**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**x**                                             QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe Quarterly Period Ended March 31, 2007**

**Or**

**o**                                                TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

**Forthe Transition Periodfrom              to**

**Mirant Americas Generation, LLC**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                      |   | **N/A**                   |   | **51-0390520**                        |
|-------------------------------------------------------------------|--------|---------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  Incorporation or Organization)  |   | (Commission File  Number) |   | (I.R.S. Employer  Identification No.) |
| **1155 Perimeter Center West,  Suite 100, Atlanta, Georgia** |   | **30338**                 |
| (Address of  Principal Executive Offices)                         |   | (Zip Code)                |
| **(678) 579-5000**                                                |   | ** **                |
| (Registrant’s  Telephone Number, Including Area Code)        |   |                      |

 

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. x  Yes  o  No

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. o  LargeAccelerated Filer  o  AcceleratedFiler  x  Non-acceleratedFiler

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

Indicate by check mark whether the registrant hasfiled all documents and reports required to be filed by Section 12, 13 or15(d) of the Securities Exchange Act of 1934 subsequent to the distributionof securities under a plan confirmed by a court. x  Yes  o  No

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

 

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**TABLE OF CONTENTS**

|              | ** ** | ** **                                                                                  | ** ** | **Page** | ** ** |
|--------------|------------|---------------------------------------------------------------------------------------------|------------|----------|------------|
|         | ** ** | **Glossary of Certain Defined Terms**                                                       |       |     | i-iii      |   |   |
|         |       | Cautionary Statement Regarding Forward-Looking  Information                                 |       |     | 3          |   |   |
| ** **   | ** ** | **PART I—FINANCIAL INFORMATION**                                                  |       |     |       |   |   |
| Item 1. |       | Interim Financial  Statements (unaudited):                                                  |       |     |       |   |   |
|         |       | Condensed Consolidated Statements of Operations                                             |       |     | 5          |   |   |
|         |       | Condensed Consolidated Balance Sheets                                                       |       |     | 6          |   |   |
|         |       | Condensed Consolidated Statements of Member’s Equity                                   |       |     | 7          |   |   |
|         |       | Condensed Consolidated Statements of Cash Flows                                             |       |     | 8          |   |   |
|         |       | Notes to Condensed Consolidated Financial Statements                                        |       |     | 9          |   |   |
| Item 2. |       | Management’s Discussion and Analysis of Results of  Operations and Financial Condition |       |     | 33         |   |   |
| Item 3. |       | Quantitative and Qualitative Disclosures about Market  Risk                                 |       |     | 47         |   |   |
| Item 4. |       | Controls and Procedures                                                                     |       |     | 48         |   |   |
| ** **   | ** ** | **PART II—OTHER INFORMATION**                                                     |       |     |       |   |   |
| Item 1. |       | Legal  Proceedings                                                                          |       |     | 49         |   |   |
| Item  1A.    |       | Risk  Factors                                                                               |       |     | 54         |   |   |
| Item 6. |       | Exhibits                                                                                    |       |     | 55         |   |   |

 

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**Glossary of Certain Defined Terms**

**ACO—****Administrative**ComplianceOrder.

**APB—****Accounting** PrinciplesBoard.

**APB No. 22—****APB**Opinion No. 22,*Disclosure of Accounting Policies*.

**APSA—****Asset** Purchase andSale Agreement.

**Back-to-Back Agreement—****Contractual**agreementwith Pepco with respect to certain PPAs.

**Bankruptcy Code—****United** StatesBankruptcy Code.

**Bankruptcy Court—****United**StatesBankruptcy Court for the Northern District of Texas, Fort Worth Division.

**Baseload Generating Units—****Units**that satisfyminimum baseload requirements of the system and produce electricity at anessentially constant rate and run continuously.

**CAISO—****California**IndependentSystem Operator.

**Cal PX—****California**PowerExchange.

**CFTC—****Commodity**FuturesTrading Commission.

**Clean Air Act—****Federal** Clean AirAct.

**Clean Water Act—****Federal**WaterPollution Control Act.

**CO—****Carbon**monoxide.

**Company—****Mirant**AmericasGeneration, LLC and its subsidiaries.

**CPUC—****California**PublicUtilities Commission.

**DOE—****Department** ofEnergy.

**DOJ—****Department**ofJustice.

**DWR—****California**Departmentof Water Resources.

**EBITDA—****Earnings** beforeinterest, taxes, depreciation and amortization.

**EITF—****The**Emerging IssuesTask Force formed by the Financial Accounting Standards Board.

**EITF 02-3—****EITF**Issue No. 02-3,*Issues Involved in Accounting for DerivativeContracts Held for Trading Purposes and Contracts Involved in Energy Tradingand Risk Management Activities*.

**EITF 06-3—****EITF**Issue No. 06-3,*How Taxes Collected from Customers and Remitted toGovernmental Authorities Should Be Presented in the Income Statement (That Is,Gross versus Net Presentation)*.

**EOB—****California**ElectricityOversight Board.

**EPA—****Environmental** ProtectionAgency.

**FASB—****Financial**AccountingStandards Board.

**FCM—****Forward**capacitymarket.

**FERC—****Federal**EnergyRegulatory Commission.

**FIN—****FASB** Interpretation.

**FIN 48—****FIN **No. 48,*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109.*

**GAAP—****Generally**acceptedaccounting principles in the United States.

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**Gross Margin—****Operating**revenueless cost of fuel, electricity and other products.

**Hudson Valley Gas—****Hudson**Valley GasCorporation.

**Intermediate GeneratingUnits—****Units**that meet systemrequirements that are greater than baseload and less than peaking.

**ISO—****Independent**SystemOperator.

**LIBOR—****London**InterBankOffered Rate.

**MAAC—****Mid-Atlantic**AreaCouncil.

**MDE—****Maryland**Departmentof the Environment.

**Mirant—****Old**Mirant prior to January 3,2006, and New Mirant on or after January 3, 2006.

**Mirant Americas—****Mirant**Americas, Inc.

**Mirant Americas EnergyMarketing—****Mirant**Americas Energy Marketing,LP.

**Mirant Americas Generation—****Mirant**AmericasGeneration, LLC.

**Mirant Bowline—****Mirant**Bowline, LLC.

**Mirant Chalk Point—****Mirant**Chalk Point,LLC.

**Mirant Energy Trading—****Mirant**EnergyTrading, LLC.

**Mirant Kendall—****Mirant**Kendall, LLC.

**Mirant Las Vegas—****Mirant**Las Vegas,LLC.

**Mirant Lovett—****Mirant**Lovett, LLC.

**Mirant Mid-Atlantic—****Mirant**Mid-Atlantic,LLC.

**Mirant New York—****Mirant**NewYork, LLC (formerly, Mirant New York, Inc.).

**Mirant North America—****Mirant**NorthAmerica, LLC and its subsidiaries.

**Mirant NY-Gen—****Mirant**NY-Gen, LLC.

**Mirant Potomac River—****Mirant**PotomacRiver, LLC.

**Mirant Power Purchase—****Mirant**PowerPurchase, LLC.

**Mirant Services—****Mirant**Services,LLC.

**Mirant Sugar Creek—****Mirant**Sugar Creek,LLC.

**Mirant West Georgia—****Mirant**West Georgia,LLC.

**Mirant Wichita Falls—****Mirant**WichitaFalls, LLC.

**MW—****Megawatt.**

**MWh—****Megawatt**hour.

**NAAQS—****National**ambient airquality standards.

**New Mirant—****Mirant**Corporationon or after January 3, 2006.

**NO2—****Nitrogen**dioxide.

**NOL—****Net**operating loss.

**NOV—****Notice**of violation.

**NOx—****Nitrogen**oxides.

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**NSR—****New**source review.

**NYISO—****Independent**SystemOperator of New York.

**NYSDEC—****New **York StateDepartment of Environmental Conservation.

**Old Mirant—****MC**2005, LLC, knownas Mirant Corporation prior to January 3, 2006.

**Orange and Rockland—****Orange**and RocklandUtilities, Inc.

**Panda—****Panda-Brandywine,**LP.

**Peaking Generating Units—****Units**used to meetdemand requirements during the periods of greatest or peak load on the system.

**Pepco—****Potomac**ElectricPower Company.

**PG&E—****Pacific**Gas &Electric Company.

**PJM—****Pennsylvania-New**Jersey-MarylandInterconnection, LLC.

**Plan—****Plan**ofReorganization effective on January 3, 2006, for Mirant and most of itssubsidiaries that were debtors in the bankruptcy proceedings.

**PM10—****Particulate**matterthat is 10 microns or less in size.

**PPA—****Power**purchaseagreement.

**Reserve Margin—****Excess**capacity overpeak demand.

**RMR—****Reliability-must-run.**

**RPM—****Reliability**PricingModel.

**RTO—****Regional**transmissionorganization.

**SCE—****Southern**CaliforniaEdison Company.

**SEC—****U.S.**Securities andExchange Commission.

**Securities Act—****The**Securities Actof 1933.

**SFAS—****Statement**ofFinancial Accounting Standards.

**SFAS No. 5—****SFAS**No. 5, *Accounting for Contingencies*.

**SFAS No. 109—****SFAS**No. 109, *Accounting for Income Taxes*.

**SFAS No. 144—****SFAS**No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*.

**SFAS No. 155—****SFAS**No. 155, *Accounting for Certain Hybrid Financial Instruments—an amendment ofFASB Statements No. 133 and 140*.

**SFAS No. 157—****SFAS**No. 157, *Fair Value Measurements.*

**SFAS No. 159—****SFAS**No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities—Includingan amendment of FASB Statement No 115*.

**Shady Hills—****Shady**Hills PowerCompany, L.L.C.

**SO2—****Sulfur**dioxide.

**SPDES—****State**PollutantDischarge Elimination System.

**Virginia DEQ—****Virginia**Departmentof Environmental Quality.

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**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING INFORMATION**

The information presented in this Form 10-Qincludes forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933 and Section 21E of the Securities Exchange Actof 1934, in addition to historical information. These statements involve knownand unknown risks and uncertainties and relate to future events, our futurefinancial performance or our projected business results. In some cases, one canidentify forward-looking statements by terminology such as “may,” “will,” “should,”“expect,” “plan,” “anticipate,” “estimate,” “predict,” “target,” “potential” or“continue” or the negative of these terms or other comparable terminology.

Forward-lookingstatements are only predictions. Actual events or results may differ materiallyfrom any forward-looking statement as a result of various factors, whichinclude:

·       legislative and regulatoryinitiatives regarding deregulation, regulation or restructuring of the industryof generating, transmitting and distributing electricity; changes in state,federal and other regulations (including rate and other regulations); changesin, or changes in the application of, environmental and other laws andregulations to which we and our subsidiaries and affiliates are or could becomesubject;

·       failure of our assets toperform as expected, including outages for unscheduled maintenance or repair;

·       changes in marketconditions, including developments in the supply, demand, volume and pricing ofelectricity and other commodities in the energy markets, or the extent andtiming of the entry of additional competition in our markets or those of oursubsidiaries and affiliates;

·       increased marginrequirements, market volatility or other market conditions that could increaseour obligations to post collateral beyond amounts that are expected;

·       our inability to accesseffectively the over-the-counter and exchange-based commodity markets orchanges in commodity market liquidity or other commodity market conditions,which may affect our ability to engage in asset management and proprietarytrading activities as expected, or result in material extraordinary gains orlosses from open positions in fuel oil or other commodities;

·       deterioration in thefinancial condition of our counterparties and the resulting failure to payamounts owed to us or to perform obligations or services due to us beyondcollateral posted;

·       hazards customary to thepower generation industry and the possibility that we may not have adequate insuranceto cover losses as a result of such hazards;

·       price mitigation strategiesemployed by ISOs or RTOs that reduce our revenue and may result in a failure tocompensate our generation units adequately for all of their costs;

·       volatility in our grossmargin as a result of our accounting for derivative financial instruments usedin our asset management activities and volatility in our cash flow fromoperations resulting from working capital requirements, including collateral,to support our asset management and proprietary trading activities;

·       our inability to enter intointermediate and long-term contracts to sell power and procure fuel, includingits transportation, on terms and prices acceptable to us;

·       the inability of ouroperating subsidiaries to generate sufficient cash flow to support ouroperations;

·       our ability to borrowadditional funds and access capital markets;

·       strikes, union activity orlabor unrest;

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·       weather and other naturalphenomena, including hurricanes and earthquakes;

·       the cost and availabilityof emissions allowances;

·       our ability to obtainadequate supply and delivery of fuel for our facilities;

·       curtailment of operationsdue to transmission constraints;

·       environmental regulationsthat restrict our ability or render it uneconomic to operate our business,including regulations related to the emission of carbon dioxide and othergreenhouse gases;

·       our inability to completeconstruction of emissions reduction equipment by January 2010 to meet therequirements of the Maryland Healthy Air Act, which may result in reduced unitoperations and reduced cash flows and revenues from operations;

·       war, terrorist activitiesor the occurrence of a catastrophic loss;

·       the fact that our MirantLovett subsidiary remains in bankruptcy;

·       our substantialconsolidated indebtedness and the possibility that we or our subsidiaries mayincur additional indebtedness in the future;

·       restrictions on the abilityof our subsidiaries to pay dividends, make distributions or otherwise transferfunds to us, including restrictions on Mirant North America contained in itsfinancing agreements and restrictions on Mirant Mid-Atlantic contained in itsleveraged lease documents, which may affect our ability to access the cash flowof those subsidiaries to make debt service and other payments;

·       the disposition of thepending litigation described in this Form 10-Q.

Many of these risks arebeyond our ability to control or predict. All forward-looking statementsattributable to us or persons acting on our behalf are expressly qualified intheir entirety by cautionary statements contained throughout this report.Because of these risks, uncertainties and assumptions, you should not placeundue reliance on these forward-looking statements. Furthermore, forward-lookingstatements speak only as of the date they are made.

**Factors that CouldAffect Future Performance**

We undertake no obligation to update publicly orrevise any forward-looking statements to reflect events or circumstances thatmay arise after the date of this report.

In addition to thediscussion of certain risks in Management’s Discussion and Analysis of Resultsof Operations and Financial Condition and the accompanying Notes to MirantAmericas Generation, LLC’s unaudited condensed consolidated financial statements,other factors that could affect the Company’s future performance (business,financial condition or results of operations and cash flows) are set forth inour Annual Report on Form 10-K for the year ended December 31,2006.

**Certain Terms**

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

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

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

| ** **                                                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                | ** ** | **(in millions)**                           | ** ** |
| Operating  revenues—affiliate                                        | ** ** | **$**                                            | **33**     |   | $ | 3 |   |
| Operating  revenues—nonaffiliate                                     | ** ** | **314**                                          |       | 964 |   |
| Total operating revenues                                                  | ** ** | **347**                                          |       | 967 |   |
| Cost of fuel, electricity and other  products—affiliate              | ** ** | **36**                                           |       | 16 |   |
| Cost of fuel,  electricity and other products—nonaffiliate           | ** ** | **278**                                          |       | 306 |   |
| Total cost of fuel, electricity and other products                        | ** ** | **314**                                          |       | 322 |   |
| **Gross Margin**                                                          | ** ** | **33**                                           |       | 645 |   |
| **Operating  Expenses:**                                                  |       |                                             |       |   |   |
| Operations and  maintenance—affiliate                                | ** ** | **65**                                           |       | 69 |   |
| Operations and  maintenance—nonaffiliate                             | ** ** | **88**                                           |       | 93 |   |
| Depreciation and  amortization                                            | ** ** | **30**                                           |       | 28 |   |
| Gain on sales of  assets, net                                             | ** ** | **(2**                                           | **)**      | — |   |
| Total operating expenses                                                  | ** ** | **181**                                          |       | 190 |   |
| **Operating Income (Loss)**                                               | ** ** | **(148**                                         | **)**      | 455 |   |
| **Other  Expense (Income), net:**                                         |       |                                             |       |   |   |
| Interest  expense—nonaffiliate                                       | ** ** | **65**                                           |       | 75 |   |
| Interest  income—nonaffiliate                                        | ** ** | **(12**                                          | **)**      | (7 | ) |
| Other, net                                                                | ** ** | **—**                                       |       | (3 | ) |
| Total other expense, net                                                  | ** ** | **53**                                           |       | 65 |   |
| **Income (Loss) From Continuing Operations Before  Reorganization Items** | ** ** | **(201**                                         | **)**      | 390 |   |
| Reorganization items, net                                                 | ** ** | **(1**                                           | **)**      | — |   |
| **Income  (Loss) From Continuing Operations**                             | ** ** | **(200**                                         | **)**      | 390 |   |
| **Loss  From Discontinued Operations**                                    | ** ** | **(5**                                           | **)**      | (1 | ) |
| **Net  Income (Loss)**                                                    | ** ** | **$**                                            | **(205**   | **)** | $ | 389 |   |

** **

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

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

**CONDENSED CONSOLIDATEDBALANCE SHEETS**

| ** **                                                               | ** ** | **At March 31,** | ** ** | **At December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| ** **                                                               | ** ** | **2007**                   | ** ** | **2006**                      | ** ** |
| ** **                                                               | ** ** | **(Unaudited)**            | ** ** | ** **                    | ** ** |
| ** **                                                               | ** ** | **(in millions)**     | ** ** |
| **ASSETS**                                                               |       |                       |       |                          |       |   |   |   |   |
| **Current Assets:**                                                      |       |                       |       |                          |       |   |   |   |   |
| Cash and cash  equivalents                                               | ** ** | ** **                 | **$**      | **647**                       |       |   |   | $ | 753 |   |   |
| Funds on deposit                                                         | ** ** | ** **                 | **310**    |                          |       |   | 233 |   |   |
| Receivables:                                                             |       |                       |       |                          |       |   |   |   |   |
| Affiliate                                                                | ** ** | ** **                 | **3**      |                          |       |   | 12 |   |   |
| Nonaffiliate, less  allowance for uncollectibles of $2 for 2007 and 2006 | ** ** | ** **                 | **254**    |                          |       |   | 371 |   |   |
| Price risk  management assets—affiliate                             | ** ** | ** **                 | **3**      |                          |       |   | 3 |   |   |
| Price risk  management assets—nonaffiliate                          | ** ** | ** **                 | **369**    |                          |       |   | 728 |   |   |
| Prepaid rent and  other payments                                         | ** ** | ** **                 | **122**    |                          |       |   | 131 |   |   |
| Inventories                                                              | ** ** | ** **                 | **253**    |                          |       |   | 288 |   |   |
| Assets held for  sale                                                    | ** ** | ** **                 | **523**    |                          |       |   | 527 |   |   |
| Total current  assets                                                    | ** ** | ** **                 | **2,484**  |                          |       |   | 3,046 |   |   |
| **Property,  Plant and Equipment, net**                                  | ** ** | ** **                 | **2,235**  |                          |       |   | 2,179 |   |   |
| **Noncurrent Assets:**                                                   |       |                       |       |                          |       |   |   |   |   |
| Intangible assets,  net                                                  | ** ** | ** **                 | **210**    |                          |       |   | 212 |   |   |
| Price risk  management assets—affiliate                             | ** ** | ** **                 | **1**      |                          |       |   | 1 |   |   |
| Price risk  management assets—nonaffiliate                          | ** ** | ** **                 | **72**     |                          |       |   | 104 |   |   |
| Prepaid rent                                                             | ** ** | ** **                 | **194**    |                          |       |   | 218 |   |   |
| Debt issuance  costs, net                                                | ** ** | ** **                 | **57**     |                          |       |   | 59 |   |   |
| Other                                                                    | ** ** | ** **                 | **9**      |                          |       |   | 18 |   |   |
| Total noncurrent  assets                                                 | ** ** | ** **                 | **543**    |                          |       |   | 612 |   |   |
| **Total  assets**                                                        | ** ** | ** **                 | **$**      | **5,262**                     |       |   |   | $ | 5,837 |   |   |
| **LIABILITIES AND EQUITY**                                               |       |                       |       |                          |       |   |   |   |   |
| **Current Liabilities:**                                                 |       |                       |       |                          |       |   |   |   |   |
| Notes  payable—affiliate                                            | ** ** | ** **                 | **$**      | **19**                        |       |   |   | $ | 13 |   |   |
| Current portion of  long-term debt                                       | ** ** | ** **                 | **165**    |                          |       |   | 141 |   |   |
| Claims payable and  estimated claims accrual                             | ** ** | ** **                 | **17**     |                          |       |   | 5 |   |   |
| Accounts payable  and accrued liabilities                                | ** ** | ** **                 | **292**    |                          |       |   | 329 |   |   |
| Payable to  affiliate                                                    | ** ** | ** **                 | **31**     |                          |       |   | 48 |   |   |
| Price risk  management liabilities—affiliate                        | ** ** | ** **                 | **11**     |                          |       |   | 13 |   |   |
| Price risk  management liabilities—nonaffiliate                     | ** ** | ** **                 | **226**    |                          |       |   | 286 |   |   |
| Accrued property  taxes                                                  | ** ** | ** **                 | **1**      |                          |       |   | 75 |   |   |
| Other                                                                    | ** ** | ** **                 | **18**     |                          |       |   | 27 |   |   |
| Total current  liabilities                                               | ** ** | ** **                 | **780**    |                          |       |   | 937 |   |   |
| **Noncurrent Liabilities:**                                              |       |                       |       |                          |       |   |   |   |   |
| Long-term debt                                                           | ** ** | ** **                 | **2,974**  |                          |       |   | 3,131 |   |   |
| Price risk  management liabilities—affiliate                        | ** ** | ** **                 | **1**      |                          |       |   | 4 |   |   |
| Price risk  management liabilities—nonaffiliate                     | ** ** | ** **                 | **73**     |                          |       |   | 39 |   |   |
| Asset retirement  obligations                                            | ** ** | ** **                 | **42**     |                          |       |   | 41 |   |   |
| Other                                                                    | ** ** | ** **                 | **7**      |                          |       |   | 7 |   |   |
| Total noncurrent  liabilities                                            | ** ** | ** **                 | **3,097**  |                          |       |   | 3,222 |   |   |
| **Liabilities  Subject to Compromise**                                   | ** ** | ** **                 | **8**      |                          |       |   | 34 |   |   |
| **Commitments and Contingencies**                                        |       |                       |       |                          |       |   |   |   |   |
| **Equity:**                                                              |       |                       |       |                          |       |   |   |   |   |
| Member’s interest                                                   | ** ** | ** **                 | **1,721**  |                          |       |   | 1,983 |   |   |
| Preferred stock in  affiliate                                            | ** ** | ** **                 | **(344**   | **)**                         |       |   | (339 | ) |   |
| Total equity                                                             | ** ** | ** **                 | **1,377**  |                          |       |   | 1,644 |   |   |
| **Total  liabilities and equity**                                        | ** ** | ** **                 | **$**      | **5,262**                     |       |   |   | $ | 5,837 |   |   |

 

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

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

**CONDENSEDCONSOLIDATED STATEMENTS OF MEMBER’S EQUITY (UNAUDITED)  (in millions)**

| ** **                                                | ** ** | ** **        | ** ** | **Preferred**     | ** ** |
|-----------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                | ** ** | **Member’s** | ** ** | **Stock in** | ** ** |
| ** **                                                | ** ** | **Interest**      | ** ** | **Affiliate**     | ** ** |
| Balance,  December 31, 2006                          |       |              | $          | 1,983             |       |   |   | $ | (339 | ) |   |
| Net income (loss)                                         |       |              | (205       | )                 |       |   | — |   |   |
| Amortization of discount on preferred stock in  affiliate |       |              | 5          |              |       |   | (5 | ) |   |
| Distribution to member                                    |       |              | (116       | )                 |       |   | — |   |   |
| Capital contribution pursuant to the Plan                 |       |              | 2          |              |       |   | — |   |   |
| Adoption of FIN 48                                        |       |              | 51         |              |       |   | — |   |   |
| Effect of the Supplemental Plan                           |       |              | 1          |              |       |   | — |   |   |
| **Balance, March 31, 2007**                          | ** ** | ** **        | **$**      | **1,721**         |       | ** ** | ** ** | **$** | **(344** | **)** | ** ** |

 

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

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**MIRANTAMERICAS GENERATION, LLC AND SUBSIDIARIES (Wholly-Owned Indirect Subsidiary of Mirant Corporation)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

| ** **                                                                                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                                                                                       | ** ** | **(in millions)**                           | ** ** |
| **Cash Flows from Operating  Activities:**                                                                                       | ** ** |                                             | ** ** | ** ** |   | ** ** | ** ** |
| Net income (loss)                                                                                                                | ** ** |                                             | **$**      | **(205** | **)** |   | $ | 389 |   |
| Loss from discontinued operations                                                                                                | ** ** |                                             | **(5**     | **)** |   | (1 | ) |
| Income (loss) from continuing operations                                                                                         | ** ** |                                             | **(200**   | **)** |   | 390 |   |
| Adjustments to reconcile  net income (loss) from continuing operations to net cash provided by (used  in)  operating activities: |       |                                             | ** ** | ** ** |   |   |   |
| Depreciation and amortization                                                                                                    | ** ** |                                             | **32**     | ** ** |   | 30 |   |
| Gain on sales of assets and investments, net                                                                                     | ** ** |                                             | **(2**     | **)** |   | — |   |
| Price risk management activities, net                                                                                            | ** ** |                                             | **359**    | ** ** |   | (282 | ) |
| Changes  in operating assets and liabilities:                                                                                    |       |                                             | ** ** | ** ** |   |   |   |
| Affiliate accounts receivable, net                                                                                               | ** ** |                                             | **—** | ** ** |   | (6 | ) |
| Customer accounts receivable, net                                                                                                | ** ** |                                             | **117**    | ** ** |   | 237 |   |
| Prepaid rent                                                                                                                     | ** ** |                                             | **24**     | ** ** |   | 24 |   |
| Inventories                                                                                                                      | ** ** |                                             | **35**     | ** ** |   | (36 | ) |
| Other assets                                                                                                                     | ** ** |                                             | **(67**    | **)** |   | 197 |   |
| Accounts payable and accrued liabilities                                                                                         | ** ** |                                             | **(17**    | **)** |   | (171 | ) |
| Settlement of claims payable                                                                                                     | ** ** |                                             | **(3**     | **)** |   | (739 | ) |
| Payable to affiliate                                                                                                             | ** ** |                                             | **(18**    | **)** |   | 9 |   |
| Property taxes accrued, nonaffiliate                                                                                             | ** ** |                                             | **(22**    | **)** |   | 15 |   |
| Other liabilities                                                                                                                | ** ** |                                             | **(29**    | **)** |   | 17 |   |
| Total adjustments                                                                                                                | ** ** |                                             | **409**    | ** ** |   | (705 | ) |
| Net cash provided by (used in) operating activities  of continuing operations                                                    | ** ** |                                             | **209**    | ** ** |   | (315 | ) |
| Net cash provided by (used in) operating activities  of discontinued operations                                                  | ** ** |                                             | **(2**     | **)** |   | 5 |   |
| Net cash provided by (used in) operating activities                                                                              | ** ** |                                             | **207**    | ** ** |   | (310 | ) |
| **Cash Flows from Investing  Activities:**                                                                                       | ** ** |                                             | ** ** | ** ** |   | ** ** | ** ** |
| Capital expenditures                                                                                                             | ** ** |                                             | **(75**    | **)** |   | (20 | ) |
| Proceeds from the sales of assets and investments,  net                                                                          | ** ** |                                             | **2**      | ** ** |   | 2 |   |
| Proceeds from property insurance                                                                                                 | ** ** |                                             | **2**      | ** ** |   | — |   |
| Net cash used in investing activities of continuing  operations                                                                  | ** ** |                                             | **(71**    | **)** |   | (18 | ) |
| Net cash used in investing activities of discontinued  operations                                                                | ** ** |                                             | **—** | ** ** |   | (1 | ) |
| Net cash used in investing activities                                                                                            | ** ** |                                             | **(71**    | **)** |   | (19 | ) |
| **Cash Flows from Financing  Activities:**                                                                                       | ** ** |                                             | ** ** | ** ** |   | ** ** | ** ** |
| Proceeds from issuance of long-term debt-affiliate                                                                               | ** ** |                                             | **7**      | ** ** |   | (16 | ) |
| Proceeds from issuance of long-term debt-nonaffiliate                                                                            | ** ** |                                             | **—** | ** ** |   | 2,015 |   |
| Repayment of long-term debt-nonaffiliate                                                                                         | ** ** |                                             | **(133**   | **)** |   | (468 | ) |
| Settlement of debt under the Plan                                                                                                | ** ** |                                             | **—** | ** ** |   | (990 | ) |
| Debt issuance costs                                                                                                              | ** ** |                                             | **—** | ** ** |   | (51 | ) |
| Payment to affiliate under the Plan                                                                                              | ** ** |                                             | **—** | ** ** |   | (250 | ) |
| Distribution to member                                                                                                           | ** ** |                                             | **(116**   | **)** |   | — |   |
| Net cash provided by (used in) financing activities  of continuing operations                                                    | ** ** |                                             | **(242**   | **)** |   | 240 |   |
| **Net Decrease in Cash and Cash Equivalents**                                                                                    | ** ** |                                             | **(106**   | **)** |   | (89 | ) |
| **Cash and Cash Equivalents, beginning of period**                                                                               | ** ** |                                             | **753**    | ** ** |   | 424 |   |
| **Cash and Cash Equivalents, end of period**                                                                                     | ** ** |                                             | **$**      | **647** | ** ** |   | $ | 335 |   |
| **Supplemental Cash Flow  Disclosures:**                                                                                         | ** ** |                                             | ** ** | ** ** |   | ** ** | ** ** |
| Cash paid for interest, net of amounts capitalized                                                                               | ** ** |                                             | **$**      | **44** | ** ** |   | $ | 19 |   |
| Cash paid for claims and professional fees from  bankruptcy                                                                      | ** ** |                                             | **$**      | **6** | ** ** |   | $ | 1,737 |   |
| **Financing Activity:**                                                                                                          | ** ** |                                             | ** ** | ** ** |   | ** ** | ** ** |
| Effect of the Supplemental Plan—non-cash                                                                                    | ** ** |                                             | **$**      | **1** | ** ** |   | $ | — |   |
| Capital  contribution pursuant to the Plan—non-cash                                                                         | ** ** |                                             | **$**      | **2** | ** ** |   | $ | 1 |   |

 

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

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**MIRANT AMERICASGENERATION, LLC AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**A.**                Description ofBusiness

Mirant Americas Generation is a national independentpower producer and an indirect wholly-owned subsidiary of Mirant. The Companygenerates revenues primarily through the production of electricity.****The Company produces and sells substantially all of theoutput from its generating facilities in the forward and spot markets and theremainder under contracts with third parties. The Company uses derivativefinancial instruments, such as commodity forwards, futures, options and swapsto manage its exposure to fluctuations in electric energy and fuel prices. TheCompany is a Delaware limited liability company.

As of March 31, 2007, the Company owned or leased12,099 MW of electric generating capacity. In the third quarter of 2006, Mirantcommenced auction processes to sell six of its natural gas-fired plants,including the Company’s Zeeland (903 MW) and Bosque (546 MW) natural gas-fired plantstotaling 1,449 MW. On May 1, 2007, the Company completed the sale of thesenatural gas-fired plants. See Note C for additional information regarding theaccounting for these assets as discontinued operations. In addition, on May 7,2007, the Company completed the sale of Mirant NY-Gen (121 MW).

Mirant Americas Generation’s continuing operations of10,301 MW consist of the ownership, long-term lease and operation of powergeneration facilities located in markets in the Mid-Atlantic and Northeastregions of the United States and in California, and energy trading andmarketing operations in Atlanta, Georgia.

On April 9, 2007, Mirant announced that its Boardof Directors had decided to explore strategic alternatives to enhancestockholder value. In light of the status of the disposition program, the Boardof Directors will consider in the exploration process whether the interests ofstockholders would be best served by returning excess cash from the saleproceeds to stockholders, with Mirant continuing to operate its retainedbusinesses or, alternatively, whether greater stockholder value would beachieved by entering into a transaction with another company, including a saleof Mirant in its entirety. Mirant does not expect to consider making anacquisition as part of this exploration process.

The Company has a numberof service agreements for labor and administrative services with MirantServices. In addition, Mirant Energy Trading provides services to other Mirantaffiliates related to the sale of electric power and the procurement of fueland emissions allowances.

**B.**               Accounting andReporting Policies

***Basis of Presentation***

The accompanying unaudited condensed consolidatedfinancial statements of Mirant Americas Generation and its wholly-ownedsubsidiaries have been prepared in accordance with GAAP for interim financialinformation and with the instructions for Form 10-Q and Article 10of Regulation S-X. Accordingly, they do not include all of the information andfootnotes required by GAAP for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included. For furtherinformation, refer to the consolidated financial statements and footnotes theretoincluded in the Company’s Annual Report on Form 10-K for the yearended December 31, 2006.

The accompanying unaudited condensed consolidatedfinancial statements include the accounts of Mirant Americas Generation and itswholly-owned subsidiaries and have been prepared from records maintainedby Mirant Americas Generation and its subsidiaries. All significantintercompany accounts and transactions have been eliminated in consolidation.

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In accordance withSFAS No. 144, the results of operations of the Company’s assets to bedisposed of have been reclassified to discontinued operations, and theassociated assets and liabilities have been reclassified to assets andliabilities held for sale for all periods presented. In addition, theaccompanying unaudited condensed consolidated statements of cash flows presentthe cash flows from discontinued operations in each of the three majorcategories (operating, investing and financing activities). The unauditedcondensed consolidated statement of cash flows for the three months ended March 31,2006, was revised to conform to this presentation.

Certain prior periodamounts have been reclassified to conform to the current period financialstatement presentation.

***Recently AdoptedAccounting Standards***

**Adoption of FIN 48**

On July 13, 2006, theFASB issued FIN 48, which clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withSFAS No. 109. FIN 48 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return.

The evaluation of a taxposition in accordance with FIN 48 is a two-step process. The first step isrecognition based on a determination of whether it is more-likely-than-not thata tax position will be sustained upon examination, including resolution of anyrelated appeals or litigation processes, based on the technical merits of theposition. In evaluating whether a tax position has met the more-likely-than-notrecognition threshold, the enterprise should presume that the position will beexamined by the appropriate taxing authority having full knowledge of allrelevant information. The second step is to measure a tax position that meetsthe more-likely-than-not threshold. The tax position is measured at the largestamount of benefit that is greater than 50% likely of being realized uponultimate settlement.

On January 1, 2007,the Company adopted the provisions of FIN 48 for all uncertain tax positions.Only tax positions that met the more-likely-than-not recognition threshold atthe effective date were recognized or will continue to be recognized. Forcontinuing operations, the adoption of FIN 48 resulted in a decrease in accruedliabilities of $51 million with a corresponding increase to member’s interestof the same amount.

**Adoptions of Other Standards**

In February 2006, theFASB issued SFAS No. 155, which allows fair value measurement for anyhybrid financial instrument that contains an embedded derivative that otherwisewould require bifurcation. SFAS No. 155 is effective for all financialinstruments acquired, issued or subject to a re-measurement event beginning inthe first fiscal year after September 15, 2006. At the date of adoption,any difference between the total carrying amount of the existing bifurcatedhybrid financial instrument and the fair value of the combined hybrid financialinstrument will be recognized as a cumulative effect adjustment to beginningretained earnings. The Company adopted SFAS No. 155 on January 1,2007. The adoption of SFAS No. 155 did not affect the Company’s statementsof operations, financial position or cash flows.

On June 28, 2006, theFASB ratified the EITF’s consensus reached on EITF 06-3, which relates tothe income statement presentation of taxes collected from customers andremitted to government authorities. The Task Force affirmed as a consensus onthis issue that the presentation of taxes on either a gross basis or a netbasis within the scope of EITF 06-3 is an accounting policy decision thatshould be disclosed pursuant to APB No. 22. A company should disclose theamount of those taxes that is recognized on a gross basis in interim and annualfinancial statements for each period for which an income statement is presentedif those amounts are significant. The Company adopted EITF 06-3 on January 1,2007. While the amounts are not material, the Company’s policy is to presentsuch taxes on a net basis in the consolidated statements of operations.

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**New Accounting Standards Not Yet Adopted**

On September 15,2006, the FASB issued SFAS No. 157, which establishes a framework formeasuring fair value under GAAP and expands disclosure about fair valuemeasurement. SFAS No. 157 requires companies to disclose the fair value oftheir financial instruments according to a fair value hierarchy (i.e., levels1, 2, and 3, as defined). Additionally, companies are required to provideenhanced disclosure regarding fair value measurements in the level 3 category, includinga reconciliation of the beginning and ending balances separately for each majorcategory of assets and liabilities accounted for at fair value. SFAS No. 157is effective at the beginning of the first fiscal year after November 15,2007. The Company will adopt SFAS No. 157 on January 1, 2008 and, asof that date, evaluate the fair value of its assets and liabilities accordingto the hierarchy established by the FASB and present the required disclosures.It is also expected that the adoption of SFAS No. 157 will affect themeasurement of certain liabilities by incorporating the Company’s own creditstanding and the accounting for inception gains and losses currently beingdeferred under EITF 02-3. The net deferred inception gains and losses at March 31,2007, were not material. The Company has not yet determined the potentialeffect of SFAS No. 157 on its statements of operations, financial positionor cash flows.

On February 15, 2007,the FASB issued SFAS No. 159, which permits an entity to measure manyfinancial instruments and certain other items at fair value by electing a fairvalue option. Once elected, the fair value option may be applied on aninstrument by instrument basis, is irrevocable and is applied only to entireinstruments. SFAS No. 159 also requires companies with trading andavailable-for-sale securities to report the unrealized gains and losses forwhich the fair value option has been elected within earnings for the periodpresented. SFAS No. 159 is effective at the beginning of the first fiscalyear after November 15, 2007. The Company will adopt SFAS No. 159 on January 1,2008. The Company has not yet determined the potential effect of SFAS No. 159on its statements of operations, financial position or cash flows.

**C.**               Dispositions

***Assets andLiabilities Held for Sale***

Assets and liabilitiesheld for sale include discontinued operations and other assets that the Companyexpects to dispose of in the next year.

On May 1, 2007,Mirant completed the sale of six U.S. natural gas-fired plants, including theCompany’s Zeeland and Bosque natural gas-fired plants, to Broadway GeneratingCompany, LLC (formerly called LS Power Acquisition Co. I), a member of the LSPower Group. The net proceeds to the Company from the sale after transactioncosts were $524 million. In accordance with Mirant North America debtcovenants, the proceeds from the sale will be reinvested in the business ofMirant North America.

At March 31, 2007 and December 31, 2006,assets and liabilities held for sale consisted of the planned dispositionsdiscussed above and ancillary equipment included in the sale to the LS PowerGroup.

Thetable below presents the components of the balance sheet accounts classified asassets and liabilities held for sale (in millions):

| ** **                     | ** ** | **At March 31,  2007** | ** ** | **At December 31,  2006** | ** ** |
|--------------------------------|------------|----------------------------------|------------|-------------------------------------|------------|
| Current Assets                 |       |                             | $          | 19                                  |       |   |   | $ | 22 |   |   |
| Property, Plant  and Equipment |       |                             | 504        |                                |       |   | 505 |   |   |
| Total Assets                   |       |                             | $          | 523                                 |       |   |   | $ | 527 |   |   |
| Current  Liabilities           |       |                             | $          | 4                                   |       |   |   | $ | 5 |   |   |
| Noncurrent  Liabilities        |       |                             | 11         |                                |       |   | 11 |   |   |
| Total Liabilities              |       |                             | $          | 15                                  |       |   |   | $ | 16 |   |   |

 

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***Discontinued Operations***

The Company hasreclassified amounts for prior periods in the financial statements to reportseparately, as discontinued operations, the revenues and expenses of componentsof the Company that met the required criteria for such classification at March 31,2007.

Asummary of the operating results for these discontinued operations is asfollows (in millions):

| ** **          | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------|------------|--------------------------------------------------|------------|
| ** **          | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Operating  revenues |       |                                             | $          | 6 |   |   |   | $ | 9 |   |   |
| Operating  expenses |       |                                             | 11         |   |   |   | 10 |   |   |
| Operating loss      |       |                                             | (5         | ) |   |   | (1 | ) |   |
| Net loss            |       |                                             | $          | (5 | ) |   |   | $ | (1 | ) |   |

 

**D.**   PriceRisk Management Assets and Liabilities

Thefair values of the Company’s price risk management assets and liabilities, netof credit reserves, at March 31, 2007 and December 31, 2006, are asfollows (in millions):

| ** **                        | ** ** | **At March 31, 2007** | ** ** |
|-----------------------------------|------------|--------------------------------------|------------|
| ** **                        | ** ** | **Assets**                           | ** ** | **Liabilities** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Current**                          | ** ** | **Noncurrent** | ** ** | **Current** | ** ** | **Noncurrent** | ** ** | **Net Fair Value** | ** ** |
| Electricity                       |       |                                 | $          | 239 |   |   |   | $ | 73 |   |   |   | $ | (216 | ) |   |   | $ | (47 | ) |   |   | $ | 49 |   |   |
| Natural Gas                       |       |                                 | 14         |   |   |   | — |   |   |   | (11 | ) |   |   | (1 | ) |   |   | 2 |   |   |
| Oil                               |       |                                 | 112        |   |   |   | — |   |   |   | (9 | ) |   |   | (26 | ) |   |   | 77 |   |   |
| Coal                              |       |                                 | 10         |   |   |   | — |   |   |   | (1 | ) |   |   | — |   |   |   | 9 |   |   |
| Other, including  credit reserves |       |                                 | (3         | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (3 | ) |   |
| Total                             |       |                                 | $          | 372 |   |   |   | $ | 73 |   |   |   | $ | (237 | ) |   |   | $ | (74 | ) |   |   | $ | 134 |   |   |

 

| ** **                        | ** ** | **At December 31, 2006** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | **Assets**                              | ** ** | **Liabilities** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Current**                             | ** ** | **Noncurrent** | ** ** | **Current** | ** ** | **Noncurrent** | ** ** | **Net Fair Value** | ** ** |
| Electricity                       |       |                                    | $          | 619 |   |   |   | $ | 104 |   |   |   | $ | (260 | ) |   |   | $ | (12 | ) |   |   | $ | 451 |   |   |
| Natural Gas                       |       |                                    | 21         |   |   |   | 1 |   |   |   | (26 | ) |   |   | (2 | ) |   |   | (6 | ) |   |
| Oil                               |       |                                    | 83         |   |   |   | — |   |   |   | (10 | ) |   |   | (29 | ) |   |   | 44 |   |   |
| Coal                              |       |                                    | 13         |   |   |   | — |   |   |   | (3 | ) |   |   | — |   |   |   | 10 |   |   |
| Other, including  credit reserves |       |                                    | (5         | ) |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (5 | ) |   |
| Total                             |       |                                    | $          | 731 |   |   |   | $ | 105 |   |   |   | $ | (299 | ) |   |   | $ | (43 | ) |   |   | $ | 494 |   |   |

 

Thefollowing table represents the net price risk management assets and liabilitiesby tenor as of March 31, 2007 (in millions):

| 2007                      |   | $   | 182    |   |
|---------------------------|--------|-----|--------|--------|
| 2008                      |   | (49 | )      |
| 2009                      |   | 3   |   |
| 2010                      |   | (1  | )      |
| Thereafter                |   | (1  | )      |
| Net assets  (liabilities) |   | $   | 134    |   |

 

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The volumetric weighted average maturity, or weightedaverage tenor, of the price risk management portfolio at March 31, 2007,was approximately 13 months. The net notional amount of the price riskmanagement assets and liabilities at March 31, 2007, was a net shortposition of approximately 46** **millionequivalent MWh.

Thefollowing table provides a summary of the factors affecting the change in netfair value of the price risk management asset and (liability) accounts for thethree months ended March 31, 2007 (in millions):

| ** **                                             | ** ** | **Proprietary  Trading and  Fuel Oil  Management** | ** ** | **Asset  Management** | ** ** | **Total** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------------|------------|-----------|------------|
| Net fair value of  portfolio at December 31, 2006 |       |                                                         | $          | 46                    |       |      |       | $ | 448 |   |   | $ | 494 |   |
| Changes in fair  value, net                            |       |                                                         | 7          |                  |       |      | (195       | ) |   | (188 | ) |
| Contracts settled  during the period, net              |       |                                                         | (5         | )                     |       |      | (167       | ) |   | (172 | ) |
| Net fair value of  portfolio at March 31, 2007    |       |                                                         | $          | 48                    |       |      |       | $ | 86 |   |   | $ | 134 |   |

 

**E.**               Debt

Long-termdebt is as follows (in millions): 

| ** **                                          | ** ** | **At March 31,** | ** ** | **At December 31,** | ** ** | ** **             | ** ** | **Secured/**  | ** ** |
|-----------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|------------------------|------------|---------------|------------|
| ** **                                          | ** ** | **2007**                   | ** ** | **2006**                      | ** ** | **Interest Rate** | ** ** | **Unsecured** | ** ** |
| **Long-term debt:**                                 | ** ** |                       | ** ** | ** **                    |       |                   | ** ** | ** **    |       | ** ** | ** ** | ** ** | ** ** |
| Mirant Americas  Generation:                        |       |                       |       |                          |       |                   |       |          |       |   |   |   |   |
| Senior notes:                                       |       |                       |       |                          |       |                   |       |          |       |   |   |   |   |
| Due 2011                                            |       |                       | $          | 850                           |       |                   |       | $             | 850        |   |   | 8.30 | % | Unsecured |   |
| Due 2021                                            |       |                       | 450        |                          |       |                   | 450        |          |       | 8.50 | % | Unsecured |   |
| Due 2031                                            |       |                       | 400        |                          |       |                   | 400        |          |       | 9.125 | % | Unsecured |   |
| Unamortized debt premium/discount                   |       |                       | (4         | )                             |       |                   | (4         | )             |       |   |   |   |   |
| Mirant North America:                               |       |                       |       |                          |       |                   |       |          |       |   |   |   |   |
| Term loan, due 2007 to 2013                         |       |                       | 560        |                          |       |                   | 693        |          |       | LIBOR + 1.75 | % | Secured |   |
| Notes, due 2013.                                    |       |                       | 850        |                          |       |                   | 850        |          |       | 7.375 | % | Unsecured |   |
| Other:                                              |       |                       |       |                          |       |                   |       |          |       |   |   |   |   |
| Mirant Chalk Point capital lease, due  2007 to 2015 |       |                       | 33         |                          |       |                   | 33         |          |       | 8.19 | % | — |   |
| Total                                               |       |                       | 3,139      |                          |       |                   | 3,272      |          |       |   |   |   |   |
| Less: current  portion of long-term debt            |       |                       | (165       | )                             |       |                   | (141       | )             |       |   |   |   |   |
| Total long-term  debt, excluding current  portion   |       |                       | $          | 2,974                         |       |                   |       | $             | 3,131      |   |   |   |   |   |   |

 

***SeniorSecured Credit Facilities***

MirantNorth America, a wholly-owned subsidiary of the Company, entered into seniorsecured credit facilities in January 2006, which are comprised of an$800 million six-year senior secured revolving credit facility and a$700 million seven-year senior secured term loan. The full amount of thesenior secured revolving credit facility is available for cash draws or for theissuance of letters of credit. On January 3, 2006, Mirant North Americadrew $465 million under its senior secured revolving credit facility. Allamounts were repaid during the first quarter of 2006.******Thesenior secured term loan was fully drawn at closing and amortizes in quarterlyinstallments aggregating 0.25% of the original principal of the term loan perquarter for the first 27 quarters, with the remainder payable on the finalmaturity date in January 2013. At the closing, $200 million drawnunder the senior secured term loan was deposited into a cash collateral 

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account to support the issuance of up to$200 million of letters of credit. As of March 31, 2007, there wereapproximately $200 million of letters of credit outstanding under the seniorsecured term loan and $18 million outstanding under the senior securedrevolving credit facility. The senior secured credit facilities are obligationsof Mirant North America and the respective guarantors and are without recourseto any other Mirant Americas Generation entities.

In addition to the quarterly installments, MirantNorth America is required to prepay a portion of the outstanding senior securedterm loan principal balance once a year. The prepayment is based on an adjustedEBITDA calculation that determines excess free cash flows, as defined in theloan agreement. On March 30, 2007, the Company made a mandatory principalprepayment of approximately $131 million on the term loan. Based on projectionsfor 2007, the current estimate of the mandatory principal prepayment of theterm loan in March 2008 is approximately $155 million. This amount hasbeen reclassified from long-term debt to current portion of long-term debt at March 31,2007.

**F.**   BankruptcyRelated Disclosures

***FinancialStatements of Subsidiaries in Bankruptcy***

TheCompany’s New York subsidiaries, Mirant New York, Mirant Bowline, MirantLovett, Hudson Valley Gas and Mirant NY-Gen, remained in bankruptcy at December 31,2006. On January 26, 2007, MirantNew York, Mirant Bowline, and Hudson Valley Gas (collectively the “Emerging NewYork Entities”) filed a Supplemental Joint Chapter 11 Plan of Reorganizationwith the Bankruptcy Court and subsequently filed amendments to that plan (as subsequentlyamended, the “Supplemental Plan”). The Supplemental Plan was confirmed by theBankruptcy Court on March 23, 2007, and became effective on April 16,2007, resulting in the Emerging New York Entities’ emergence from bankruptcy.For financial statement presentation purposes, Mirant Americas Generationrecorded the effects of the Supplemental Plan on March 31, 2007.

At March 31,2007, Mirant Lovett and Mirant NY-Gen remained in bankruptcy. On January 31,2007, Mirant New York entered into an agreement with Alliance EnergyRenewables, LLC for the sale of Mirant NY-Gen, which owns the Hillburn andShoemaker gas turbine facilities and the Swinging Bridge, Rio and Mongauphydroelectric generating facilities. The sale price of $5 million was subjectto adjustments for working capital and certain dam remediation efforts thatwere ongoing at the Swinging Bridge facility. The sale closed on May 7,2007, and Mirant NY-Gen emerged from bankruptcy under a plan of reorganizationapproved by the Bankruptcy Court on April 27, 2007, that incorporated the sale.The timing of the filing of a plan of reorganization for Mirant Lovett, and ofits emergence from bankruptcy, is uncertain. Mirant Americas is providingMirant Lovett with a debtor-in-possession credit facility for working capital.For further discussion see “Chapter 11 Proceedings” in Note J.

Unaudited condensed combined financial statements ofthe two New York subsidiaries, Mirant Lovett and Mirant NY-Gen, that remainedin bankruptcy at March 31, 2007, are set forth below:

**Mirant Lovett andMirant NY-GenUnaudited Condensed Combined Statements of Operations**

| ** **                                          | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                                           | ** ** | **2006** | ** ** |
| ** **                                          | ** ** | **(in millions)**                                             | ** ** |
| Operating  revenues                                 |       |                                                               | $          | 49 |   |   |   | $ | 66 |   |   |
| Total cost of  fuel, electricity and other products |       |                                                               | 22         |   |   |   | 42 |   |   |
| Operating  expenses                                 |       |                                                               | 20         |   |   |   | 24 |   |   |
| Operating income                                    |       |                                                               | 7          |   |   |   | — |   |   |
| Other expense,  net                                 |       |                                                               | 1          |   |   |   | — |   |   |
| Net Income                                          |       |                                                               | $          | 6 |   |   |   | $ | — |   |   |

 

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**MirantLovett and Mirant NY-GenUnaudited Condensed Combined Balance Sheet Data**

| ** **                                  | ** ** | **At  March 31,** | ** ** | **At  December 31,** | ** ** |
|---------------------------------------------|------------|------------------------|------------|---------------------------|------------|
| ** **                                  | ** ** | **2007**               | ** ** | **2006**                  | ** ** |
| ** **                                  | ** ** | **(in millions)** | ** ** |
| Assets—affiliate                       |       |                   | $          | 55                        |       |   |   | $ | 64 |   |   |
| Assets—nonaffiliate                    |       |                   | 35         |                      |       |   | 37 |   |   |
| Property, plant  and equipment, net         |       |                   | 184        |                      |       |   | 187 |   |   |
| Total assets                                |       |                   | $          | 274                       |       |   |   | $ | 288 |   |   |
| Liabilities not  subject to compromise      |       |                   |       |                      |       |   |   |   |   |
| Liabilities—affiliate                  |       |                   | $          | 17                        |       |   |   | $ | 11 |   |   |
| Liabilities—nonaffiliate               |       |                   | 22         |                      |       |   | 50 |   |   |
| Liabilities  subject to compromise          |       |                   |       |                      |       |   |   |   |   |
| Liabilities—affiliate                  |       |                   | 28         |                      |       |   | 27 |   |   |
| Liabilities—nonaffiliate               |       |                   | 2          |                      |       |   | 2 |   |   |
| Member’s equity                        |       |                   | 205        |                      |       |   | 198 |   |   |
| Total liabilities and  member’s equity |       |                   | $          | 274                       |       |   |   | $ | 288 |   |   |

 

**MirantLovett and Mirant NY-GenUnaudited Condensed Combined Statements of Cash Flows**

| ** **                                            | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                                  | ** ** | **2006** | ** ** |
| ** **                                            | ** ** | **(in millions)**                                    | ** ** |
| Net cash provided by  (used in):                      |       |                                                      |       |   |   |   |   |
| Operating activities                                  |       | $                                                         | (15        | ) |   | $ | (5 | ) |   |
| Investing activities                                  |       | 7                                                         |       |   | 7 |   |   |
| Financing activities                                  |       | 7                                                         |       |   | — |   |   |
| Net increase  (decrease) in cash and cash equivalents |       | (1                                                        | )          |   | 2 |   |   |
| Cash and cash  equivalents, beginning of period       |       | 4                                                         |       |   | — |   |   |
| Cash and cash  equivalents, end of period             |       | $                                                         | 3          |   |   | $ | 2 |   |   |

 

**G.**   RelatedParty Arrangements and Transactions

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

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

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The total costs incurredunder the Management, Personnel and Services Agreement with Mirant Serviceshave been included in the accompanying unaudited condensed consolidatedstatements of operations as follows (in millions):

| ** **                                                   | ** ** | **For the Three  Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2007**                                                       | ** ** | **2006** | ** ** |
| Cost  of fuel, electricity and other products—affiliate |       | $                                                              | 2          |   | $ | 2 |   |
| Operations and maintenance expense—affiliate            |       | 38                                                             |       | 37 |   |
| Total                                                        |       | $                                                              | 40         |   | $ | 39 |   |

 

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

For the three months ended March 31, 2007 and2006, the Company provided energy marketing and fuel procurement servicesthrough Mirant Energy Trading to the following affiliates: Mirant Las Vegas,Mirant Sugar Creek, Shady Hills, Mirant West Georgia and Mirant Wichita Falls.For the three months ended March 31, 2007 and 2006, the Company recorded areduction to operations and maintenance of approximately $1 million,related to these agreements.

Mirant Wichita Falls was sold by Mirant in the secondquarter of 2006. On May 1, 2007, Mirant completed the sale of Mirant LasVegas, Mirant Sugar Creek, Shady Hills and Mirant West Georgia. Subsequent tothe sale of these affiliates, the Company will no longer recognize a reductionto operations and maintenance associated with providing services to theseaffiliates.

The Company’s gross marginfor future periods is not expected to be materially affected by the sale ofthese affiliates. However, because the Company will discontinue providingenergy marketing and fuel procurement services to these entities, the Companyexpects its operating revenues-affiliate and cost of fuel, electricity, andother products—affiliate to decrease or be eliminated subsequent to the sale ofthese affiliates. In addition, these decreases will result in correspondingdecreases in cost of fuel, electricity, and other products—nonaffiliate andoperating revenues-nonaffiliate, respectively, in the consolidated statementsof operations in future periods.

***Administration Arrangements with Mirant Services***

Substantially all of Mirant’s corporate overhead costsare allocated to Mirant’s operating subsidiaries. For the three months ended March 31,2007 and 2006, the Company incurred approximately $28 million and$33 million, respectively, in costs under these arrangements, which areincluded in operations and maintenance—affiliate in the accompanying unauditedcondensed consolidated statements of operations.

The Company’s allocationof Mirant’s overhead costs is expected to increase as Mirant completes thedispositions of its Philippine and Caribbean businesses and six of its U. S.natural gas-fired assets in 2007.

***Notes Payable to Affiliate***

Mirant and certain of itssubsidiaries participate in an intercompany cash management program wherebycash balances at Mirant and the participating subsidiaries are transferred tocentral concentration accounts to fund working capital and other needs. At March 31,2007 and December 31, 2006, the Company had current notes payable toaffiliate of $19 million and $13 million, respectively. Interest expense—affiliatewas less than $1 million for the three months ended March 31, 2007 and2006.

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

Pursuant to the Plan,Mirant North America, the Company’s wholly-owned subsidiary, was required topay $250 million to Mirant Americas within five days of the effective date ofthe Plan in return for Mirant’s contribution of its interest in the following:Mirant Americas Energy Marketing, Mirant Americas Development, Inc.,Mirant Americas Production Company, Mirant Americas Energy Capital, LLC,Mirant Americas Energy Capital Assets, LLC, Mirant Americas DevelopmentCapital, LLC, Mirant Americas Retail Energy Marketing, LP, and MirantAmericas Gas Marketing, I-XV, LLCs. This amount was paid in January 2006.

***Mirant Guarantees***

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

Mirant posted a post-petition letter of credit in theamount of $5 million on behalf of Mirant Texas, LP (“Mirant Texas”) as of December 31,2004, related to a tolling agreement. This post-petition letter of credit wasset to expire in January 2006. Upon emergence from bankruptcy, MirantNorth America replaced this post-petition letter of credit with a letter ofcredit issued under its senior secured credit facilities. The letter of creditexpired in February 2007.

In July 2006, Mirant North America posted aletter of credit in the amount of $14 million on behalf of MirantDelta, LLC related to a tolling agreement. This letter of credit expiresin July 2007.

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

***Preferred Stock in Mirant Americas***

Mirant Americas issuedmandatorily redeemable Series A preferred shares to Mirant Mid-Atlanticfor the purpose of funding future environmental capital expenditures. For thethree months ended March 31, 2007, the company recorded $3 million inpreferred stock in affiliate and member’s interest in the unaudited condensedconsolidated balance sheet related to the amortization of the discount on thepreferred stock in Mirant Americas.

Mirant Americas issuedmandatorily redeemable Series B preferred shares to Mirant Mid-Atlanticfor the purpose of supporting the refinancing of Mirant Americas Generationsenior notes due in 2011. For the three months ended March 31, 2007, thecompany recorded $2 million in preferred stock in affiliate and member’sinterest in the unaudited condensed consolidated balance sheet related to theamortization of the discount on the preferred stock in Mirant Americas.

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

Mirant North America and Mirant Americas EnergyMarketing, (the “Primary DIP Lenders”) entered into an agreement (the “PrimaryNew York DIP Agreement”) to make secured debtor-in-possession financing in anamount of (i) $20 million, plus (ii) an amount equal to theamount of credit support provided on behalf of Mirant New York, Mirant Bowline,Mirant Lovett, and Hudson Valley Gas (collectively, the “New York DIP Borrowers”),to the extent such amounts were collateralized with cash or cash equivalents bythe New York DIP Borrowers. The New York DIP Borrowers had posted $21 millioncash collateral with Mirant Energy Trading (successor to Mirant Americas EnergyMarketing) in accordance with the March 31, 2007, collateral allocationperformed in good faith by Mirant Energy Trading. This cash collateral amountwas returned to the New York DIP Borrowers, and the Primary New York DIPAgreements were terminated in conjunction with the Emerging Subsidiariesemergence from bankruptcy on April 16, 2007.

The Bankruptcy Court approved a debtor-in-possessionloan to Mirant NY-Gen from Mirant Americas under which Mirant Americas, subjectto certain conditions, would lend up to $16.5 million to Mirant NY-Gen toprovide funding for the repairs on the Swinging Bridge dam. When Mirant NY-Genemerged from bankruptcy and was sold on May 7, 2007, all claims held byMirant NY-Gen were assigned to Mirant Americas, Mirant Americas released all ofits claims and liens against Mirant NY-Gen, and this loan was cancelled.

On April 18, 2007, anew DIP Agreement was established between Mirant Lovett and Mirant Americas tomake secured debtor-in-possession financing in an amount of $20 million. Thefinancing has a stated maturity of 180 days and bears interest at a rate ofLIBOR plus 4.25%. In addition, Mirant Lovett posted $7 million of cashcollateral with Mirant Energy Trading to collateralize Mirant Energy Tradingfor collateral that Mirant Energy Trading has posted on Mirant Lovett’s behalf.

**H.**   IncomeTaxes

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

Several significant changes to the Company’s taxposture occurred as a result of the Plan, including the conversion of certainof the Company’s regarded corporate entities to limited liability companiescoupled with the liquidation and/or merger of these regarded corporate entitiesinto other disregarded corporate entities for income tax purposes, and certainpartnerships owned by the regarded corporate entities were also liquidated andnow form part of these disregarded entities for income tax purposes. The resulteliminates the Company’s recording of tax expense and benefit beginning January 1,2006, with respect to the liquidated regarded corporate entities. Furthermore,with respect to those liquidated regarded corporate entities, all previouslyexisting deferred tax assets and liabilities were eliminated as of December 31,2005.

Certain of the Company’s other subsidiaries continueto exist as regarded corporate entities for income tax purposes. For thosecorporate regarded entities, the Company allocates current and deferred incometaxes to each regarded corporate entity as if such entity were a singletaxpayer utilizing the asset 

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and liability method toaccount for income taxes. To the extent the Company provides tax expense orbenefit, any related tax payable or receivable to Mirant is reclassified toequity in the same period.

The Company adopted the provisions of FIN 48 on January 1,2007. The Company has historically recognized contingent liabilities related totax uncertainties when it was probable that a loss had occurred and the loss orrange of loss could be reasonably estimated. The recognition of contingentlosses for tax uncertainties required management to make significantassumptions about the expected outcomes of certain tax contingencies. Uponadoption of FIN 48, the Company changed its method to recognize onlyliabilities for uncertain tax positions that are less than or subject to themeasurement threshold of the more-likely-than-not standard. As a result of theimplementation of FIN 48, for continuing operations the Company recognized adecrease in accrued liabilities of approximately $51 million. The additional taxbenefit resulted in an increase of the same amount to member’s interest. Theunrecognized tax benefit as a result of adopting FIN 48 is an insignificantamount and would not materially affect the Company’s effective tax rate if itwere to be recognized.

If the Company was to beallocated income taxes attributable to its operations, pro forma income taxexpense attributable to income before tax would be $2 million and zero forthe three months ended March 31, 2007 and 2006, respectively. The proforma balance of the Company’s deferred income taxes would be zero as of March 31,2007. The proforma increase in tax benefits that would have been recognizedupon adoption of FIN 48 is $86 million. The proforma unrecognized taxbenefit as a result of adopting FIN 48 is an insignificant amount andwould not materially affect the company’s pro forma effective tax rate if itwere recognized.

**I.**                   SegmentReporting

The Company has fouroperating segments: Mid-Atlantic, Northeast, California and Other Operations.Other Operations includes proprietary trading and fuel oil management. In thefollowing tables, eliminations are primarily related to intercompany sales ofemissions allowances and interest on intercompany notes receivable and notespayable.

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**OperatingSegments**

| ** **                                                             | ** ** | **Mid-Atlantic**       | ** ** | **Northeast** | ** ** | **California** | ** ** | **Other  Operations** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------|------------|------------------------|------------|---------------|------------|----------------|------------|-----------------------|------------|------------------|------------|-----------|------------|
| ** **                                                             | ** ** | **(in millions)** | ** ** |
| Three Months Ended  March 31, 2007:                               |       |                   |       |          |       |           |       |                  |       |             |       |      |       |   |   |   |   |   |   |   |   |   |   |
| Operating  revenues-affiliate                                          |       |                   | $          | 230           |       |           |       | $                     | 148        |             |       |      | $          | 8 |   |   |   | $ | 347 |   |   |   | $ | (700 | ) |   | $ | 33 |   |
| Operating  revenues-nonaffiliate                                       |       |                   | (173       | )             |       |           | 7          |                  |       |             | 37         |      |       |   | 443 |   |   |   | — |   |   | 314 |   |
| Total operating revenues                                               |       |                   | 57         |          |       |           | 155        |                  |       |             | 45         |      |       |   | 790 |   |   |   | (700 | ) |   | 347 |   |
| Cost of fuel,  electricity and other  products-affiliate               |       |                   | 95         |          |       |           | 27         |                  |       |             | 13         |      |       |   | 601 |   |   |   | (700 | ) |   | 36 |   |
| Cost of fuel,  electricity and other  products-nonaffiliate            |       |                   | 35         |          |       |           | 86         |                  |       |             | —     |      |       |   | 163 |   |   |   | (6 | ) |   | 278 |   |
| Total cost of fuel, electricity and other  products                    |       |                   | 130        |          |       |           | 113        |                  |       |             | 13         |      |       |   | 764 |   |   |   | (706 | ) |   | 314 |   |
| Gross margin                                                           |       |                   | (73        | )             |       |           | 42         |                  |       |             | 32         |      |       |   | 26 |   |   |   | 6 |   |   | 33 |   |
| Operating expenses:                                                    |       |                   |       |          |       |           |       |                  |       |             |       |      |       |   |   |   |   |   |   |   |   |   |   |
| Operations and maintenance-affiliate                                   |       |                   | 33         |          |       |           | 18         |                  |       |             | 9          |      |       |   | 5 |   |   |   | — |   |   | 65 |   |
| Operations and maintenance-nonaffiliate                                |       |                   | 50         |          |       |           | 27         |                  |       |             | 11         |      |       |   | — |   |   |   | — |   |   | 88 |   |
| Depreciation and amortization                                          |       |                   | 19         |          |       |           | 7          |                  |       |             | 3          |      |       |   | 1 |   |   |   | — |   |   | 30 |   |
| Gain on sales of assets, net                                           |       |                   | (1         | )             |       |           | (10        | )                     |       |             | (1         | )         |       |   | — |   |   |   | 10 |   |   | (2 | ) |
| Total operating expenses                                               |       |                   | 101        |          |       |           | 42         |                  |       |             | 22         |      |       |   | 6 |   |   |   | 10 |   |   | 181 |   |
| Operating income  (loss)                                               |       |                   | (174       | )             |       |           | —     |                  |       |             | 10         |      |       |   | 20 |   |   |   | (4 | ) |   | (148 | ) |
| Total other expense (income), net                                      |       |                   | (1         | )             |       |           | (2         | )                     |       |             | (3         | )         |       |   | 59 |   |   |   | — |   |   | 53 |   |
| Income (loss) from  continuing operations  before reorganization items |       |                   | (173       | )             |       |           | 2          |                  |       |             | 13         |      |       |   | (39 | ) |   |   | (4 | ) |   | (201 | ) |
| Reorganization  items, net                                             |       |                   | —     |          |       |           | (1         | )                     |       |             | —     |      |       |   | — |   |   |   | — |   |   | (1 | ) |
| Income (loss) from  continuing operations                              |       |                   | $          | (173          | )          |           |       | $                     | 3          |             |       |      | $          | 13 |   |   |   | $ | (39 | ) |   |   | $ | (4 | ) |   | $ | (200 | ) |
| Total assets of  continuing operations at  March 31, 2007         |       |                   | $          | 3,288         |       |           |       | $                     | 1,133      |             |       |      | $          | 456 |   |   |   | $ | 1,462 |   |   |   | $ | (1,600 | ) |   | $ | 4,739 |   |

 

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| ** **                                                        | ** ** | **Mid-Atlantic**       | ** ** | **Northeast** | ** ** | **California** | ** ** | **Other  Operations** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|---------------|------------|----------------|------------|-----------------------|------------|------------------|------------|-----------|------------|
| ** **                                                        | ** ** | **(in millions)** | ** ** |
| **Three Months Ended  March 31, 2006:**                      |       |                   |       |          |       |           |       |                  |       |             |       |      |       |   |   |   |   |   |   |   |   |   |   |
| Operating  revenues-affiliate                                     |       |                   | $          | 552           |       |           |       | $                     | 270        |             |       |      | $          | 9 |   |   |   | $ | (67 | ) |   |   | $ | (761 | ) |   | $ | 3 |   |
| Operating revenues-nonaffiliate                                   |       |                   | 27         |          |       |           | 7          |                  |       |             | 35         |      |       |   | 895 |   |   |   | — |   |   | 964 |   |
| Total operating revenues                                          |       |                   | 579        |          |       |           | 277        |                  |       |             | 44         |      |       |   | 828 |   |   |   | (761 | ) |   | 967 |   |
| Cost of fuel,  electricity and other products–affiliate      |       |                   | 112        |          |       |           | 83         |                  |       |             | 17         |      |       |   | 580 |   |   |   | (776 | ) |   | 16 |   |
| Cost of fuel,  electricity and other products–nonaffiliate   |       |                   | 50         |          |       |           | 47         |                  |       |             | —     |      |       |   | 209 |   |   |   | — |   |   | 306 |   |
| Total cost of fuel, electricity and other  products               |       |                   | 162        |          |       |           | 130        |                  |       |             | 17         |      |       |   | 789 |   |   |   | (776 | ) |   | 322 |   |
| Gross margin                                                      |       |                   | 417        |          |       |           | 147        |                  |       |             | 27         |      |       |   | 39 |   |   |   | 15 |   |   | 645 |   |
| Operating  expenses:                                              |       |                   |       |          |       |           |       |                  |       |             |       |      |       |   |   |   |   |   |   |   |   |   |   |
| Operations and maintenance–affiliate                         |       |                   | 34         |          |       |           | 19         |                  |       |             | 10         |      |       |   | 6 |   |   |   | — |   |   | 69 |   |
| Operations and maintenance–  nonaffiliate                    |       |                   | 51         |          |       |           | 35         |                  |       |             | 7          |      |       |   | — |   |   |   | — |   |   | 93 |   |
| Depreciation and amortization                                     |       |                   | 18         |          |       |           | 5          |                  |       |             | 3          |      |       |   | 2 |   |   |   | — |   |   | 28 |   |
| Gain on sales of assets, net                                      |       |                   | —     |          |       |           | (33        | )                     |       |             | —     |      |       |   | — |   |   |   | 33 |   |   | — |   |
| Total operating expenses                                          |       |                   | 103        |          |       |           | 26         |                  |       |             | 20         |      |       |   | 8 |   |   |   | 33 |   |   | 190 |   |
| Operating income                                                  |       |                   | 314        |          |       |           | 121        |                  |       |             | 7          |      |       |   | 31 |   |   |   | (18 | ) |   | 455 |   |
| Total other expense (income), net                                 |       |                   | (1         | )             |       |           | 3          |                  |       |             | —     |      |       |   | 63 |   |   |   | — |   |   | 65 |   |
| Income (loss) from  continuing operations                         |       |                   | $          | 315           |       |           |       | $                     | 118        |             |       |      | $          | 7 |   |   |   | $ | (32 | ) |   |   | $ | (18 | ) |   | $ | 390 |   |
| Total assets of  continuing operations at  December 31, 2006 |       |                   | $          | 3,404         |       |           |       | $                     | 1,189      |             |       |      | $          | 443 |   |   |   | $ | 2,029 |   |   |   | $ | (1,755 | ) |   | $ | 5,310 |   |

 

**J.**   Litigationand Other Contingencies

The Company is involved in a number of significantlegal proceedings. In certain cases plaintiffs seek to recover large andsometimes unspecified damages, and some matters may be unresolved for severalyears. The Company cannot currently determine the outcome of the proceedingsdescribed below or the ultimate amount of potential losses and therefore hasnot made any provision for such matters unless specifically noted below.Pursuant to SFAS No. 5, management provides for estimated losses to theextent information becomes available indicating that losses are probable andthat the amounts are reasonably estimable. Additional losses could have amaterial adverse effect on the Company’s consolidated financial position,results of operations or cash flows.

***Chapter11 Proceedings***

On July 14,2003, and various dates thereafter, Mirant Corporation and certain of itssubsidiaries (collectively, the “Mirant Debtors”), including the Company andits subsidiaries, filed voluntary petitions for relief under Chapter 11 ofthe Bankruptcy Code in the Bankruptcy Court. Most of the material claims filedagainst the Mirant Debtors’ estates were disallowed or were resolved and became“allowed” claims before confirmation of the Plan that became effective forMirant, the Company and most of the Mirant Debtors on January 3, 2006.Mirant, as the distribution agent under the Plan, has made distributionspursuant to the terms of the Plan on those allowed claims. Some claims,however, remain unresolved.

Asof March 31, 2007, approximately 21 million of the shares of Mirant commonstock to be distributed under the Plan have not yet been distributed and havebeen reserved for distribution with respect to claims that are disputed by theMirant Debtors and have not been resolved. A settlement entered into on May 30,2006, among Pepco, Mirant, Old Mirant, and various subsidiaries of Mirant, 

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including subsidiaries of the Company, if approved byfinal order in the Chapter 11 proceedings, would result in the distribution ofup to 18 million of the reserved shares to Pepco, as described below in *Pepco Litigation*. Under the terms of the Plan, to the extentother such unresolved claims are resolved now that the Company has emerged frombankruptcy, the claimants will be paid from the reserved shares on the samebasis as if they had been paid when the Plan became effective. That means thattheir allowed claims will receive the same pro rata distributions of Mirantcommon stock, cash, or both common stock and cash as previously allowed claimsin accordance with the terms of the Plan. To the extent the aggregate amount ofthe payouts determined to be due with respect to such disputed claimsultimately exceeds the amount of the funded claim reserve, Mirant would have toissue additional shares of common stock to address the shortfall, which woulddilute existing Mirant shareholders, and Mirant and the Company would have topay additional cash amounts as necessary under the terms of the Plan to satisfysuch pre-petition claims.

TheCompany’s subsidiaries related to its New York business operations, Mirant NewYork, Mirant Bowline, Mirant Lovett, Hudson Valley Gas and Mirant NY-Gen,remained in bankruptcy at the end of 2006. On January 26, 2007, the Emerging New York Entities filed aSupplemental Joint Chapter 11 Plan of Reorganization of the Emerging NewYork Entities with the Bankruptcy Court and subsequently filed amendments tothat plan. The Bankruptcy Court entered an order confirming theSupplemental Plan on March 23, 2007. The Supplemental Plan becameeffective on April 16, 2007, resulting in the emergence from bankruptcy ofthe Emerging New York Entities. The Supplemental Plan has two main components.First, the Supplemental Plan incorporates a settlement with various New Yorktax jurisdictions that resolved property tax disputes related to the Lovett andBowline facilities. Second, the Supplemental Plan provides unsecured creditorsof the Emerging New York Entities with the same treatment afforded holders ofunsecured claims against the Company and its subsidiaries under the Plan. Suchunsecured creditors of the Emerging New York Entities will receive their*pro rata* share of the pool of assetscreated under the Plan for the benefit of the unsecured creditors of the Companyand its subsidiaries.

OnOctober 19, 2006, Mirant Lovett notified the New York Public ServiceCommission, the NYISO, Orange and Rockland and certain other affectedtransmission and distribution companies in New York of its intent todiscontinue operation of units 3 and 5 of the Lovett facility onApril 30, 2007. The notice was prompted by the requirements of aJune 11, 2003, Consent Decree (the “2003 Consent Decree”) among MirantLovett, the State of New York and the NYSDEC that requires Mirant Lovett toinstall certain environmental controls on unit 5 of the Lovett facility,convert the unit to operate exclusively on natural gas, or discontinueoperation of that unit by April 30, 2007. The 2003 Consent Decree alsorequires that certain environmental controls be installed on unit 4 byApril 30, 2008, or operations at that unit must be discontinued.Operations at unit 3 have been discontinued because it is uneconomic tocontinue to run unit 3. On April 30, 2007, and May 7, 2007,Mirant Lovett entered into two tolling agreements with the New York StateOffice of the Attorney General and the NYSDEC to allow the operation ofunit 5 to continue on coal until May 14, 2007, while the partiessought to reach agreement on an amended consent decree. The second tollingagreement also required the temporary suspension of operations of unit 4.Mirant Lovett has advised the New York Public Service Commission, the NYISO,Orange and Rockland and other potentially affected transmission anddistribution companies in New York of the changes in expected operating statusof units 4 and 5. Mirant New York, Mirant Lovett and the State of New Yorkon May 10, 2007, entered into an amendment to the 2003 Consent Decree thatswitches the deadlines for units 4 and 5 so that the deadline forcompliance by unit 5 is extended until April 30, 2008, and thedeadline for unit 4 is shortened so that it would discontinue operation asof May 7, 2007. On May 8, 2007, Mirant New York, Mirant Lovett,Mirant Bowline, and Hudson Valley Gas also entered into an agreement (the “TaxAssessments Agreement”) with the Town of Stony Point, the Town of Haverstraw,and the Village of Haverstraw to set the assessed values for the Lovett andBowline facilities and the pipeline owned by Hudson Valley Gas for 2007 and2008 for property tax purposes at the values established for 2006 under asettlement agreement entered into by the Mirant entities and those taxingauthorities in December 2006 that resolved disputes regarding the assessedvalues of the facilities for 2006 and several earlier years. The amendment tothe 2003 Consent Decree was subject to the approval of the United States 

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District Court for the Southern District of New Yorkand the Bankruptcy Court. The Tax Assessments Agreement was subject to theapproval of the Bankruptcy Court. The Bankruptcy Court approved the amendmentto the 2003 Consent Decree and the Tax Assessments Agreement on May 10,2007. The district court approved the amendment to the 2003 Consent Decree onMay 11, 2007. The timing of the filing of a plan of reorganization forMirant Lovett, and of its emergence from bankruptcy, is uncertain. Until MirantLovett emerges from bankruptcy, the Company will not have access to the cashfrom operations generated by Mirant Lovett.

MirantNY-Gen, which owns hydroelectric facilities at Swinging Bridge, Rio andMongaup, and small combustion turbine facilities at Hillburn and Shoemaker, hasproceeded with the implementation of a remediation plan for the sinkholediscovered in May 2005 in the dam at the Swinging Bridge facility. Thestatus of the remediation effort is discussed below in *OtherContingencies*. Mirant NY-Gen’s expenses have been funded under adebtor-in-possession facility provided by Mirant Americas with the approval of,and under the supervision of, the Bankruptcy Court.

On January 31, 2007, Mirant New York entered intoan agreement to sell Mirant NY-Gen to Alliance Energy Renewables, LLC (the“Alliance Sale”). The sale price of approximately $5 million was subject toadjustments for working capital and certain ongoing dam remediation efforts atthe Swinging Bridge facility. The Bankruptcy Court approved the Alliance Saleon March 8, 2007. On February 15, 2007, Mirant NY-Gen filed itsproposed Chapter 11 Plan of Reorganization (the “Mirant NY-Gen Plan”),which incorporated the Alliance Sale. The Bankruptcy Court confirmed the MirantNY-Gen Plan by order dated April 27, 2007. The Mirant NY-Gen Plan becameeffective and the Alliance Sale closed on May 7, 2007. Under the terms ofthe Mirant NY–GenPlan and the confirmation order, approximately $2 million was reservedfrom the proceeds of the Alliance Sale to pay in full all the claimsoutstanding against Mirant NY–Genother than claims arising from the debtor-in-possession loan providedby Mirant Americas to Mirant NY–Genand intercompany claims. Mirant guarantees were substituted for $1.6 million ofthe amount to be reserved. The remaining sales proceeds were paid to MirantAmericas in partial satisfaction of the $16.5 milliondebtor-in-possession loan, all claims held by Mirant NY–Gen were assigned to Mirant Americas,and Mirant Americas released all of its claims and liens against Mirant NY–Gen.

***PepcoLitigation***

In2000, Mirant purchased power generating facilities and other assets from Pepco,including certain PPAs between Pepco and third parties. Under the terms of theAPSA, Mirant and Pepco entered into theBack-to-Back Agreement with respect to certain PPAs, including Pepco’slong-term PPA with Panda, under which (1) Pepco agreed to resell to Mirantall capacity, energy, ancillary services and other benefits to which it isentitled under those agreements and (2) Mirant agreed to pay Pepco eachmonth all amounts due from Pepco to the sellers under those agreements for theimmediately preceding month associated with such capacity, energy, ancillaryservices and other benefits. The Panda PPA runs until 2021, and theBack-to-Back Agreement does not expire until all obligations have beenperformed under the Panda PPA. Under the Back-to-Back Agreement, Mirant isobligated to purchase power from Pepco at prices that typically are higher thanthe market prices for power.

Mirantassigned its rights and obligations under the Back-to-Back Agreement to MirantAmericas Energy Marketing. In the Chapter 11 cases of the Mirant Debtors, Pepcoasserted that an Assignment and Assumption Agreement dated December 19,2000, that includes as parties Pepco and various of the Company’s subsidiariescauses the Company’s subsidiaries that are parties to the agreement to bejointly and severally liable to Pepco for various obligations, including theobligations under the Back-to-Back Agreement. The Mirant Debtors have sought toreject the APSA, the Back-to-Back Agreement, and the Assignment and AssumptionAgreement, and the rejection motions have not been resolved. Under the Plan,the obligations of the Mirant Debtors under the APSA (including any otheragreements executed pursuant to the terms of the APSA and found by a final courtorder to be part of the APSA), the Back-to-Back Agreement, and the Assignmentand Assumption Agreement are to be performed by Mirant Power 

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Purchase, whose performance is guaranteed by Mirant.If any of the agreements is successfully rejected, the obligations of MirantPower Purchase and Mirant’s guarantee obligations terminate with respect tothat agreement, and Pepco would be entitled to a claim in the Chapter 11proceedings for any resulting damages. That claim would then be addressed underthe terms of the Plan. If the Bankruptcy Court were to conclude that theAssignment and Assumption Agreement imposed liability upon the Company’ssubsidiaries for the obligations under the Back-to-Back Agreement and theBack-to-Back Agreement were to be rejected, the resulting rejection damagesclaim could result in a claim in the Chapter 11 proceedings against the Company’ssubsidiaries but any such claim would be reduced by the amount recovered byPepco on its comparable claim against Mirant.

On May 30,2006, Mirant, Mirant Power Purchase, Old Mirant, various subsidiaries of Mirant(including subsidiaries of the Company), and a trust established pursuant tothe Plan to which ownership of Old Mirant and Mirant Americas Energy Marketingwas transferred (collectively the “Mirant Settling Parties”) entered into aSettlement Agreement and Release (the “Settlement Agreement”) with Pepco andvarious affiliates of Pepco (collectively the “Pepco Settling Parties”). Onceit becomes effective, the Settlement Agreement will fully resolve the contractrejection motions that remain pending in the bankruptcy proceedings, as well asother matters currently disputed between Pepco and Mirant and its subsidiaries.The Pepco Settling Parties and the Mirant Settling Parties will release eachother from all claims known as of May 30, 2006, including the fraudulenttransfer claims brought by Old Mirant and several of its subsidiaries againstPepco in July 2005. The Settlement Agreement will become effective once ithas been approved by the Bankruptcy Court and that approval order has become afinal order no longer subject to appeal. On August 9, 2006, the BankruptcyCourt entered an order approving the Settlement Agreement, but certain holdersof unsecured claims against Old Mirant in the bankruptcy proceedings appealedthat order. On December 26, 2006, the United States District Court for theNorthern District of Texas affirmed the bankruptcy court order approving thesettlement, but the claims holders have appealed that ruling to the UnitedStates Court of Appeals for the Fifth Circuit, and the approval order has notyet become a final order.

Underthe Settlement Agreement, Mirant Power Purchase will perform any remainingobligations under the APSA, and Mirant will guaranty its performance. TheBack-to-Back Agreement will be rejected and terminated effective as of May 31,2006, unless Mirant exercises an option given to it under the SettlementAgreement to have the Back-to-Back Agreement assumed under certain conditions.If the closing price of Mirant’s stock is less than $16.00 on four businessdays in a 20 consecutive business day period prior to any distribution ofshares to Pepco on its claim, then Mirant can elect to have the Back-to-BackAgreement assumed and assigned to Mirant Power Purchase rather than rejectingit, and the claim received by Pepco will be reduced as described below.

Withrespect to the other agreements executed as part of the closing of the APSA(the “Ancillary Agreements”) and other agreements between Pepco and subsidiariesof Mirant, including subsidiaries of the Company, the Mirant subsidiary that isa party to each agreement will assume the agreement and Mirant will guarantythat subsidiary’s performance. Mirant Power Purchase’s obligations under theAPSA do not include any obligations related to the Ancillary Agreements. If theBack-to-Back Agreement is rejected pursuant to the terms of the SettlementAgreement, the Settlement Agreement provides that a future breach of the APSAor any Ancillary Agreement by a party to such agreement will not entitle thenon-defaulting party to terminate, suspend performance under, or exercise anyother right or remedy under or with respect to any of the remainder of suchagreements. If, however, Mirant elects to have the Back-to-Back Agreementassumed and assigned to Mirant Power Purchase under the conditions set out inthe Settlement Agreement, then the Settlement Agreement provides that nothingin its terms prejudices the argument currently being made by Pepco in thecontract rejection proceedings that the APSA, the Back-to-Back Agreement, andthe Ancillary Agreements constitute a single non-severable agreement, thematerial breach of which would entitle Pepco to suspend or terminate itsperformance thereunder, or any defense of Mirant and its subsidiaries to suchan argument by Pepco.

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The Settlement Agreement grants Pepco a claim againstOld Mirant in Old Mirant’s bankruptcy proceedings that will result in Pepcoreceiving common stock of Mirant and cash having a value, after liquidation ofthe stock by Pepco, equal to $520 million, subject to certain adjustments. Uponthe Settlement Agreement becoming effective, Mirant will distribute up to 18million shares of Mirant common stock to Pepco to satisfy its claim and Pepcowill liquidate those shares. The shares to be distributed to Pepco will bedetermined by Mirant after the Settlement Agreement becomes effective so as toproduce upon liquidation total net proceeds as near to $520 million aspossible, subject to the overall cap on the shares to be distributed of 18million shares. If the net proceeds received by Pepco from the liquidation ofthe shares are less than $520 million, Mirant will pay Pepco cash equal to thedifference. If Mirant exercises the option to have the Back-to-Back Agreementassumed, then the $520 million is reduced to $70 million, Mirant Power Purchasewould continue to perform the Back-to-Back Agreement through its expiration in2021, and Mirant would guarantee its performance. The Settlement Agreementallocates the $70 million to various claims asserted by Pepco that do not arisefrom the rejection of the Back-to-Back Agreement, including claims assertedunder the Local Area Support Agreement between Pepco and Mirant Potomac Riverthat are discussed below in *Pepco Assertion of Breachof Local Area Support Agreement*.

***California and Western PowerMarkets***

*FERC Refund Proceedings.*   OnJuly 25, 2001, the FERC issued an order requiring proceedings (the “FERCRefund Proceedings”) to determine the amount of any refunds and amounts owedfor sales made by market participants, including Mirant Americas EnergyMarketing, to the CAISO or the Cal PX from October 2, 2000, through June 20,2001 (the “Refund Period”). Various parties have appealed these FERC orders tothe United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”)seeking review of a number of issues, including changing the Refund Period toinclude periods prior to October 2, 2000, and expanding the sales ofelectricity subject to potential refund to include bilateral sales made to theDWR and other parties. On August 2, 2006, the Ninth Circuit issued anopinion addressing some of the issues raised by these appeals. The NinthCircuit remanded to the FERC for further proceedings the FERC’s denial ofrelief for sales of electricity made in the CAISO and Cal PX markets prior to October 2,2000, at rates found to be unjust and directed the FERC to address the parties’request for a market-wide remedy for tariff violations that may have occurredprior to October 2, 2000. In addition, the Ninth Circuit found that theFERC had not adequately supported its decision to exclude from the FERC RefundProceedings (i) sales made in the CAISO and Cal PX that had a term ofgreater than 24 hours, and (ii) energy exchange transactions, and remandedthese issues to the FERC for further proceedings. The Ninth Circuit affirmedthe FERC’s decision to exclude bilateral sales to the DWR from the FERC RefundProceeding. If the FERC grants the parties’ requested relief with respect tothe issues remanded by the Ninth Circuit, any expansion of the Refund Period toinclude periods prior to October 2, 2000, or of the types of sales ofelectricity potentially subject to refund could increase the refund exposure ofMirant Americas Energy Marketing in this proceeding.

Inthe July 25, 2001, order, the FERC also ordered that a preliminaryevidentiary proceeding be held to develop a factual record on whether there hadbeen unjust and unreasonable charges for spot market bilateral sales in thePacific Northwest from December 25, 2000, through June 20, 2001. Inthat proceeding, the California Attorney General, the CPUC and the EOB filed torecover certain refunds from parties, including Mirant Americas EnergyMarketing, for bilateral sales of electricity to the DWR at theCalifornia/Oregon border, claiming that such sales took place in the PacificNorthwest. In an order issued June 25, 2003, the FERC ruled that norefunds were owed and terminated the proceeding. On November 10, 2003, theFERC denied requests for rehearing filed by various parties. Various partiesappealed the FERC’s decision to the Ninth Circuit.

On September 9,2004, the Ninth Circuit reversed the FERC’s dismissal of a complaint filed in2002 by the California Attorney General that sought refunds for transactionsconducted in markets 

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administered by the CAISO and the Cal PX outside theRefund Period set by the FERC and for transactions between the DWR and variousowners of generation and power marketers, including Mirant Americas EnergyMarketing and subsidiaries of the Company. The Ninth Circuit remanded theproceeding to the FERC for it to determine what remedies, including potentialrefunds, are appropriate where entities, including Mirant Americas EnergyMarketing, purportedly did not comply with certain filing requirements fortransactions conducted under market-based rate tariffs. On July 31, 2006,the Ninth Circuit denied a petition for rehearing filed by Mirant AmericasEnergy Marketing and other parties. Various parties to the proceeding havefiled a petition for writ of certiorari with the United States Supreme Courtrequesting it to review the Ninth Circuit’s September 9, 2004, decision.

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

TheCompany’s view is that the bulk of any obligations of Mirant Americas EnergyMarketing to make refunds as a result of sales completed prior to July 14,2003, in the CAISO or Cal PX markets or in bilateral transactions either havebeen addressed by the California Settlement or have been resolved as part ofMirant Americas Energy Marketing’s bankruptcy proceedings. To the extent thatMirant Americas Energy Marketing’s potential refund liability arises fromcontracts that were transferred to Mirant Energy Trading as part of thetransfer of the trading and marketing business under the Plan, Mirant EnergyTrading may have exposure to any refund liability related to transactions underthose contracts.

*FERC Show Cause ProceedingRelating to Trading Practices.**  *OnJune 25, 2003, the FERC issued a show cause order (the “Trading PracticesOrder”) to more than 50 parties, including Mirant Americas Energy Marketing andsubsidiaries of the Company, that a FERC staff report issued on March 26,2003, identified as having potentially engaged in one or more tradingstrategies of the type employed by Enron 

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Corporationand its affiliates (“Enron”), as described in Enron memos released by the FERCin May 2002. The Trading Practices Order identified certain specifictrading practices that the FERC indicated could constitute gaming or anomalousmarket behavior in violation of the CAISO and Cal PX tariffs. The TradingPractices Order requires the CAISO to identify transactions between January 1,2000, and June 20, 2001, that may involve the identified tradingstrategies, and then requires the applicable sellers involved in thosetransactions to demonstrate why such transactions were not violations of theCAISO and Cal PX tariffs. On September 30, 2003, the Mirant entitiesfiled with the FERC for approval of a settlement agreement (the “TradingSettlement Agreement”) entered into between certain Mirant entities and theFERC Trial Staff, under which Mirant Americas Energy Marketing would pay$332,411 to settle the show cause proceeding, except for an issue related tosales of ancillary services, which is discussed below. In a November 14,2003, order in a different proceeding, the FERC ruled that certain allegationsof improper trading conduct with respect to the selling of ancillary servicesduring 2000 should be resolved in the show cause proceeding. On December 19,2003, the Mirant entities filed with the FERC for approval of an amendment tothe Trading Settlement Agreement reached with the FERC Trial Staff with respectto the sale of ancillary services. Under that amendment, the FERC would have anallowed unsecured claim in Mirant Americas Energy Marketing’s bankruptcyproceeding for $3.67 million in settlement of the allegations with respectto the sale of ancillary services. The FERC approved the Trading SettlementAgreement, as amended, on June 27, 2005, and the Bankruptcy Court approvedit on August 24, 2005. Certain parties filed motions for rehearing, whichthe FERC denied on October 11, 2006. A party to the proceeding hasappealed the FERC’s June 27, 2005, order to the Ninth Circuit.

*Mirant Americas EnergyMarketing Contract Dispute with Nevada Power.**  *On December 5, 2001, Nevada Power Co. filed acomplaint at the FERC seeking reformation of the purchase price of energy undera contract it had entered with Mirant Americas Energy Marketing, claiming thatthe prices under that contract were unjust and unreasonable because, when itentered into the contract, western power markets were dysfunctional andnon-competitive markets. On June 25, 2003, the FERC dismissed thiscomplaint. Nevada Power appealed that dismissal to the United States Court ofAppeals for the Ninth Circuit, which on December 19, 2006, reversed thedismissal of the complaint and remanded the proceeding to the FERC. The salesmade under the contract with Nevada Power have been completed, and the Companyexpects that any refund claim related to that contract, if not now barred, willbe addressed in the Chapter 11 proceedings.

*Mirant Americas Energy Marketing Contract Dispute withSouthern California Water.**  *OnDecember 21, 2001, Southern California Water Co. filed a complaint at theFERC seeking reformation of the purchase price of energy under a long-termcontract it had entered with Mirant Americas Energy Marketing, claiming thatthe prices under that contract were unjust and unreasonable because, when itentered the contract, western power markets were dysfunctional andnon-competitive markets. The contract was for the purchase of 15 MWs during theperiod April 1, 2001, through December 31, 2006. On June 25,2003, the FERC dismissed this proceeding. Southern California Water appealedthat dismissal to the United States Court of Appeals for the Ninth Circuit,which on December 19, 2006, reversed the dismissal of the complaint andremanded the proceeding to the FERC. Upon the transfer of the assets of thetrading and marketing business to Mirant Energy Trading under the Plan, MirantEnergy Trading assumed Mirant Americas Energy Marketing’s contract obligationsto Southern California Water Company, including any potential refundobligations.

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

*Department of Justice Inquiries.*   InNovember 2002, Mirant received a subpoena from the DOJ, acting through theUnited States Attorney’s office for the Northern District of California,requesting information about its activities and those of its subsidiaries forthe period since January 1, 1998. The subpoena requested informationrelated to the California energy markets and other topics, including thereporting of inaccurate information to trade publications that publish naturalgas or electricity spot price 

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data. The subpoena wasissued as part of a grand jury investigation. The DOJ’s investigation is basedupon the same circumstances that were the subject of an investigation by theCFTC that was settled in December 2004,**a**sdescribed****in Mirant’s Annual Report on Form 10-Kfor the year ended December 31, 2004, in*LegalProceedings- Other Governmental Proceedings -CFTC Inquiry*. On June 19,2006, two former employees of Mirant pled guilty to charges of conspiracy tomanipulate the price of natural gas in interstate commerce during the period fromJuly 1, 2000, until November 1, 2000, while they were west regiontraders for Mirant Americas Energy Marketing. Mirant is discussing thedisposition of this matter with the DOJ. If Mirant is unable to reach aconsensual resolution with the DOJ, it is possible that the DOJ could seekindictments against one or more Mirant entities for alleged violations of theCommodity Exchange Act. A consensual resolution of this matter could involve adeferred prosecution agreement and payment of a fine or penalty. The Company’scurrent assessment is that any such fine or penalty would be paid by Mirant,not the Company or its subsidiaries.

***EnvironmentalMatters***

*EPA Information Request.**  *In January 2001, the EPA issued a request forinformation to Mirant concerning the implications under the EPA’s NSRregulations promulgated under the Clean Air Act of past repair and maintenanceactivities at the Potomac River plant in Virginia and the Chalk Point,Dickerson and Morgantown plants in Maryland. The requested information concernsthe period of operations that predates the Company subsidiaries’ ownership andlease of those plants. Mirant responded fully to this request. Under the APSA,Pepco is responsible for fines and penalties arising from any violationassociated with operations prior to the Company subsidiaries’ acquisition orlease of the plants. If a violation is determined to have occurred at any ofthe plants, the Company subsidiary owning or leasing the plant may beresponsible for the cost of purchasing and installing emissions controlequipment, the cost of which may be material. The Company’s subsidiaries owningor leasing the Chalk Point, Dickerson and Morgantown plants in Maryland will beinstalling a variety of emissions control equipment on those plants to complywith the Maryland Healthy Air Act, but that equipment will not include all ofthe emissions control equipment that could be required if a violation of theEPA’s NSR regulations is determined to have occurred at one or more of thoseplants. If such a violation is determined to have occurred after the Company’ssubsidiaries acquired or leased the plants or, if occurring prior to theacquisition or lease, is determined to constitute a continuing violation, theCompany’s subsidiary owning or leasing the plant at issue could also be subjectto fines and penalties by the state or federal government for the period afterits acquisition or lease of the plant, the cost of which may be material,although applicable bankruptcy law may bar such liability for periods prior to January 3,2006, when the Plan became effective for the Company and its subsidiaries thatown or lease these plants.

*Mirant Potomac River 2003Notice of Violation.**  *OnSeptember 10, 2003, the Virginia DEQ issued an NOV to Mirant Potomac Riveralleging that it violated its Virginia Stationary Source Permit to Operate byemitting NOx in excess of the “cap” established by the permit for the 2003summer ozone season. Mirant Potomac River responded to the NOV, asserting thatthe cap was unenforceable, noting that when the cap was made part of the permitit could comply through the purchase of emissions allowances and raising otherequitable defenses. Virginia’s civil enforcement statute provides forinjunctive relief and penalties. On January 22, 2004, the EPA issued anNOV to Mirant Potomac River alleging the same violation of its VirginiaStationary Source Permit to Operate as set out in the NOV issued by theVirginia DEQ.

On September 27, 2004, Mirant Potomac River, MirantMid-Atlantic, the Virginia DEQ, the MDE, the DOJ and the EPA entered into, andfiled for approval with the United States District Court for the EasternDistrict of Virginia, a proposed consent decree (the “Original Consent Decree”)that, if approved, would have resolved Mirant Potomac River’s potentialliability for matters addressed in the NOVs previously issued by the VirginiaDEQ and the EPA. The Original Consent Decree would have required Mirant PotomacRiver and Mirant Mid-Atlantic to (1) install pollution control equipmentat the Potomac River plant in Virginia and at the Morgantown plant in Marylandleased by Mirant Mid-Atlantic, 

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(2) comply with decliningsystem-wide ozone season NOx emissions caps from 2004 through 2010, (3) complywith system-wide annual NOx emissions caps starting in 2004, (4) meetseasonal system average emissions rate targets in 2008 and (5) pay civilpenalties and perform supplemental environmental projects in and around the PotomacRiver plant expected to achieve additional environmental benefits. Except forthe installation of the controls planned for the Potomac River units and theinstallation of selective catalytic reduction (“SCR”) or equivalent technologyat Mirant Mid-Atlantic’s Morgantown units 1 and 2 in 2007 and 2008, theOriginal Consent Decree would not have obligated the Company’s subsidiaries toinstall specifically designated technology, but rather to reduce emissionssufficiently to meet the various NOx caps. Moreover, as to the requiredinstallations of SCRs at Morgantown, Mirant Mid-Atlantic may choose not toinstall the technology by the applicable deadlines and leave the units offeither permanently or until such time as the SCRs are installed. The Original ConsentDecree was subject to the approval of the district court and the BankruptcyCourt. As described below, the Original Consent Decree was not approved and theparties filed an amended proposed consent decree that superseded the OriginalConsent Decree.

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

In early May 2006, the parties to the OriginalConsent Decree and Mirant Chalk Point entered into and filed for approval withthe United States District Court for the Eastern District of Virginia anamended consent decree (the “Amended Consent Decree”) to resolve Mirant PotomacRiver’s potential liability for matters addressed in the NOVs previously issuedby the Virginia DEQ and the EPA. The Amended Consent Decree includes therequirements that were to be imposed under the terms of the Original ConsentDecree as described above. It also defines the rights and remedies of theparties in the event of a rejection in bankruptcy or other termination of anyof the long-term leases under which Mirant Mid-Atlantic leases the coal unitsat the Dickerson and Morgantown plants. The Amended Consent Decreeprovides that if Mirant Mid-Atlantic rejects or otherwise loses one or more ofits leasehold interests in the Morgantown and Dickerson plants and ceases tooperate one or both of the plants, Mirant Mid-Atlantic, Mirant Chalk Pointand/or Mirant Potomac River will (i) provide the EPA, Virginia DEQ and theMDE with the written agreement of the new owner or operator of the affectedplant or plants to be bound by the obligations of the Amended Consent Decreeand (ii) where the affected plant is the Morgantown plant, offer to anyand all prospective owners and/or operators of the Morgantown plant to pay forcompletion of engineering, construction and installation of the SCRs requiredby the Amended Consent Decree. If the new owner or operator of the affectedplant or plants does not agree to be bound by the obligations of the AmendedConsent Decree, it requires Mirant Mid-Atlantic, Mirant Chalk Point and/orMirant Potomac River to install an alternative suite of environmental controlsat the plants they continue to own. The City of Alexandria and certainindividuals and organizations opposed entry of the Amended Consent Order. TheBankruptcy Court approved the Amended Consent Decree on June 1, 2006. Thedistrict court approved the Amended Consent Decree on April 20, 2007.

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*Mirant Potomac River Downwash Study*.On September 23, 2004, the Virginia DEQ and Mirant Potomac River enteredinto an order by consent with respect to the Potomac River plant under whichMirant Potomac River agreed to perform a modeling analysis to assess thepotential effect of “downwash” from the plant (1) on ambientconcentrations of SO2, NO2, CO and PM10 for comparison to the applicable NAAQSand (2) on ambient concentrations of mercury for comparison to VirginiaStandards of Performance for Toxic Pollutants. Downwash is the effect thatoccurs when aerodynamic turbulence induced by nearby structures causesemissions from an elevated source, such as a smokestack, to move rapidly towardthe ground resulting in higher ground-level concentrations of emissions.

The computer modeling analysis predicted thatemissions from the Potomac River plant have the potential to contribute tolocalized, modeled instances of exceedances of the NAAQS for SO2, NO2 and PM10under certain conditions. Based on those results, the Virginia DEQ issued adirective to Mirant Potomac River on August 19, 2005, to undertakeimmediately such action as was necessary to ensure protection of human healthand the environment and eliminate NAAQS exceedances. On August 24, 2005,power production at all five units of the Potomac River generating facility wastemporarily halted in response to the directive from the Virginia DEQ. On August 25,2005, the District of Columbia Public Service Commission filed an emergencypetition and complaint with the FERC and the DOE to prevent the shutdown of thePotomac River facility. The matter remains pending before the FERC and the DOE.On December 20, 2005, due to a determination by the DOE that an emergencysituation existed with respect to the reliability of the supply of electricityto central Washington, D.C., the DOE ordered Mirant Potomac River to generateelectricity at the Potomac River generating facility, as requested by PJM,during any period in which one or both of the transmission lines serving thecentral Washington, D.C. area are out of service due to a planned or unplannedoutage. In addition, the DOE ordered Mirant Potomac River, at all other times,for electric reliability purposes, to keep as many units in operation aspossible and to reduce the start-up time of units not in operation withoutcontributing to any NAAQS exceedances. The DOE required Mirant Potomac River tosubmit a plan, on or before December 30, 2005, that met theserequirements. The order further provides that Mirant Potomac River and itscustomers should agree to mutually satisfactory terms for any costs incurred byit under this order or just and reasonable terms shall be established by asupplemental order. Certain parties filed for rehearing of the DOE order, andon February 17, 2006, the DOE issued an order granting rehearing solelyfor purposes of considering further the rehearing requests. Mirant PotomacRiver submitted an operating plan in accordance with the order. On January 4,2006, the DOE issued an interim response to Mirant Potomac River’s operatingplan authorizing operation of the units of the Potomac River generatingfacility on a reduced basis, but making it possible to bring the entire plantinto service within approximately 28 hours when necessary for reliabilitypurposes. The DOE’s order expires July 1, 2007.

In a letter received December 30, 2005, the EPAinvited Mirant Potomac River and the Virginia DEQ to work with the EPA toensure that Mirant Potomac River’s operating plan submitted to the DOEadequately addressed NAAQS issues. The EPA also asserted in its letter thatMirant Potomac River did not immediately undertake action as directed by theVirginia DEQ’s August 19, 2005, letter and failed to comply with therequirements of the Virginia State Implementation Plan established by thatletter. Mirant Potomac River received a second letter from the EPA on December 30,2005, requiring Mirant to provide certain requested information as part of anEPA investigation to determine the Clean Air Act compliance status of thePotomac River generating facility.

On June 1, 2006, Mirant Potomac River and the EPAexecuted an ACO by Consent to resolve the EPA’s allegations that Mirant PotomacRiver violated the Clean Air Act by not immediately shutting down all units atthe Potomac River facility upon receipt of the Virginia DEQ’s August 19,2005, letter and to assure an acceptable level of reliability to the Districtof Columbia. The ACO (i) specifies certain operating scenarios and SO2emissions limits for the Potomac River facility, which scenarios and limitstake into account whether one or both of the 230kV transmission lines servingWashington, D.C. are out of 

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service; (ii) requiresthe operation of trona injection units to reduce SO2 emissions; and (iii) requiresMirant Potomac River to undertake a model evaluation study to predict ambientair quality impacts from the facility’s operations. In accordance with thespecified operating scenarios, the ACO permits the facility to operate using adaily predictive modeling protocol. This protocol allows Mirant Potomac Riverto schedule the facility’s level of operations based on whether computermodeling predicts a NAAQS exceedance, based on weather and certain operatingparameters. On June 2, 2006, the DOE issued a letter modifying its January 6,2006, order to direct Mirant Potomac River to comply with the ACO in order toensure adequate electric reliability to the District of Columbia. MirantPotomac River is operating the Potomac River facility in accordance with theACO and has been able to operate all five units of the facility most of thetime under the ACO. This ACO expires on June 1, 2007. Mirant Potomac Riveris in discussions with the Virginia DEQ and the Virginia State Air PollutionControl Board to determine the manner in which the Potomac River facility willbe permitted to operate after the ACO expires.

*New York State Administrative Claim*.On January 24, 2006, the State of New York and the NYSDEC filed a noticeof administrative claims in the Mirant Debtors’ Chapter 11 proceedingsasserting a claim seeking to require the Mirant Debtors to provide funding tothe Company’s subsidiaries owning generating facilities in New York to satisfycertain specified environmental compliance obligations. The State of New Yorkalleges that during the pendency of the Chapter 11 proceedings the MirantDebtors that emerged from bankruptcy in January 2006 made decisions onbehalf of the Company’s subsidiaries owning generating facilities in New Yorkand did not appropriately maintain the corporate separateness betweenthemselves and those subsidiaries. The Company disputes those allegations. TheState of New York cites various existing outstanding matters between the Stateand the Company’s subsidiaries owning generating facilities in New York relatedto compliance with environmental laws and regulations, most of which are notmaterial. The most significant compliance obligation identified by the State ofNew York in its notice of administrative claim relates to the 2003 ConsentDecree entered into by Mirant New York and Mirant Lovett with the State of NewYork to resolve issues related to NSR requirements under the Clean Air Actrelated to the Lovett plant. For further discussion of the status of the 2003Consent Decree see “Chapter 11 Proceedings” above. The State of New York andthe NYSDEC have executed a stipulated order with the Company’s New Yorksubsidiaries and the other Mirant Debtors to stay resolution of thisadministrative claim. That stipulated order was approved by the BankruptcyCourt on February 23, 2006.

*RiverkeeperSuit Against Mirant Lovett*.  On March 11, 2005, Riverkeeper, Inc.filed suit against Mirant Lovett in the United States District Court for theSouthern District of New York under the Clean Water Act. The suit alleges thatMirant Lovett failed to implement a marine life exclusion system at its Lovettgenerating plant and to perform monitoring for the exclusion of certain aquaticorganisms from the plant’s cooling water intake structures in violation ofMirant Lovett’s water discharge permit issued by the State of New York. Theplaintiff requests the court to enjoin Mirant Lovett from continuing to operatethe Lovett generating plant in a manner that allegedly violates the Clean WaterAct, to impose civil penalties of $32,500 per day of violation, and to awardthe plaintiff attorneys’ fees. On April 20, 2005, the district courtapproved a stipulation agreed to by the plaintiff and Mirant Lovett that staysthe suit until 60 days after entry of an order by the Bankruptcy Courtconfirming a plan of reorganization for Mirant Lovett becomes final andnon-appealable.

***City ofAlexandria Zoning Action***

On December 18, 2004, the City Council for theCity of Alexandria, Virginia (the “City Council”) adopted certain zoningordinance amendments that resulted in the zoning status of Mirant Potomac River’sgenerating plant being changed from “noncomplying use” to “nonconforming usesubject to abatement.” Under the nonconforming use status, unless MirantPotomac River applied for and received a special use permit for the plantduring the seven-year abatement period, the operation of the plant would havehad to be terminated within a seven-year period, and no alterations thatdirectly prolonged the life of 

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the plant would bepermitted during the seven-year period. The City Council also approvedrevocation of two special use permits issued in 1989 (the “1989 SUPs”), oneapplicable to the administrative office space at Mirant Potomac River’s plantand the other for the plant’s transportation management plan.

On January 18, 2005,Mirant Potomac River and Mirant Mid-Atlantic filed a complaint against the Cityof Alexandria and the City Council in the Circuit Court for the City ofAlexandria seeking to overturn the actions taken by the City Council on December 18,2004, on the grounds that those actions violated federal, state and city laws.On February 24, 2006, the court entered judgment in favor of MirantPotomac River and Mirant Mid-Atlantic declaring the change in the zoning statusof Mirant Potomac River’s generating plant to be invalid and vacating the CityCouncil’s revocation of the 1989 SUPs. On April 20, 2007, the VirginiaSupreme Court affirmed the rulings by the trial court. The City of Alexandriahas indicated that it intends to file a motion for rehearing with the VirginiaSupreme Court.

***PepcoAssertion of Breach of Local Area Support Agreement***

Following the shutdown of the Potomac River plant on August 24,2005, Mirant Potomac River notified Pepco on August 30, 2005, that itconsidered the circumstances resulting in the shutdown of the plant toconstitute a force majeure event under the Local Area Support Agreement dated December 19,2000, between Pepco and Mirant Potomac River. That agreement imposesobligations upon Mirant Potomac River to dispatch the Potomac River plant undercertain conditions, to give Pepco several years advance notice of anyindefinite or permanent shutdown of the plant and to pay all or a portion ofcertain costs incurred by Pepco for transmission additions or upgrades when anindefinite or permanent shutdown of the plant occurs prior to December 19,2010. On September 13, 2005, Pepco notified Mirant Potomac River that itconsiders Mirant Potomac River’s shutdown of the plant to be a material breachof the Local Area Support Agreement that is not excused under the force majeureprovisions of the agreement. Pepco contends that Mirant Potomac River’s actionsentitle Pepco to recover as damages the cost of constructing additionaltransmission facilities. Pepco, on January 24, 2006, filed a notice ofadministrative claims in the bankruptcy proceedings asserting that MirantPotomac River’s shutdown of the Potomac River plant causes Mirant Potomac Riverto be liable for the cost of such transmission facilities, which cost itestimates to be in excess of $70 million. Mirant Potomac River disputes Pepco’sinterpretation of the agreement. The outcome of this matter cannot bedetermined at this time.

If it is approved by afinal order of the Bankruptcy Court, the Settlement Agreement entered into on May 30,2006, by the Mirant Settling Parties and the Pepco Settling Parties wouldresolve all claims asserted by Pepco against Mirant Potomac River arising outof the suspension of operations of the Potomac River plant in August 2005.On August 9, 2006, the Bankruptcy Court entered an order approving theSettlement Agreement, but certain holders of unsecured claims in the bankruptcyproceedings have appealed that order, and the order has not yet become a finalorder. Under the Settlement Agreement, Pepco would release all claims it hasasserted against Mirant Potomac River related to the shutdown of the plant inreturn for the claim Pepco receives in the Mirant bankruptcy proceeding.

***OtherLegal Matters***

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

***OtherContingencies***

*SwingingBridge*. On May 5, 2005, Mirant NY-Gen discovered asinkhole at its Swinging Bridge dam, located in Sullivan County, New York. Inresponse, Mirant NY-Gen filled this sinkhole, inspected for 

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damagethe dam’s slopes and the enclosed pipe that delivers water from the reservoirto the generator, drew down the lake level, and cleaned the diversion tunnel.Mirant NY-Gen’s analysis indicated that the most probable cause of the sinkholewas erosion of soil comprising the dam from water flow through a hole in thepipe that delivers water from the reservoir to the generator. The dam iscurrently stabilized, and Mirant NY-Gen has performed additional remediationrepairs. By letter dated June 14, 2006, the FERC authorized Mirant NY-Gento proceed with its remediation plan for the sinkhole. The FERC has alsoconcurred with the results of Mirant NY-Gen’s flood study for its New YorkSwinging Bridge, Rio and Mongaup generation facilities, which study concludedthat no additional remediation is required. The Bankruptcy Court authorizedMirant NY-Gen to proceed with implementation of the remediation plan on June 29,2006. Through March 31, 2007, $27 million had been incurred to remediatethe dam at Swinging Bridge. Upon the closing of the Alliance Sale on May 7,2007, the new owner of Mirant NY-Gen assumed responsibility for completing theremediation work. Mirant Americas, which was assigned Mirant NY-Gen’s claimsagainst third parties under Mirant NY-Gen’s plan of reorganization, expects torecover insurance proceeds for a portion of the repair costs incurred prior tothe sale of Mirant NY-Gen.

**Item 2.**   *Management’s Discussionand Analysis of Results of Operations and Financial Condition*

The following discussionshould be read in conjunction with our accompanying unaudited condensedconsolidated financial statements and the notes thereto, which are includedelsewhere in this report.

***Overview***

We are a competitive energy company that produces andsells electricity. We are an indirect wholly-owned subsidiary of Mirant. On May 1,2007, Mirant completed the sale of six U.S. natural gas-fired intermediate andpeaking plants, including our Zeeland and Bosque facilities. In addition, on May 7,2007, we completed the sale of Mirant NY-Gen. Our continuing operations of10,301 MW consist of the ownership, long-term lease and operation of powergeneration facilities located in markets in the Mid-Atlantic and Northeastregions of the United States and in California, and energy trading andmarketing operations in Atlanta, Georgia.

On April 9, 2007, Mirant announced that its Boardof Directors had decided to explore strategic alternatives to enhancestockholder value. In light of the status of the disposition program, the Boardof Directors will consider in the exploration process whether the interests ofstockholders would be best served by returning excess cash from the saleproceeds to stockholders, with Mirant continuing to operate its retainedbusinesses or, alternatively, whether greater stockholder value would beachieved by entering into a transaction with another company, including a saleof Mirant in its entirety. Mirant does not expect to consider making anacquisition as part of this exploration process.

Our Mid-Atlanticoperations contributed 63% of our $392 million realized gross margin for thethree months ended March 31, 2007. Our power plants located in theMid-Atlantic region that sell power into the PJM market will participate in theRPM forward capacity market. Due to the increasing demand for power and thecontinuing reduction in available capacity in this area, the RPM is designed toprovide prices for capacity that are intended to ensure that adequate resourcesare in place to meet the demand requirements. PJM held its first annual capacityauction in April 2007, for delivery of capacity from June 1, 2007 to May 31,2008, and the resource clearing price in the Southwestern MAAC for delivery ofcapacity from June 1, 2007 to May 31, 2008, was $188.54 per MW-day.Two more auctions will be conducted this year and relate to the deliveryperiods for June 1, 2008 to May 31, 2009 and from June 1, 2009to May 31, 2010. Thereafter, annual auctions will be conducted to procurecapacity three years prior to the delivery period.

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**Results ofOperations**

The following discussionof our performance is organized by reportable segment, which is consistent withthe way we manage our business.

***Consolidated FinancialPerformance***

Wereported a net loss of $205 million and net income of $389 million for theperiods ended March 31, 2007 and 2006, respectively. For the three monthsended March 31, 2007, as compared to the same period in 2006, a decreasein unrealized gross margin reduced net income by $641 million. We engage inasset hedging activities to reduce our exposure to commodity price fluctuationsand to achieve more predictable realized gross margins. The decrease inunrealized gross margins from these activities was principally due to risingpower prices in the three months ended March 31, 2007, as compared todeclining power prices during the three months ended March 31, 2006. Forthe same periods, all other activity combined resulted in a $47 millionincrease in net income. The change in net income is detailed as follows(in millions):

| ** **                                                                 | ** ** | **For the Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                                               | ** ** | **2006** | ** ** | **Increase/  (Decrease)** | ** ** |
| Realized gross  margin                                                     |       |                                                                   | $          | 392 |   |   |   | $ | 363 |   |   |   | $ | 29 |   |   |
| Unrealized gross  margin                                                   |       |                                                                   | (359       | ) |   |   | 282 |   |   |   | (641 | ) |   |
| Total gross  margin                                                        |       |                                                                   | 33         |   |   |   | 645 |   |   |   | (612 | ) |   |
| Operating  expenses:                                                       |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Operations and maintenance                                                 |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Affiliate                                                                  |       |                                                                   | 65         |   |   |   | 69 |   |   |   | (4 | ) |   |
| Nonaffiliate                                                               |       |                                                                   | 88         |   |   |   | 93 |   |   |   | (5 | ) |   |
| Depreciation and amortization                                              |       |                                                                   | 30         |   |   |   | 28 |   |   |   | 2 |   |   |
| Gain on sales of assets, net                                               |       |                                                                   | (2         | ) |   |   | — |   |   |   | (2 | ) |   |
| Total operating  expenses                                                  |       |                                                                   | 181        |   |   |   | 190 |   |   |   | (9 | ) |   |
| Operating income  (loss)                                                   |       |                                                                   | (148       | ) |   |   | 455 |   |   |   | (603 | ) |   |
| Other expense  (income), net                                               |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Nonaffiliate                                                               |       |                                                                   | 53         |   |   |   | 65 |   |   |   | (12 | ) |   |
| Income (loss)  from continuing operations before reorganization items, net |       |                                                                   | (201       | ) |   |   | 390 |   |   |   | (591 | ) |   |
| Reorganization  items, net                                                 |       |                                                                   | (1         | ) |   |   | — |   |   |   | (1 | ) |   |
| Income (loss)  from continuing operations                                  |       |                                                                   | (200       | ) |   |   | 390 |   |   |   | (590 | ) |   |
| Loss from  discontinued operations                                         |       |                                                                   | (5         | ) |   |   | (1 | ) |   |   | (4 | ) |   |
| Net Income (Loss)                                                          |       |                                                                   | $          | (205 | ) |   |   | $ | 389 |   |   |   | $ | (594 | ) |   |

 

In the tables below, theMid-Atlantic region includes our Chalk Point, Morgantown, Dickerson and PotomacRiver facilities. The Northeast region includes our Bowline, Canal, Lovett,Kendall, Hillburn, Shoemaker, Martha’s Vineyard, Swinging Bridge, Rio, Mongaupand Wyman facilities. The California region includes our Pittsburg, ContraCosta and Potrero facilities. Other Operations includes proprietary trading andfuel oil management activities.

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***Operating Statistics***

Thefollowing table summarizes capacity factor (average percentage of full capacityused over a specific period) by region:

| ** **   | ** ** | **Three Months Ended March 31** | ** ** |
|--------------|------------|-----------------------------------------------------|------------|
| ** **   | ** ** | ** **                                          | ** ** | ** ** | ** ** | **Increase/** | ** ** |
| ** **   | ** ** | **2007**                                            | ** ** | **2006** | ** ** | **(Decrease)** | ** ** |
| Mid-Atlantic |       |                                                | 37         | % |   |   | 35 | % |   |   | 2 | % |   |
| Northeast    |       |                                                | 27         | % |   |   | 15 | % |   |   | 12 | % |   |
| California   |       |                                                | 3          | % |   |   | 5 | % |   |   | (2 | )% |   |
| Total        |       |                                                | 26         | % |   |   | 23 | % |   |   | 3 | % |   |

 

Thefollowing table summarizes power generation volumes by region (in gigawatthours):

| ** **   | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/** | ** ** |
|--------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **   | ** ** | **2007**                                         | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** |
| Mid-Atlantic |       | 4,234                                            |       | 4,083         |       |   | 151 |   |   |
| Northeast    |       | 1,777                                            |       | 994           |       |   | 783 |   |   |
| California   |       | 145                                              |       | 243           |       |   | (98 | ) |   |
| Total        |       | 6,156                                            |       | 5,320         |       |   | 836 |   |   |

 

***ThreeMonths Ended March 31, 2007 versus March 31, 2006***

***Gross Margin***

Thefollowing table details gross margin by realized and unrealized margin (inmillions):

| ** **       | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------|------------|------------------------------------------------------|------------|
| ** **       | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **       | ** ** | **Realized**                                         | ** ** | **Unrealized** | ** ** | **Total** | ** ** | **Realized** | ** ** | **Unrealized** | ** ** | **Total** | ** ** |
| Mid-Atlantic     |       |                                                 | $          | 246 |   |   |   | $ | (319 | ) |   | $ | (73 | ) |   | $ | 191 |   |   |   | $ | 226 |   |   | $ | 417 |   |
| Northeast        |       |                                                 | 91         |   |   |   | (49 | ) |   | 42 |   |   | 113 |   |   |   | 34 |   |   | 147 |   |
| California       |       |                                                 | 32         |   |   |   | — |   |   | 32 |   |   | 26 |   |   |   | 1 |   |   | 27 |   |
| Other Operations |       |                                                 | 17         |   |   |   | 9 |   |   | 26 |   |   | 18 |   |   |   | 21 |   |   | 39 |   |
| Eliminations     |       |                                                 | 6          |   |   |   | — |   |   | 6 |   |   | 15 |   |   |   | — |   |   | 15 |   |
| Total            |       |                                                 | $          | 392 |   |   |   | $ | (359 | ) |   | $ | 33 |   |   | $ | 363 |   |   |   | $ | 282 |   |   | $ | 645 |   |

 

Grossmargin for the three months ended March 31, 2007, is detailed as follows(in millions):

| ** **                            | ** ** | **Three Months Ended March 31, 2007** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                            | ** ** | **Mid-  Atlantic**                                             | ** ** | **Northeast** | ** ** | **California** | ** ** | **Other  Operations** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Energy                                |       |                                                           | $          | 165 |   |   |   | $ | 31 |   |   |   | $ | 1 |   |   |   | $ | 17 |   |   |   | $ | 6 |   |   | $ | 220 |   |
| Contracted and  capacity              |       |                                                           | 11         |   |   |   | 24 |   |   |   | 31 |   |   |   | — |   |   |   | — |   |   | 66 |   |
| Incremental  realized value of hedges |       |                                                           | 70         |   |   |   | 36 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 106 |   |
| Unrealized gains  (losses)            |       |                                                           | (319       | ) |   |   | (49 | ) |   |   | — |   |   |   | 9 |   |   |   | — |   |   | (359 | ) |
| Total                                 |       |                                                           | $          | (73 | ) |   |   | $ | 42 |   |   |   | $ | 32 |   |   |   | $ | 26 |   |   |   | $ | 6 |   |   | $ | 33 |   |

 

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Grossmargin for the three months ended March 31, 2006, is detailed as follows(in millions):

| ** **                            | ** ** | **Three Months Ended March 31, 2006** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                            | ** ** | **Mid-  Atlantic**                                             | ** ** | **Northeast** | ** ** | **California** | ** ** | **Other  Operations** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| Energy                                |       |                                                           | $          | 137 |   |   |   | $ | 22 |   |   |   | $ | — |   |   |   | $ | 18 |   |   |   | $ | 15 |   |   | $ | 192 |   |
| Contracted and  capacity              |       |                                                           | 14         |   |   |   | 12 |   |   |   | 26 |   |   |   | — |   |   |   | — |   |   | 52 |   |
| Incremental  realized value of hedges |       |                                                           | 40         |   |   |   | 79 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 119 |   |
| Unrealized gains                      |       |                                                           | 226        |   |   |   | 34 |   |   |   | 1 |   |   |   | 21 |   |   |   | — |   |   | 282 |   |
| Total                                 |       |                                                           | $          | 417 |   |   |   | $ | 147 |   |   |   | $ | 27 |   |   |   | $ | 39 |   |   |   | $ | 15 |   |   | $ | 645 |   |

 

Energy represents grossmargin from the generation of electricity, emissions allowances sales andpurchases, fuel sales, fuel purchases and handling, steam sales and ourproprietary trading and fuel oil management activities.

Contracted and capacityrepresents revenue received through RMR contracts and other installed capacityarrangements and revenue from ancillary services.

Incremental realized valueof hedges represents the actual margin upon the settlement of our power andfuel hedging derivative contracts.

Unrealized gains/lossesrepresent the unrealized portion of our derivative contracts.

Ourgross margin for the three months ended March 31, 2007, was $33 million ascompared to $645 million for the same period in 2006. Gross margin includes netunrealized gains and losses from our hedging activities. We engage in assethedging activities to reduce our exposure to commodity price fluctuations andto achieve more predictable realized gross margins. Net unrealized losses fromhedging activities were $359 million for the three months ended March 31,2007, primarily due to rising power prices. Of this amount, $188 millionis due to a decrease in value associated with forward power contracts for future periods as aresult of increases in forward power prices in 2007 and $171 million is due tothe settlement of power and fuel contracts during the period for which netunrealized gains had been recorded in prior periods. For the three months ended March 31, 2006, we recognized netunrealized gains from hedging activities of $282 million primarily due todeclining power prices in that period. Our realized gross margin for the threemonths ended March 31, 2007, was $392 million, an increase of $29 millioncompared to the same period in 2006 primarily due to an increase in generationvolumes and higher energy prices.

**Mid-Atlantic**

Our Mid-Atlantic segment,which accounts for approximately half our generating capacity, includes fourgeneration facilities with total generation capacity of 5,256 MW. The followingtable summarizes our Mid-Atlantic segment (in millions):

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| ** **                                                                             | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase**/ | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **                                                                             | ** ** | **2007**                                         | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** |
| Realized gross  margin                                                                 |       |                                             | $          | 246           |       |   |   | $ | 191 |   |   |   | $ | 55 |   |   |
| Unrealized gross  margin                                                               |       |                                             | (319       | )             |       |   | 226 |   |   |   | (545 | ) |   |
| Total gross  margin                                                                    |       |                                             | (73        | )             |       |   | 417 |   |   |   | (490 | ) |   |
| Operating expenses:                                                                    |       |                                             |       |          |       |   |   |   |   |   |   |   |   |
| Operations and maintenance                                                             |       |                                             | 83         |          |       |   | 85 |   |   |   | (2 | ) |   |
| Depreciation and amortization                                                          |       |                                             | 19         |          |       |   | 18 |   |   |   | 1 |   |   |
| Gain on sales of assets, net                                                           |       |                                             | (1         | )             |       |   | — |   |   |   | (1 | ) |   |
| Total operating  expenses                                                              |       |                                             | 101        |          |       |   | 103 |   |   |   | (2 | ) |   |
| Operating income  (loss)                                                               |       |                                             | (174       | )             |       |   | 314 |   |   |   | (488 | ) |   |
| Total other  income, net                                                               |       |                                             | (1         | )             |       |   | (1 | ) |   |   | — |   |   |
| Income (loss) from  continuing operations before reorganization items and income taxes |       |                                             | $          | (173          | )          |   |   | $ | 315 |   |   |   | $ | (488 | ) |   |

 

***Gross Margin***

Grossmargin decreased by $490 million for the three months ended March 31,2007, compared to the same period for 2006 and is detailed as follows (inmillions):

| ** **                            | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **                            | ** ** | **2007**                                         | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** |
| Energy                                |       |                                             | $          | 165           |       |   |   | $ | 137 |   |   |   | $ | 28 |   |   |
| Contracted and  capacity              |       |                                             | 11         |          |       |   | 14 |   |   |   | (3 | ) |   |
| Incremental  realized value of hedges |       |                                             | 70         |          |       |   | 40 |   |   |   | 30 |   |   |
| Unrealized gains  (losses)            |       |                                             | (319       | )             |       |   | 226 |   |   |   | (545 | ) |   |
| Total                                 |       |                                             | $          | (73           | )          |   |   | $ | 417 |   |   |   | $ | (490 | ) |   |

 

The significantdecrease in the gross margin for our Mid-Atlantic operations is primarily dueto the following:

·       adecrease of $545 million related to unrealized gains and losses on hedgingactivities. In 2007, unrealized losses of $319 million were primarily dueto $197 million from a decrease in value associated with forward powercontracts for future periods as a result of increases in forward power pricesin 2007 and $122 million due to the settlement of power and fuel contractsduring the period for which net unrealized gains had been recorded in priorperiods. In 2006, unrealized gains of $226 million were primarily due to $175million from an increase in value associated with forward power contracts forfuture periods due to decreases in power prices and $51 million due to thesettlement of contracts during the period for which unrealized losses had beenrecorded in prior periods;

·       anincrease of $28 million in energy due to an increase in power prices and aslight increase in generation volumes. Average power prices increased by 7% andgeneration volumes increased by 4% for the three months ended March 31,2007, compared to the same period in 2006. Our baseload coal units accountedfor 92% of our generation volumes for the first quarter of 2007 compared to 98%in the first quarter of 2006; and

·       an increase of$30 million in incremental realized value of hedges of our generationoutput primarily due to an increase in the amount by which the settlement valueof power contracts exceeded market prices.

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***Northeast***

OurNortheast segment is comprised of our assets located in New York and NewEngland with total generation capacity of 3,047 MW. The following tablesummarizes the operations of our Northeast segment for the three months ended March 31,2007 and 2006 (in millions):

| ** **                                                                      | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **                                                                      | ** ** | **2007**                                         | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** |
| Realized gross  margin                                                          |       |                                             | $          | 91            |       |   |   | $ | 113 |   |   |   | $ | (22 | ) |   |
| Unrealized gross  margin                                                        |       |                                             | (49        | )             |       |   | 34 |   |   |   | (83 | ) |   |
| Total gross  margin                                                             |       |                                             | 42         |          |       |   | 147 |   |   |   | (105 | ) |   |
| Operating  expenses:                                                            |       |                                             |       |          |       |   |   |   |   |   |   |   |   |
| Operations and maintenance                                                      |       |                                             | 45         |          |       |   | 54 |   |   |   | (9 | ) |   |
| Depreciation and amortization                                                   |       |                                             | 7          |          |       |   | 5 |   |   |   | 2 |   |   |
| Gain on sales of assets, net                                                    |       |                                             | (10        | )             |       |   | (33 | ) |   |   | 23 |   |   |
| Total operating  expenses                                                       |       |                                             | 42         |          |       |   | 26 |   |   |   | 16 |   |   |
| Operating income                                                                |       |                                             | —     |          |       |   | 121 |   |   |   | (121 | ) |   |
| Total other  expense (income), net                                              |       |                                             | (2         | )             |       |   | 3 |   |   |   | (5 | ) |   |
| Income from continuing  operations before reorganization items and income taxes |       |                                             | $          | 2             |       |   |   | $ | 118 |   |   |   | $ | (116 | ) |   |

 

***Gross Margin***

Grossmargin decreased by $105 million for the three months ended March 31,2007, compared to the same period for 2006 and is detailed as follows (inmillions):

| ** **                            | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **                            | ** ** | **2007**                                         | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** |
| Energy                                |       |                                             | $          | 31            |       |   |   | $ | 22 |   |   |   | $ | 9 |   |   |
| Contracted and  capacity              |       |                                             | 24         |          |       |   | 12 |   |   |   | 12 |   |   |
| Incremental  realized value of hedges |       |                                             | 36         |          |       |   | 79 |   |   |   | (43 | ) |   |
| Unrealized gains  (losses)            |       |                                             | (49        | )             |       |   | 34 |   |   |   | (83 | ) |   |
| Total                                 |       |                                             | $          | 42            |       |   |   | $ | 147 |   |   |   | $ | (105 | ) |   |

 

The decrease ingross margin is primarily due to the following:

·       adecrease of $83 million related to unrealized gains and losses on hedgingactivities. In 2007, unrealized losses of $49 million were primarily dueto the settlement of power and fuel contracts during the period for whichunrealized gains had been recorded in prior periods. In 2006, unrealized gainsof $34 million were primarily due to $29 million from an increase in valueassociated with forward power contracts for future periods due to decreases inpower prices and $5 million due to the settlement of contracts during theperiod for which unrealized losses had been recorded in prior periods;

·       adecrease of $43 million in incremental realized value of hedges of ourgeneration output primarily due to a decrease in the amount by which thesettlement value of power contracts exceeded market prices;

·       anincrease of $12 million in contracted and capacity primarily due to theimplementation of FCM. See “Item 1. Regulatory Environment” in our AnnualReport on Form 10-K for the year ended December 31, 2006, forfurther information on the implementation of FCM; and

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·       an increase of $9 millionin energy due to higher generation volumes that resulted from colder weatherand wider conversion spreads for our oil units. While average power pricesdecreased by 17%, volumes increased by 79%.

***Operating Expenses***

Gains on sales of assetsdecreased $23 million due to lower sales of emissions allowances to affiliatesthat are eliminated in the consolidated statement of operations. This amount ispartially offset by a $9 million decrease in operations and maintenanceexpense, of which $8 million is due to a decrease in property taxes. For MirantBowline, Mirant Lovett and Hudson Valley Gas the property tax expenserecognized for the three months ended March 31, 2006, was at the assessedlevel while the 2007 property tax expense is at the level reflected in a December 2006property tax settlement.

***California***

OurCalifornia segment consists of the Pittsburg, Contra Costa and Potrerofacilities with total generation capacity of 2,347 MW. The following tablesummarizes our California segment for the three months ended March 31,2007 and 2006 (in millions):

| ** **                                                                      | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **                                                                      | ** ** | **2007**                                         | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** |
| Realized gross  margin                                                          |       |                                             | $          | 32            |       |   |   | $ | 26 |   |   |   | $ | 6 |   |   |
| Unrealized gross  margin                                                        |       |                                             | —     |          |       |   | 1 |   |   |   | (1 | ) |   |
| Total gross  margin                                                             |       |                                             | 32         |          |       |   | 27 |   |   |   | 5 |   |   |
| Operating  expenses:                                                            |       |                                             |       |          |       |   |   |   |   |   |   |   |   |
| Operations and maintenance                                                      |       |                                             | 20         |          |       |   | 17 |   |   |   | 3 |   |   |
| Depreciation and amortization                                                   |       |                                             | 3          |          |       |   | 3 |   |   |   | — |   |   |
| Gain on sales of  assets. net                                                   |       |                                             | (1         | )             |       |   | — |   |   |   | (1 | ) |   |
| Total operating  expenses                                                       |       |                                             | 22         |          |       |   | 20 |   |   |   | 2 |   |   |
| Operating income                                                                |       |                                             | 10         |          |       |   | 7 |   |   |   | 3 |   |   |
| Total other  income, net                                                        |       |                                             | (3         | )             |       |   | — |   |   |   | (3 | ) |   |
| Income from continuing  operations before reorganization items and income taxes |       |                                             | $          | 13            |       |   |   | $ | 7 |   |   |   | $ | 6 |   |   |

 

***Gross Margin***

Gross margin increased by $5 million for the threemonths ended March 31, 2007, compared to the same period for 2006 and isdetailed as follows (in millions):

| ** **               | ** ** | **Three Months Ended  March 31,** | ** ** | **Increase/** | ** ** |
|--------------------------|------------|--------------------------------------------------|------------|---------------|------------|
| ** **               | ** ** | **2007**                                         | ** ** | **2006**      | ** ** | **(Decrease)** | ** ** |
| Energy                   |       |                                             | $          | 1             |       |   |   | $ | — |   |   |   | $ | 1 |   |   |
| Contracted and  capacity |       |                                             | 31         |          |       |   | 26 |   |   |   | 5 |   |   |
| Unrealized gains         |       |                                             | —     |          |       |   | 1 |   |   |   | (1 | ) |   |
| Total                    |       |                                             | $          | 32            |       |   |   | $ | 27 |   |   |   | $ | 5 |   |   |

 

The increase in ourcontracted and capacity gross margin is primarily due to the commencement of anew tolling agreement in the first quarter of 2007 at our Contra Costa andPittsburg facilities. See “Item 1. Business Segments” in our Annual Report on Form 10-Kfor the year ended December 31, 2006, for additional information regardingthe tolling agreement.

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***OtherOperations***

OtherOperations includes proprietary trading and fuel oil management. The followingtable summarizes our Other Operations segment (in millions):

| ** **                                                                    | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                                                                    | ** ** | **2007**                                         | ** ** | **2006**   | ** ** | **Decrease** | ** ** |
| Realized gross  margin                                                        |       |                                             | $          | 17         |       |   |   | $ | 18 |   |   |   | $ | (1 | ) |   |
| Unrealized gross  margin                                                      |       |                                             | 9          |       |       |   | 21 |   |   |   | (12 | ) |   |
| Total gross  margin                                                           |       |                                             | 26         |       |       |   | 39 |   |   |   | (13 | ) |   |
| Operating  expenses:                                                          |       |                                             |       |       |       |   |   |   |   |   |   |   |   |
| Operations and maintenance                                                    |       |                                             | 5          |       |       |   | 6 |   |   |   | (1 | ) |   |
| Depreciation and amortization                                                 |       |                                             | 1          |       |       |   | 2 |   |   |   | (1 | ) |   |
| Total operating  expenses                                                     |       |                                             | 6          |       |       |   | 8 |   |   |   | (2 | ) |   |
| Operating income                                                              |       |                                             | 20         |       |       |   | 31 |   |   |   | (11 | ) |   |
| Total other  expense, net                                                     |       |                                             | 59         |       |       |   | 63 |   |   |   | (4 | ) |   |
| Loss from continuing  operations before reorganization items and income taxes |       |                                             | $          | (39        | )          |   |   | $ | (32 | ) |   |   | $ | (7 | ) |   |

 

***Gross Margin***

Gross margin decreased by $13 million for thethree months ended March 31, 2007, compared to the same period for 2006and is detailed as follows (in millions):

| ** **       | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **       | ** ** | **2007**                                         | ** ** | **2006**   | ** ** | **Decrease** | ** ** |
| Energy           |       |                                             | $          | 17         |       |   |   | $ | 18 |   |   |   | $ | (1 | ) |   |
| Unrealized gains |       |                                             | 9          |       |       |   | 21 |   |   |   | (12 | ) |   |
| Total            |       |                                             | $          | 26         |       |   |   | $ | 39 |   |   |   | $ | (13 | ) |   |

 

The decrease in grossmargin is primarily due to a decrease of $12 million in unrealized gains onproprietary trading and fuel oil management activities compared to the sameperiod in 2006.

***Discontinued Operations***

For the three months endedMarch 31, 2007 and 2006, loss from discontinued operations was$5 million and $1 million, respectively and included Mirant Zeeland, LLCand Mirant Texas. See Note C to our unaudited condensed consolidated financialstatements for additional information related to planned dispositions anddiscontinued operations. The decrease of $4 million is primarily due tounrealized gains and losses on hedging activities.

**Financial Condition**

***Liquidity and Capital Resources***

***Overview***

Our liquidity and capitalrequirements are primarily a function of our debt maturities and debt servicerequirements, capital expenditures, collateral requirements, fuel procurementand power sale contract obligations, legal settlements and working capitalneeds. Net cash flow provided by operating activities for the three monthsended March 31, 2007, totaled $207 million compared to cash used byoperating activities of $310 million for the same period in 2006.

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

Mirant North America andMirant Americas Energy Marketing, (the “Primary DIP Lenders”) entered into anagreement (the “Primary New York DIP Agreement”) to make secureddebtor-in-possession financing in an amount of (i) $20 million, plus (ii) anamount equal to the amount of credit support provided on behalf of Mirant NewYork, Mirant Bowline, Mirant Lovett, and Hudson Valley Gas (collectively, the “NewYork DIP Borrowers”), to the extent such amounts were collateralized with cashor cash equivalents by the New York DIP Borrowers. The New York DIP Borrowershad posted $21 million cash collateral with Mirant Energy Trading (successor toMirant Americas Energy Marketing) in accordance with the March 31, 2007,collateral allocation performed in good faith by Mirant Energy Trading. Thiscash collateral amount was returned to the New York DIP Borrowers and thePrimary New York DIP Agreements were terminated in conjunction with theEmerging Subsidiaries emergence from bankruptcy on April 16, 2007.

The Bankruptcy Courtapproved a debtor-in-possession loan to Mirant NY-Gen from Mirant Americasunder which Mirant Americas, subject to certain conditions, would lend up to$16.5 million to Mirant NY-Gen to provide funding for the repairs on theSwinging Bridge dam. When Mirant NY-Gen emerged from bankruptcy and was sold onMay 7, 2007, all claims held by Mirant NY-Gen were assigned to MirantAmericas, Mirant Americas released all of its claims and liens against MirantNY-Gen, and this loan was cancelled.

On April 18, 2007, anew DIP Agreement was established between Mirant Lovett and Mirant Americas tomake secured debtor-in-possession financing in an amount of $20 million. Thefinancing has a stated maturity of 180 days and bears interest at a rate ofLIBOR plus 4.25%. In addition, Mirant Lovett posted $7 million of cashcollateral with Mirant Energy Trading to collateralize Mirant Energy Tradingfor collateral that Mirant Energy Trading has posted on Mirant Lovett’s behalf.

***Cash Flows***

***Continuing Operations***

*OperatingActivities*.   Our cash providedby operating activities is affected by seasonality, changes in energy pricesand fluctuations in our working capital requirements. Cash provided byoperating activities from continuing operations increased $524 million forthe three months ended March 31, 2007, compared to the same period in2006, primarily due to the following:

·       anincrease in realized gross margin of $29 million in 2007, compared to thesame period in 2006. See *Results of Operations*foradditional discussion of our performance in 2007 compared to the same period in2006;

·       adecrease in bankruptcy related claims and expenses of $736 million. Forthe three months ended March 31, 2006, we paid $1.729 billion ofbankruptcy claims, of which $739 million is reflected in cash from operations;

·       anincrease of $71 million related to changes in our fuel oil inventory. Ourinventory levels increased in 2006 as a result of higher fuel oil prices andlower generation volumes in that period. In 2007, our fuel oil inventory levelsdecreased due to higher generation volumes from our oil units and emissionsallowances decreased due to an increase in 2006 resulting from purchases andlower generation volumes;

·       anincrease due to the escrow deposit of $70 million in the first quarter of 2006related to the transfer of our Contra Costa 8 asset to PG&E. The depositwas returned to us when the transfer was completed in the fourth quarter of2006;

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·       anincrease due to the receipt in 2007 of a net refund of $48 million related tothe New York property tax settlement;

·       adecrease of $314 million due to changes in posted collateral levels. For thethree months ended March 31, 2007, we posted an additional $77 million ofcash collateral to support energy marketing activities. For the three monthsended March 31, 2006, we had a net reduction in collateral of $237 millioncomprised of a decrease in cash collateral to support energy marketingactivities of $381 million, a reduction of $56 million in cash collateralposted in connection with the Mirant Mid-Atlantic lease upon posting $75million of letters of credit, and the deposit of $200 million into a cashcollateral account to support the issuance of letters of credit;

·       adecrease of $58 million due to changes in accounts receivable and accounts payable;and

·       adecrease of $46 million primarily due to the return in 2007 of depositspreviously posted by our counterparties.

*InvestingActivities*.   Net cash used ininvesting activities from continuing operations was $71 million for thethree months ended March 31, 2007, compared to $18 million in 2006.This difference was primarily due to an increase of $55 million in capitalexpenditures primarily due to our environmental capital expenditures for ourMid-Atlantic generation facilities.

*FinancingActivities*.*  *Net cash used infinancing activities from continuing operations was $242 million for thethree months ended March 31, 2007, compared to cash provided of $240million for the same period in 2006. This difference was primarily due to thefollowing:

·       adecrease in proceeds from the issuance of long-term debt of approximately$2 billion. Proceeds from the issuance of long-term debt in 2006 included$850 million from the Mirant North America debt offering that was releasedfrom escrow on January 3, 2006, $700 million from the Mirant NorthAmerica senior secured loan and $465 million drawn on the Mirant NorthAmerica senior secured revolving credit facility. In 2006 we also incurred $51million in debt issuance costs;

·       adecrease of $1.3 billion in repayments of long-term debt. In 2007, we repaid$133 million on the Mirant North America senior secured term loan. In 2006 werepaid $465 million on the Mirant North America senior secured revolvingcredit facility and $990 million of principal payments for debt settledunder the Plan;

·       wemade a payment of $250 million in 2006 under the Plan to Mirant Americas;and

·       wedistributed $116 million to our member in 2007.

***Discontinued Operations***

Cash used in operatingactivities from discontinued operations increased $7 million for the threemonths ended March 31, 2007, compared to the same period in 2006.

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***TotalCash, Cash Equivalents and Credit Facility Availability***

At March 31,2007, we had total cash, cash equivalents, and credit facility availability ofapproximately $1.3 billion. The table below sets forth total cash, cashequivalents and availability of credit facilities of Mirant Americas Generationand its subsidiaries (in millions):

| ** **                                                                                                            | ** ** | **At  March 31,  2007** | ** ** | **At  December 31,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Cash and Cash  Equivalents:                                                                                           |       |                         |       |                            |       |   |   |   |   |
| Mirant Americas Generation                                                                                            |       |                         | $          | 19                              |       |   |   | $ | — |   |   |
| Mirant North America                                                                                                  |       |                         | 394        |                            |       |   | 678 |   |   |
| Mirant Mid-Atlantic                                                                                                   |       |                         | 234        |                            |       |   | 75 |   |   |
| Total cash and  cash equivalents                                                                                      |       |                         | 647        |                            |       |   | 753 |   |   |
| Less: Cash  restricted due to bankruptcy of New York entities and reserved for working capital  and other purposes(1) |       |                         | 133        |                            |       |   | 102 |   |   |
| Total available  cash and cash equivalents                                                                            |       |                         | 514        |                            |       |   | 651 |   |   |
| Available under  credit facilities                                                                                    |       |                         | 783        |                            |       |   | 796 |   |   |
| Total cash, cash  equivalents and credit facilities availability                                                      |       |                         | $          | 1,297                           |       |   |   | $ | 1,447 |   |   |

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(1)          AtMarch 31, 2007, this amount included approximately $118 million of cashrelated to the New York entities that emerged from bankruptcy on April 16,2007. Post-emergence this cash was no longer restricted due to bankruptcy.

The ability of MirantNorth America and its subsidiary Mirant Mid-Atlantic to pay dividends isrestricted under the terms of their debt agreements and leverage leasedocumentation, respectively. At March 31, 2007, Mirant North America haddistributed to its parent all available cash that was permitted to bedistributed under the terms of its debt agreements, leaving approximately $628million at Mirant North America and its subsidiaries. Approximately $234million of such amount was held by Mirant Mid-Atlantic which, as of March 31,2007, met the ratio tests under the leveraged lease documents for distributionto Mirant North America. After taking into account the financial results ofMirant North America for the three months ended March 31, 2007, we expectMirant North America will be able to distribute approximately $142 million in May 2007.

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

In order to sell power andpurchase fuel in the forward markets and perform other energy trading andmarketing activities, we are often required to provide trade credit support toour counterparties or make deposits with brokers. In addition, we are oftenrequired to provide cash collateral or letters of credit for access to thetransmission grid, to participate in power pools, to fund debt service reservesand for other operating activities. Trade credit support includes cashcollateral, letters of credit and financial guarantees. In the event that wedefault, the counterparty can draw on a letter of credit or apply cashcollateral held to satisfy the existing amounts outstanding under an opencontract. At March 31, 2007, our outstanding issued letters of credittotaled $218 million.

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Thefollowing table summarizes cash collateral posted with counterparties andbrokers and letters of credit issued as of March 31, 2007 and December 31,2006 (in millions):

| ** **                                                | ** ** | **At  March 31,  2007** | ** ** | **At  December 31,  2006** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Cash collateral  posted—energy trading and marketing |       |                         | $          | 104                             |       |   |   | $ | 27 |   |   |
| Cash collateral  posted—other operating activities   |       |                         | 11         |                            |       |   | 11 |   |   |
| Letters of  credit—energy trading and marketing      |       |                         | 120        |                            |       |   | 100 |   |   |
| Letters of  credit—debt service and rent reserves    |       |                         | 75         |                            |       |   | 84 |   |   |
| Letters of  credit—other operating activities        |       |                         | 23         |                            |       |   | 15 |   |   |
|                                                      |       |                         | 333        |                            |       |   | 237 |   |   |
| Discontinued  operations:                                 |       |                         |       |                            |       |   |   |   |   |
| Assets held for  sale—letters of credit              |       |                         | —     |                            |       |   | 5 |   |   |
| Total                                                     |       |                         | $          | 333                             |       |   |   | $ | 242 |   |   |

 

**Critical Accounting Policies and Estimates**

The sections below containmaterial updates to the summary of our critical accounting policies andestimates contained in Item 7, Management’s Discussion and Analysis of Resultsof Operations and Financial Condition in our Annual Report on Form 10-Kfor the year ended December 31, 2006.

***Long-Lived Asset Impairments***

*Nature ofEstimates Required*.*  *We evaluateour long-lived assets, including goodwill and indefinite-lived intangibleassets for impairment in accordance with applicable accounting guidance. Theamount of an impairment charge is calculated as the excess of the asset’scarrying value over its fair value, which generally represents the discountedexpected future cash flows attributable to the asset or in the case of assetswe expect to sell, at fair value less costs to sell.

SFAS No. 144 requiresmanagement to recognize an impairment charge if the sum of the undiscountedexpected future cash flows from a long-lived asset or definite-lived intangibleis less than the carrying value of that asset. We evaluate our long-livedassets (property, plant and equipment) and definite-lived intangibles forimpairment whenever indicators of impairment exist or when we commit to sellthe asset. These evaluations of long-lived assets and definite-livedintangibles may result from significant decreases in the market price of anasset, a significant adverse change in the extent or manner in which an assetis being used or in its physical condition, a significant adverse change inlegal factors or in the business climate that could affect the value of anasset, as well as other economic or operations analyses. If the carrying amountis not recoverable, an impairment charge is recorded.

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*KeyAssumptions and Approach Used*.*  *The fairvalue of an asset is the amount at which the asset could be bought or sold in acurrent transaction between willing parties, that is, other than in a forced orliquidation sale. Quoted market prices in active markets are the best evidenceof fair value and are used as the basis for the measurement, when available. Inthe absence of quoted prices for identical or similar assets, fair value isestimated using various internal and external valuation methods. These methodsinclude discounted cash flow analyses and reviewing available information oncomparable transactions. The determination of fair value requires management toapply judgment in estimating future energy prices, environmental andmaintenance expenditures and other cash flows. Our estimates of the fair valueof the assets include significant assumptions about the timing of future cashflows, remaining useful lives and selecting a discount rate that reflects therisk inherent in future cash flows.

*ContinuingOperations*

Under the 2003 ConsentDecree, we were required to install certain environmental controls onunits 5 and 4 of the Lovett facility or discontinue operation of thoseunits by April 30, 2007 and April 30, 2008, respectively. OnOctober 19, 2006, after Bankruptcy Court approval, we submitted notices ofour intent to discontinue operations at units 3 and 5 of the Lovettfacility on April 30, 2007, to the New York Public Service Commission,NYISO, Orange and Rockland and certain other affected transmission anddistribution utilities in New York. On May 10, 2007, Mirant Lovett enteredinto an amendment to the 2003 Consent Decree with the State of New York thatswitches the deadlines for units 4 and 5 so that the deadline forcompliance by unit 5 is extended until April 30, 2008, and the deadlinefor unit 4 is shortened so that it would discontinue operation as ofMay 7, 2007. Mirant Lovett also entered into an agreement (the “TaxAssessments Agreement”) that sets the assessed value of the Lovett facility for2007 and 2008 for property tax purposes at the values established under the2006 settlement agreement between Mirant Lovett, other Mirant entities and thelocal taxing authorities. The amendment to the 2003 Consent Decree was subjectto the approval of the United States District Court for the Southern Districtof New York and the Bankruptcy Court. The Tax Assessments Agreement was subjectto the approval of the Bankruptcy Court. The Bankruptcy Court approved theamendment and the Tax Assessments Agreement on May 10, 2007. The districtcourt approved the amendment to the 2003 Consent Decree on May 11, 2007.

Based on the agreementsabove, we will test for recoverability of the Lovett facility under SFAS No. 144in the second quarter of 2007. In addition, we will review the remaining usefullife of the asset and adjust depreciation as appropriate. The carrying value ofthe Lovett facility as of March 31, 2007, is $181 million.

*DiscontinuedOperations*

On August 9, 2006, Mirant announced the plannedsale of certain of its intermediate and peaking natural gas-fired plants whichincluded our Zeeland and Bosque plants. The planned sales resulted in thereclassification of the long-lived assets related to these plants as held forsale at March 31, 2007.

On January 15, 2007, we entered into a definitivepurchase and sale agreement with Broadway Generating Company, LLC, (formerlycalled LS Power Acquisition Co. I) a member of the LS Power Group., for thesale of our Zeeland and Bosque natural gas-fired plants and ancillary equipmentfor a purchase price of $512 million, which includes estimated working capitalat the closing. The updated fair values along with changes to the workingcapital calculation in the draft purchase and sale agreement provided to thebidders, resulted in a net impairment loss of $8 million in 2006. We recordedan additional impairment of $1 million in the first quarter of 2007. The salewas completed on May 1, 2007. The net proceeds to the Company from thesale, after transaction costs, were $524 million.

*Effect ifDifferent Assumptions Used*.   The estimates andassumptions used to determine whether an impairment exists are subject to ahigh degree of uncertainty. The estimated fair value of an asset would 

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changeif different estimates and assumptions were used in our applied valuationtechniques, including estimated undiscounted cash flows, discount rates andremaining useful lives for assets held and used.

***IncomeTaxes***

We are a limited liability company treated as a branchfor income tax purposes. As a result, Mirant Americas and Mirant have directliability for the majority of the federal and state income taxes relating toour operations. Through December 31, 2005, we have allocated current anddeferred income taxes to each regarded corporate member entity of ourconsolidated group as if each regarded corporate entity member were a singletaxpayer utilizing the asset and liability method to account for income taxesexcept with respect to recognizing certain current period tax benefits.Specifically, we did not record current period tax benefits on each regardedcorporate entity’s ability to carry back its separate company current year netoperating loss as realization of such losses were dependent on reimbursementsfrom Mirant, which were at Mirant’s discretion under the tax sharing agreement.Deferred tax assets and liabilities are recognized for future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases and net taxoperating losses and tax credit carryforwards. When necessary, deferred taxassets are reduced by a valuation allowance to reflect the amount that isestimated to be recoverable. In assessing the recoverability of our deferredtax assets, we consider whether it is likely that some portion or all of thedeferred tax assets will be realized. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears 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 isrecognized in income in the period that includes the enacted change.

The determination of a valuation allowance requiressignificant judgment as to the generation of future taxable income duringfuture periods for which temporary differences are expected to be deductible.In making this determination, management considers all available positive andnegative evidence affecting specific deferred tax assets, including our past andanticipated future performance, the reversal of deferred tax liabilities andthe implementation of tax planning strategies.

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

Additionally, we have not recognized any tax benefitsrelating to tax uncertainties arising in the ordinary course of business thatare less than or subject to the measurement threshold of themore-likely-than-not standard prescribed in FIN 48. These unrecognized taxbenefits may be either a tax liability or an adjustment to the Company’s NOLsbased on the specific facts of each tax uncertainty. We periodically assess ourtax uncertainties based on the latest information available. The amount of theunrecognized tax benefit requires management to make significant assumptionsabout the expected outcomes of certain tax positions included in the Company’sfiled or yet to be filed tax returns. See Note B to our unauditedcondensed consolidated financial statements for information about our adoptionof FIN 48.

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When it emerged from bankruptcy, Mirant terminated thetax sharing agreement with its direct and indirect wholly owned regardedcorporate entities. As a result, Mirant’s direct and indirect wholly ownedregarded corporate entities are no longer responsible for reimbursing Mirantfor their intercompany tax obligations attributable to their operations.Accordingly, our income tax receivables and payables with Mirant or MirantAmericas were resolved pursuant to a global settlement under the Plan wherebyintercompany receivables and payables received no distribution. Income taxpayables and receivables related to Mirant New York which emerged frombankruptcy on April 16, 2007, were also resolved pursuant to the MirantNew York Plan.

For those subsidiaries that continue to exist ascorporate regarded entities, we allocate current and deferred income taxes toeach corporate regarded entity as if such entity were a single taxpayerutilizing the asset and liability method to account for income taxes. To theextent we provide tax expense or benefit, any related tax payable or receivableto Mirant is reclassified to equity in the same period.

The determination of avaluation allowance requires significant judgment as to the generation offuture taxable income during future periods for which temporary differences areexpected to be deductible. In making this determination, management considersall available positive and negative evidence affecting specific deferred taxassets, including our past and anticipated future performance, the reversal ofdeferred tax liabilities and the implementation of tax planning strategies.

**Litigation**

See “Part II. Item 1. Legal Proceedings” and NoteJ to our unaudited condensed consolidated financial statements for furtherinformation related to our legal proceedings.

We are currently involvedin certain legal proceedings. We estimate the range of liability throughdiscussions with applicable legal counsel and analysis of case law and legalprecedents. We record our best estimate of a loss, or the low end of our rangeif no estimate is better than another estimate within a range of estimates,when the loss is considered probable. As additional information becomesavailable, we reassess the potential liability related to our pendinglitigation and revise our estimates. Revisions in our estimates of the potentialliability could materially affect our results of operations, and the ultimateresolution may be materially different from the estimates that we make.

***Item 3.*****   Quantitativeand Qualitative Disclosures about Market Risk**

In connection with our powergenerating business, we are exposed to energy commodity price riskassociated with the acquisition of fuel needed to generate electricity, as wellas the electricity produced and sold. A portion of our fuel requirements ispurchased in the spot market and a portion of the electricity we produce alsois sold in the spot market. In addition, the open positions in our proprietarytrading and fuel management portfolios expose us to risks associated with thechanges in energy commodity prices. As a result, our financial performancevaries depending on changes in the prices of energy and energy-relatedcommodities. See “Critical Accounting Policies and Estimates” in our AnnualReport on Form 10-K for the year ended December 31, 2006, for adiscussion of the accounting treatment for our energy trading and marketingactivities and see Note D to our unaudited condensed consolidated financialstatements for detail of our price risk management assets and liabilities.

For a further discussionof market risks, our risk management policy and our use of Value at Risk tomeasure some of these risks, see Item 7A. “Quantitative and QualitativeDisclosures about Market Risk” in our Annual Report on Form 10-K forthe year ended December 31, 2006.

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***Item 4*. Controlsand Procedures**

**Inherent Limitations in Control Systems**

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

**Effectiveness of Disclosure Controls and Procedures**

As required by ExchangeAct Rule 13a-15(b), our management, including our Chief ExecutiveOfficer and our Chief Financial Officer, conducted an assessment of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined by Rules 13a-15(e) and 15d-15(e) underthe Exchange Act), as of March 31, 2007. Based upon this assessment, ourmanagement concluded that, as of March 31, 2007, the design and operationof these disclosure controls and procedures were effective.

Appearing as exhibits tothis report are the certifications of the Chief Executive Officer and theChief Financial Officer required in accordance with Section 302 ofthe Sarbanes-Oxley Act of 2002.

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**PART II**

**Item 1.**   *Legal Proceedings*

The descriptions belowupdate and should be read in conjunction with the complete descriptions in thesection titled “Legal Proceedings” in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2006.

***Chapter 11Proceedings***

On July 14, 2003, andvarious dates thereafter, Mirant Corporation and certain of its subsidiaries(collectively, the “Mirant Debtors”), including us and our subsidiaries, filedvoluntary petitions for relief under Chapter 11 of the Bankruptcy Code inthe Bankruptcy Court. Most of the material claims filed against the MirantDebtors’ estates were disallowed or were resolved and became “allowed” claimsbefore confirmation of the Plan that became effective for Mirant, us and mostof the Mirant Debtors on January 3, 2006. Mirant, as the distributionagent under the Plan, has made distributions pursuant to the terms of the Planon those allowed claims. Some claims, however, remain unresolved.

As of March 31, 2007,approximately 21 million of the shares of Mirant common stock to be distributedunder the Plan have not yet been distributed and have been reserved fordistribution with respect to claims that are disputed by the Mirant Debtors andhave not been resolved. A settlement entered into on May 30, 2006, amongPepco, Mirant, Old Mirant, and various subsidiaries of Mirant, includingcertain of our subsidiaries, if approved by final order in the Chapter 11proceedings, would result in the distribution of up to 18 million of thereserved shares to Pepco, as described below in *PepcoLitigation*. Under the terms of the Plan, to the extent other suchunresolved claims are resolved now that we have emerged from bankruptcy, theclaimants will be paid from the reserved shares on the same basis as if theyhad been paid when the Plan became effective. That means that their allowedclaims will receive the same pro rata distributions of Mirant common stock,cash, or both common stock and cash as previously allowed claims in accordancewith the terms of the Plan. To the extent the aggregate amount of the payoutsdetermined to be due with respect to such disputed claims ultimately exceedsthe amount of the funded claim reserve, Mirant would have to issue additionalshares of common stock to address the shortfall, which would dilute existingMirant shareholders, and Mirant and we would have to pay additional cashamounts as necessary under the terms of the Plan to satisfy such pre-petitionclaims.

Our subsidiaries relatedto our New York business operations, Mirant New York, Mirant Bowline, MirantLovett, Hudson Valley Gas and Mirant NY-Gen, remained in bankruptcy at the endof 2006. On January 26, 2007,Mirant New York, Mirant Bowline, and Hudson Valley Gas (collectively the “EmergingNew York Entities”) filed a Supplemental Joint Chapter 11 Plan ofReorganization of the Emerging New York Entities with the Bankruptcy Court andsubsequently filed amendments to that plan (as subsequently amended, the “SupplementalPlan”). The Bankruptcy Court entered an order confirming the SupplementalPlan on March 23, 2007. The Supplemental Plan became effective on April 16,2007, resulting in the emergence from bankruptcy of the Emerging New YorkEntities. The Supplemental Plan has two main components. First, theSupplemental Plan incorporates a settlement with various New York taxjurisdictions that resolved property tax disputes related to the Lovett andBowline facilities. Second, the Supplemental Plan provides unsecured creditorsof the Emerging New York Entities with the same treatment afforded holders ofunsecured claims against us and our subsidiaries under the Plan. Such unsecuredcreditors of the Emerging New York Entities will receive their*pro rata* share of the pool of assetscreated under the Plan for the benefit of our unsecured creditors and those ofour subsidiaries.

On October 19, 2006, Mirant Lovett notified theNew York Public Service Commission, the NYISO, Orange and Rockland and certainother affected transmission and distribution companies in New York of 

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its intent to discontinueoperation of units 3 and 5 of the Lovett facility on April 30, 2007.The notice was prompted by the requirements of a June 11, 2003, ConsentDecree (the “2003 Consent Decree”) among Mirant Lovett, the State of New Yorkand the NYSDEC that requires Mirant Lovett to install certain environmentalcontrols on unit 5 of the Lovett facility, convert the unit to operateexclusively on natural gas, or discontinue operation of that unit byApril 30, 2007. The 2003 Consent Decree also requires that certainenvironmental controls be installed on unit 4 by April 30, 2008, oroperations at that unit must be discontinued. Operations at unit 3 havebeen discontinued because it is uneconomic to continue to run unit 3. OnApril 30, 2007, and May 7, 2007, Mirant Lovett entered into twotolling agreements with the New York State Office of the Attorney General andthe NYSDEC to allow the operation of unit 5 to continue on coal untilMay 14, 2007, while the parties sought to reach agreement on an amendedconsent decree. The second tolling agreement also required the temporarysuspension of operations of unit 4. Mirant Lovett has advised the New YorkPublic Service Commission, the NYISO, Orange and Rockland and other potentiallyaffected transmission and distribution companies in New York of the changes inexpected operating status of units 4 and 5. Mirant New York, Mirant Lovettand the State of New York on May 10, 2007, entered into an amendment tothe 2003 Consent Decree that switches the deadlines for units 4 and 5 sothat the deadline for compliance by unit 5 is extended untilApril 30, 2008, and the deadline for unit 4 is shortened so that itwould discontinue operation as of May 7, 2007. On May 8, 2007, MirantNew York, Mirant Lovett, Mirant Bowline, and Hudson Valley Gas also enteredinto an agreement (the “Tax Assessments Agreement”) with the Town of StonyPoint, the Town of Haverstraw, and the Village of Haverstraw to set theassessed values for the Lovett and Bowline facilities and the pipeline owned byHudson Valley Gas for 2007 and 2008 for property tax purposes at the valuesestablished for 2006 under a settlement agreement entered into by the Mirantentities and those taxing authorities in December 2006 that resolveddisputes regarding the assessed values of the facilities for 2006 and severalearlier years. The amendment to the 2003 Consent Decree was subject to theapproval of the United States District Court for the Southern District of NewYork and the Bankruptcy Court. The Tax Assessments Agreement was subject to theapproval of the Bankruptcy Court. The Bankruptcy Court approved the amendmentto the 2003 Consent Decree and the Tax Assessments Agreement on May 10,2007. The district court approved the amendment to the 2003 Consent Decree onMay 11, 2007. The timing of the filing of a plan of reorganization forMirant Lovett, and of its emergence from bankruptcy, is uncertain. Until MirantLovett emerges from bankruptcy, the Company will not have access to the cashfrom operations generated by Mirant Lovett.

Mirant NY-Gen, which ownshydroelectric facilities at Swinging Bridge, Rio and Mongaup, and smallcombustion turbine facilities at Hillburn and Shoemaker, has proceeded with theimplementation of a remediation plan for the sinkhole discovered in May 2005in the dam at the Swinging Bridge facility. The status of the remediationeffort is discussed in “*Other Contingencies*”in Note J to the consolidated financial statements. Mirant NY-Gen’s expenseshave been funded under a debtor-in-possession facility provided by MirantAmericas with the approval of, and under the supervision of, the BankruptcyCourt.

On January 31, 2007,Mirant New York entered into an agreement to sell Mirant NY-Gen to AllianceEnergy Renewables, LLC (the “Alliance Sale”). The sale price of approximately$5 million was subject to adjustments for working capital and certain ongoingdam remediation efforts at the Swinging Bridge facility. The Bankruptcy Courtapproved the Alliance Sale on March 8, 2007. On February 15, 2007,Mirant NY-Gen filed its proposed Chapter 11 Plan of Reorganization (the “MirantNY-Gen Plan”), which incorporated the Alliance Sale. The Bankruptcy Courtconfirmed the Mirant NY-Gen Plan by order dated April 27, 2007. The MirantNY-Gen Plan became effective and the Alliance Sale closed on May 7, 2007.Under the terms of the Mirant NY-Gen Plan and the confirmation order,approximately $2 million was reserved from the proceeds of the Alliance Sale topay in full all the claims outstanding against Mirant NY-Gen otherthan claims arising from the debtor-in-possession loan providedby Mirant Americas to Mirant NY-Gen and intercompany claims. Mirantguarantees were substituted for $1.6 million of the 

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amountto be reserved. The remaining sales proceeds were paid to Mirant Americas inpartial satisfaction of the $16.5 million debtor-in-possession loan, allclaims held by Mirant NY-Gen were assigned to Mirant Americas, and MirantAmericas released all of its claims and liens against Mirant NY-Gen.

***EnvironmentalMatters***

*Mirant Potomac River 2003Notice of Violation.**  *OnSeptember 10, 2003, the Virginia DEQ issued an NOV to Mirant Potomac Riveralleging that it violated its Virginia Stationary Source Permit to Operate byemitting NOx in excess of the “cap” established by the permit for the 2003summer ozone season. Mirant Potomac River responded to the NOV, asserting thatthe cap was unenforceable, noting that when the cap was made part of the permitit could comply through the purchase of emissions allowances and raising otherequitable defenses. Virginia’s civil enforcement statute provides forinjunctive relief and penalties. On January 22, 2004, the EPA issued anNOV to Mirant Potomac River alleging the same violation of its VirginiaStationary Source Permit to Operate as set out in the NOV issued by theVirginia DEQ.

On September 27,2004, Mirant Potomac River, Mirant Mid-Atlantic, the Virginia DEQ, the MDE, theDOJ and the EPA entered into, and filed for approval with the United StatesDistrict Court for the Eastern District of Virginia, a proposed consent decree(the “Original Consent Decree”) that, if approved, would have resolved MirantPotomac River’s potential liability for matters addressed in the NOVspreviously issued by the Virginia DEQ and the EPA. The Original Consent Decreewould have required Mirant Potomac River and Mirant Mid-Atlantic to (1) installpollution control equipment at the Potomac River plant in Virginia and at theMorgantown plant in Maryland leased by Mirant Mid-Atlantic, (2) complywith declining system-wide ozone season NOx emissions caps from 2004 through2010, (3) comply with system-wide annual NOx emissions caps starting in2004, (4) meet seasonal system average emissions rate targets in 2008 and (5) paycivil penalties and perform supplemental environmental projects in and aroundthe Potomac River plant expected to achieve additional environmental benefits.Except for the installation of the controls planned for the Potomac River unitsand the installation of selective catalytic reduction (“SCR”) or equivalenttechnology at Mirant Mid-Atlantic’s Morgantown units 1 and 2 in 2007 and 2008,the Original Consent Decree would not have obligated our subsidiaries toinstall specifically designated technology, but rather to reduce emissionssufficiently to meet the various NOx caps. Moreover, as to the requiredinstallations of SCRs at Morgantown, Mirant Mid-Atlantic may choose not toinstall the technology by the applicable deadlines and leave the units offeither permanently or until such time as the SCRs are installed. The OriginalConsent Decree was subject to the approval of the district court and theBankruptcy Court. As described below, the Original Consent Decree was notapproved and the parties filed an amended proposed consent decree thatsuperseded the Original Consent Decree.

On July 22,2005, the district court granted a motion filed by the City of Alexandriaseeking to intervene in the district court action, although the district courtimposed certain limitations on the City of Alexandria’s participation in theproceedings. On September 23, 2005, the City of Alexandria filed a motionseeking authority to file an amended complaint in the action seeking injunctiverelief and civil penalties under the Clean Air Act for alleged violations byMirant Potomac River of its Virginia Stationary Source Permit to Operate andthe State of Virginia’s State Implementation Plan. Based upon a computermodeling described below in *Mirant Potomac RiverDownwash Study*, the City of Alexandria asserted that emissions fromthe Potomac River plant cause or contribute to exceedances of NAAQS for SO2,NO2 and particulate matter. The City of Alexandria also contended based on itsmodeling analysis that the plant’s emissions of hydrogen chloride and hydrogenfluoride exceed Virginia state standards. Mirant Potomac River disputes theCity of Alexandria’s allegations that it has violated the Clean Air Act andVirginia law. On December 2, 2005, the district court denied the City ofAlexandria’s motion seeking to file an amended complaint.

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Inearly May 2006, the parties to the Original Consent Decree and MirantChalk Point entered into and filed for approval with the United States DistrictCourt for the Eastern District of Virginia an amended consent decree (the “AmendedConsent Decree”) to resolve Mirant Potomac River’s potential liability formatters addressed in the NOVs previously issued by the Virginia DEQ and theEPA. The Amended Consent Decree includes the requirements that were to beimposed under the terms of the Original Consent Decree as described above. Italso defines the rights and remedies of the parties in the event of a rejectionin bankruptcy or other termination of any of the long-term leases under whichMirant Mid-Atlantic leases the coal units at the Dickerson and Morgantownplants. The Amended Consent Decree provides that if Mirant Mid-Atlanticrejects or otherwise loses one or more of its leasehold interests in theMorgantown and Dickerson plants and ceases to operate one or both of theplants, Mirant Mid-Atlantic, Mirant Chalk Point and/or Mirant Potomac Riverwill (i) provide the EPA, Virginia DEQ and the MDE with the writtenagreement of the new owner or operator of the affected plant or plants to bebound by the obligations of the Amended Consent Decree and (ii) where theaffected plant is the Morgantown plant, offer to any and all prospective ownersand/or operators of the Morgantown plant to pay for completion of engineering,construction and installation of the SCRs required by the Amended ConsentDecree. If the new owner or operator of the affected plant or plants does notagree to be bound by the obligations of the Amended Consent Decree, it requiresMirant Mid-Atlantic, Mirant Chalk Point and/or Mirant Potomac River to installan alternative suite of environmental controls at the plants they continue toown. The City of Alexandria and certain individuals and organizations opposedentry of the Amended Consent Order. The Bankruptcy Court approved the AmendedConsent Decree on June 1, 2006. The district court approved the AmendedConsent Decree on April 20, 2007.

*Mirant Potomac RiverDownwash Study.**  *On September 23,2004, the Virginia DEQ and Mirant Potomac River entered into an order byconsent with respect to the Potomac River plant under which Mirant PotomacRiver agreed to perform a modeling analysis to assess the potential effect of “downwash”from the plant (1) on ambient concentrations of SO2, NO2, CO and PM10 forcomparison to the applicable NAAQS and (2) on ambient concentrations ofmercury for comparison to Virginia Standards of Performance for ToxicPollutants. Downwash is the effect that occurs when aerodynamic turbulenceinduced by nearby structures causes emissions from an elevated source, such asa smokestack, to move rapidly toward the ground resulting in higherground-level concentrations of emissions.

The computer modelinganalysis predicted that emissions from the Potomac River plant have thepotential to contribute to localized, modeled instances of exceedances of theNAAQS for SO2, NO2 and PM10 under certain conditions. Based on those results,the Virginia DEQ issued a directive to Mirant Potomac River on August 19,2005, to undertake immediately such action as was necessary to ensureprotection of human health and the environment and eliminate NAAQS exceedances.On August 24, 2005, power production at all five units of the Potomac Rivergenerating facility was temporarily halted in response to the directive fromthe Virginia DEQ. On August 25, 2005,the District of Columbia Public Service Commission filed an emergency petitionand complaint with the FERC and the DOE to prevent the shutdown of the PotomacRiver facility. The matter remains pending before the FERC and the DOE. On December 20,2005, due to a determination by the DOE that an emergency situation existedwith respect to the reliability of the supply of electricity to centralWashington, D.C., the DOE ordered Mirant Potomac River to generate electricityat the Potomac River generating facility, as requested by PJM, during anyperiod in which one or both of the transmission lines serving the centralWashington, D.C. area are out of service due to a planned or unplanned outage.In addition, the DOE ordered Mirant Potomac River, at all other times, forelectric reliability purposes, to keep as many units in operation as possibleand to reduce the start-up time of units not in operation without contributingto any NAAQS exceedances. The DOE required Mirant Potomac River to submit aplan, on or before December 30, 2005, that met these requirements. Theorder further provides that Mirant Potomac River and its customers should agreeto mutually satisfactory terms for any costs incurred by it under this order orjust and reasonable terms shall 

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be established by a supplemental order. Certain partiesfiled for rehearing of the DOE order, and on February 17, 2006, the DOEissued an order granting rehearing solely for purposes of considering furtherthe rehearing requests. Mirant Potomac River submitted an operating plan inaccordance with the order. On January 4, 2006, the DOE issued an interimresponse to Mirant Potomac River’s operating plan authorizing operation of theunits of the Potomac River generating facility on a reduced basis, but makingit possible to bring the entire plant into service within approximately 28hours when necessary for reliability purposes. The DOE’s order expires July 1,2007.

In aletter received December 30, 2005, the EPA invited Mirant Potomac Riverand the Virginia DEQ to work with the EPA to ensure that Mirant Potomac River’soperating plan submitted to the DOE adequately addressed NAAQS issues. The EPAalso asserted in its letter that Mirant Potomac River did not immediatelyundertake action as directed by the Virginia DEQ’s August 19, 2005, letterand failed to comply with the requirements of the Virginia State ImplementationPlan established by that letter. Mirant Potomac River received a second letterfrom the EPA on December 30, 2005, requiring Mirant to provide certainrequested information as part of an EPA investigation to determine the CleanAir Act compliance status of the Potomac River generating facility.

**On June 1,2006, Mirant Potomac River and the EPA executed an ACO by Consent to resolvethe EPA’s allegations that Mirant Potomac River violated the Clean Air Act bynot immediately shutting down all units at the Potomac River facility uponreceipt of the Virginia DEQ’s August 19, 2005, letter and to assure anacceptable level of reliability to the District of Columbia. The ACO (i) specifiescertain operating scenarios and SO2 emissions limits for the Potomac Riverfacility, which scenarios and limits take into account whether one or both ofthe 230kV transmission lines serving Washington, D.C. are out of service; (ii) requiresthe operation of trona injection units to reduce SO2 emissions; and (iii) requiresMirant Potomac River to undertake a model evaluation study to predict ambientair quality impacts from the facility’s operations. In accordance with thespecified operating scenarios, the ACO permits the facility to operate using adaily predictive modeling protocol. This protocol allows Mirant Potomac Riverto schedule the facility’s level of operations based on whether computermodeling predicts a NAAQS exceedance, based on weather and certain operatingparameters. On June 2, 2006, the DOE issued a letter modifying its January 6,2006, order to direct Mirant Potomac River to comply with the ACO in order toensure adequate electric reliability to the District of Columbia. MirantPotomac River is operating the Potomac River facility in accordance with theACO and has been able to operate all five units of the facility most of thetime under the ACO. This ACO expires on June 1, 2007. Mirant Potomac Riveris in discussions with the Virginia DEQ and the Virginia State Air PollutionControl Board to determine the manner in which the Potomac River facility willbe permitted to operate after the ACO expires.**

*Mirant Potomac River NAAQSExceedance.**  *On March 23, 2007, the Virginia DEQ issuedan NOV to Mirant Potomac River alleging that it violated Virginia’s AirPollution Control Law and regulations on February 23, 2007, by operatingthe Potomac River facility in a manner that resulted in a monitored exceedancein a twenty-four hour period of the NAAQS for SO2. As noted in the NOV, MirantPotomac River was operating on February 23, 2007, under the direction of PJMin accordance with the DOE order described above in Mirant Potomac River 2003NOV during a scheduled outage of the Pepco transmission lines servingWashington, D.C. The NOV asserts that plant operators did not implementappropriate actions to minimize SO2 emissions. The NOV did not seek aspecific penalty amount but noted that the violations identified could subjectMirant Mid-Atlantic to civil penalties of varying amounts under differentprovisions of the Virginia Code, including a potential civil fine of up to$100,000.

*Lovett/Bowline SPDESNotices of Violation.*   On March 8, 2007, Mirant Lovett and Mirant Bowline receivedNotices of Violation from the NYSDEC alleging certain violations of their SPDESpermits. On April 6, 2007, the NYSDEC filed a complaint against MirantLovett and Mirant Bowline based on these 

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allegations. The complaint seeks a penalty of $500,000. Mirant Lovett andMirant Bowline have not yet responded to the complaint.

***City of AlexandriaZoning Action***

On December 18, 2004,the City Council for the City of Alexandria, Virginia (the “City Council”)adopted certain zoning ordinance amendments that resulted in the zoning statusof Mirant Potomac River’s generating plant being changed from “noncomplying use”to “nonconforming use subject to abatement.” Under the nonconforming usestatus, unless Mirant Potomac River applied for and received a special usepermit for the plant during the seven-year abatement period, the operation ofthe plant would have had to be terminated within a seven-year period, and noalterations that directly prolonged the life of the plant would be permittedduring the seven-year period. The City Council also approved revocation of twospecial use permits issued in 1989 (the “1989 SUPs”), one applicable to theadministrative office space at Mirant Potomac River’s plant and the other forthe plant’s transportation management plan.

On January 18, 2005,Mirant Potomac River and Mirant Mid-Atlantic filed a complaint against the Cityof Alexandria and the City Council in the Circuit Court for the City ofAlexandria seeking to overturn the actions taken by the City Council on December 18,2004, on the grounds that those actions violated federal, state and city laws.On February 24, 2006, the court entered judgment in favor of MirantPotomac River and Mirant Mid-Atlantic declaring the change in the zoning statusof Mirant Potomac River’s generating plant to be invalid and vacating the CityCouncil’s revocation of the 1989 SUPs. On April 20, 2007, the VirginiaSupreme Court affirmed the rulings by the trial court. The City of Alexandriahas indicated that it intends to file a motion for rehearing with the VirginiaSupreme Court.

There have been no othermaterial developments in legal proceedings involving the Company or itssubsidiaries since those reported in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2006.

**Item1A.**   *Risk Factors*

There have been nomaterial changes in risk factors since those reported in Mirant AmericasGeneration’s Annual Report on Form 10-K for the year ended December 31,2006.

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**Item 6.**                        *Exhibits*

(a)      Exhibits

| Exhibit  Number | ** ** | **Exhibit Name**                                                                                                                                                                                                                                                           |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1             | *          | Purchase and Sale Agreement, dated as of January 15, 2007, by  and between Mirant Americas, Inc. and LS Power (Designated on  Form 8-K dated January 18, 2007 as Exhibit 2.1)                                                                          |
| 3.1             | *          | Certificate of Formation  for Mirant Americas Generation, LLC, filed with the Delaware Secretary  of State on November 1, 2001(designated in Mirant Americas  Generation, LLC Form 10-Q for the Quarter Ended  September 30, 2001 as Exhibit 3.1) |
| 3.2             | *          | Amended and Restated  Limited Liability Company Agreement for Mirant Americas Generation, LLC dated  January 3, 2006 (designated on Form10-Q for the quarter ended  September 30, 2006, as Exhibit 3.2)                                                          |
| 4.1   |       | Form of Seventh  Supplemental Indenture                                                                                                                                                                                                                                    |
| 10.1            |       | Membership Interest  Purchase and Sale Agreement, dated as of January 31, 2007, by and  between Mirant New York, Inc. and Alliance Energy Renewables, LLC                                                                                                             |
| 31.1            |       | Certification of Chief  Executive Officer Pursuant to 15 U.S.C. Section 7241, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a))                                                                                             |
| 31.2            |       | Certification of Chief  Financial Officer Pursuant to 15 U.S.C. Section 7241, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a))                                                                                             |
| 32.1            |       | Certification of the  Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (Rule 13a-14(b))                                                                                   |
| 32.2            |       | Certification of the  Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (Rule 13a-14(b))                                                                                   |

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*    Asteriskindicates exhibits incorporated by reference.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized, on this 14th day of May, 2007.

|          |     |     | Mirant Americas Generation, LLC |
|----------|----------|----------|---------------------------------|
|     |     |     |                            |   |
|     |     |     |                            |   |
|          |     |     |                            |   |
|     |     |     | By:                             | /s/ THOMAS  E. LEGRO |
|     |     |     |                            | Thomas E. Legro |
| * * | * * | * * | * *                        | *Senior Vice President and Controller* |
| * * | * * | * * | * *                        | *(Principal Accounting Officer)* |

 

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