
<C>    <S>  <C>
31.1   --   Certification of Chief Executive Officer Pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and
            (b) of Section 1350, Chapter 63 of Title 18, United States
            Code)
31.2   --   Certification of Chief Financial Officer Pursuant to Section
            302 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and
            (b) of Section 1350, Chapter 63 of Title 18, United States
            Code)
32.1   --   Certification of Chief Executive Officer Pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and
            (b) of Section 1350, Chapter 63 of Title 18, United States
            Code)
32.2   --   Certification of Chief Financial Officer Pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and
            (b) of Section 1350, Chapter 63 of Title 18, United States
            Code)
</Table>

     (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 Section 13 or 15(d) 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 matters having reference to
such company and any subsidiaries thereof.

                                          MIRANT AMERICAS GENERATION, LLC

                                          By:        /s/ DAN STREEK
                                            ------------------------------------
                                                         Dan Streek
                                               Vice President and Controller
                                               (Principal Accounting Officer)

Date: August 27, 2003

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